<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-86557
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BROADVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3184303
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
585 BROADWAY
REDWOOD CITY, CALIFORNIA 94063
(650) 261-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PEHONG CHEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BROADVISION, INC.
585 BROADWAY, REDWOOD CITY, CALIFORNIA 94063
(650) 261-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. GUERNSEY NORA L. GIBSON
JAMIE E. CHUNG DAVID A. MAKARECHIAN
VIRGINIA C. EDWARDS VAHE H. SARRAFIAN
COOLEY GODWARD LLP KIMBERLEY E. HENNINGSEN
ONE MARITIME PLAZA, 20TH FLOOR BROBECK, PHLEGER & HARRISON LLP
SAN FRANCISCO, CA 94111 TWO EMBARCADERO PLACE
(415) 693-2000 2200 GENG ROAD
PALO ALTO, CA 94303
(650) 424-0160
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED OCTOBER 22, 1999.
2,250,000 Shares
LOGO
BROADVISION, INC.
Common Stock
----------------------
This is an offering of shares of common stock of BroadVision, Inc. This
prospectus relates to an offering of 1,125,000 shares in the United States. In
addition, 1,125,000 shares are being offered outside the United States in an
international offering. All of the 2,250,000 shares of common stock are being
sold by BroadVision.
The common stock is quoted on the Nasdaq National Market under the symbol
"BVSN." The last reported sale price of the common stock on October 20, 1999 on
the Nasdaq National Market was $60.58 per share. Application has been made to
list the common stock on the Neuer Markt segment of the Frankfurt Stock
Exchange.
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial price to public..................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to BroadVision................... $ $
</TABLE>
To the extent that the underwriters sell more than 2,250,000 shares of
common stock, the underwriters have the option to purchase up to an additional
337,500 shares from BroadVision at the initial price to public less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York and Frankfurt, Germany on , 1999.
Joint Lead Managers
GOLDMAN, SACHS & CO. ROBERTSON STEPHENS
----------------------
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
BANC OF AMERICA SECURITIES LLC
COMMERZBANK CAPITAL MARKETS CORP.
FRIEDMAN BILLINGS RAMSEY
----------------------
Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the common stock. You should read the entire prospectus
carefully, especially the risks of investing in the common stock discussed under
the Risk Factors.
BROADVISION
We develop, market and support application software solutions for
one-to-one relationship management across the extended enterprise. These
solutions enable businesses to use the Internet as a platform to conduct
electronic commerce, offer online customer self-service and support, deliver
targeted information and provide online financial services. Each of these
capabilities can be provided to all constituents of the extended enterprise,
including: customers, suppliers, partners, distributors and employees. The
BroadVision One-To-One product suite allows businesses to tailor their Web site
content to the needs and interests of individual users by personalizing each
visit on a real-time basis. Our applications interactively capture Web site
visitor profile information, organize the enterprise's content, target that
content to each visitor based on easily constructed business rules, and execute
transactions. We believe the benefits of these applications include enhanced
customer satisfaction and loyalty, increased business volume, greater brand
awareness, reduced costs to execute transactions and to service customers, and
enhanced employee productivity.
The emergence of the Internet as a globally accessible, interactive and
individually addressable communications and computing platform has provided
businesses with the opportunity to implement one-to-one relationship management
on a mass basis. We believe that to capitalize fully on this opportunity,
businesses require flexible, robust and scalable packaged software solutions
that are easier to develop, implement, and maintain, integrate more easily with
existing business systems, and offer faster time to market and richer
functionality than solutions built from low-level development tools.
Accordingly, we are focusing exclusively on developing packaged applications and
related services to enable effective one-to-one relationship management
throughout the extended enterprise. We currently offer our core product,
BroadVision One-To-One Enterprise, and four related application
products -- BroadVision One-To-One Retail Commerce, BroadVision One-To-One
Business Commerce, BroadVision One-To-One Financial and BroadVision One-To-One
Knowledge -- together with easy-to-use tools enabling our customers to develop
and manage their applications.
As of September 30, 1999, we have licensed our products to over 335
end-user customers and 100 partners worldwide. These customers and partners have
used our products to implement a variety of applications, including product
merchandising, financial services and corporate knowledge management. Our
customers have commercially deployed over 180 Web sites using our products. We
target Global 2000 organizations, and our current customers include American
Airlines, Banco Santander, Electronic Arts, Hewlett-Packard, The Home Depot,
Macromedia, Nortel Networks, Solectron, TELUS, Virgin, Wal-Mart and Xerox USA.
In addition, we target pure-play Internet companies, including chipshot.com,
e-STEEL, Mercata, Outpost.com and Pets.com.
We maintain operations worldwide to sell and support our products through a
direct sales force and reseller partners. To accelerate the acceptance of our
applications solutions, we are enhancing our products and broadening our
professional services capabilities. We have also developed key strategic
business alliances with over 100 systems integration, design, consulting and
other services organizations throughout the world, such as Andersen Consulting,
ASE/Broadiant, Cambridge Technology Partners, Ernst & Young, GranVia Internet,
Hewlett-Packard, Itochu, NTT Data, Security First and Sema.
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<PAGE> 4
CORPORATE INFORMATION
We were incorporated in Delaware in May 1993 and our fiscal year is on a
calendar year basis. Our principal executive offices are located at 585
Broadway, Redwood City, California 94063, and our telephone number in the United
States is (650) 261-5100. Our Web site is located at http://www.broadvision.com.
Information contained in our Web site shall not be deemed to be a part of this
prospectus. Our corporate purpose, as set forth in our Restated Certificate, is
to engage in any lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware.
BroadVision(R) and BroadVision One-To-One(R) are our registered trademarks.
Trade names and trademarks of other companies appearing in this prospectus are
the property of their respective holders.
THE OFFERINGS
Common Stock:
U.S. offering................. 1,125,000 shares
International offering........ 1,125,000 shares
Total...................... 2,250,000 shares
Shares to be outstanding after
the offering.................... 79,719,312 shares
Use of Proceeds................. For general corporate purposes, principally
working capital and capital expenditures.
Nasdaq National Market symbol... "BVSN"
We have applied to list the common stock on the Neuer Markt segment of the
Frankfurt Stock Exchange under the symbol "BDN".
Shares to be outstanding after the offering is based on common stock
outstanding on October 22, 1999, and excludes as of October 22, 1999:
- 17,372,697 shares subject to outstanding options at a weighted average
exercise price of approximately $11.21 per share; and
- 55,101 shares of common stock issuable upon exercise of outstanding
warrants at an exercise price of $2.83 per share.
4
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses............................. $ -- $ -- $ 7,464 $18,973 $36,067 $15,297 $28,267
Services...................................... -- 540 3,418 8,132 14,844 6,167 13,673
------- ------- -------- ------- ------- ------- -------
Total revenues.......................... -- 540 10,882 27,105 50,911 21,464 41,940
Total cost of revenues.......................... -- 249 2,494 5,948 9,705 4,111 9,729
------- ------- -------- ------- ------- ------- -------
Gross profit.................................... -- 291 8,388 21,157 41,206 17,353 32,211
Total operating expenses........................ 1,771 4,769 19,085 28,795 39,282 17,772 26,735
------- ------- -------- ------- ------- ------- -------
Operating income (loss)......................... (1,771) (4,478) (10,697) (7,638) 1,924 (419) 5,476
Other........................................... 101 160 552 265 2,115 613 776
------- ------- -------- ------- ------- ------- -------
Net income (loss)............................... $(1,670) $(4,318) $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252
======= ======= ======== ======= ======= ======= =======
Basic earnings (loss) per share................. $ (0.12) $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08
======= ======== ======= ======= ======= =======
Shares used in computation -- basic earnings
(loss) per share.............................. 35,928 56,445 60,624 70,038 66,732 74,658
======= ======== ======= ======= ======= =======
Diluted earnings (loss) per share............... $ (0.12) $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07
======= ======== ======= ======= ======= =======
Shares used in computation -- diluted earnings
(loss) per share.............................. 35,928 56,445 60,624 76,959 74,457 83,838
======= ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 53,735 $179,950
Working capital............................................. 72,651 198,866
Total assets................................................ 137,198 263,413
Debt and capital lease obligations, less current portion.... 2,616 2,616
Accumulated deficit......................................... (13,351) (13,351)
Total stockholders' equity.................................. 108,812 235,027
</TABLE>
Consolidated balance sheet data is presented on an actual basis and as
adjusted to give effect to the sale of the 2,250,000 shares of common stock we
are offering hereby, at an assumed public offering price of $60.58 per share,
after deducting the estimated underwriting discounts and estimated offering
expenses.
Unless otherwise indicated, all information in this prospectus (i) assumes
the underwriters' option to purchase additional shares in the offering will not
be exercised and (ii) reflects a three for one stock split in the form of a two
for one stock dividend, which will be completed on October 25, 1999. References
in this prospectus to "BroadVision", "we", "our", "us" and the "company" refer
to BroadVision, Inc.
5
<PAGE> 6
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial also may impair our business operations.
If any of the following risks actually occur, our business could be harmed. In
that event, the trading price of our common stock could decline, and you may
lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE
Our quarterly operating results have in the past and may in the future
fluctuate significantly as a result of a variety of factors, many of which are
outside our control. It is likely that our operating results in one or more
future quarters may be below the expectations of securities analysts and
investors. In that event, the trading price of our common stock would almost
certainly decline.
Factors that may affect our quarterly operating results include the
following:
- the timing of introductions or enhancements of products and services by
us or our competitors;
- market acceptance of new products;
- the mix of our products sold;
- changes in pricing policies by us or our competitors;
- changes in our sales incentive plans;
- the budgeting cycles of our customers;
- customer order deferrals in anticipation of new products or enhancements
by us or our competitors;
- nonrenewal of service agreements (which generally automatically renew for
one-year terms unless earlier terminated by either party upon 90-days
notice);
- product life cycles;
- changes in strategy;
- seasonal trends;
- the mix of distribution channels through which our products are sold;
- the mix of international and domestic sales;
- the rate at which new sales people become productive; and
- changes in the level of operating expenses to support projected growth.
In addition, we anticipate that a significant portion of our revenues will
be derived from a limited number of orders. We expect that the timing of receipt
and fulfillment of any of these orders will cause our quarterly operating
results to fluctuate. We anticipate that we will make the major portion of each
quarter's product deliveries near the end of each quarter. As a result, short
delays in product deliveries at the end of a quarter could harm operating
results for that quarter.
Due to these and other factors, our quarterly revenues and operating
results are difficult to forecast accurately. We believe that period-to-period
comparisons of our operating results may not be meaningful and you should not
rely upon them as any indication of future performance.
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<PAGE> 7
OUR REPUTATION AND REVENUES WOULD BE HARMED IF WE EXPERIENCE ANY ISSUES WITH OUR
BROADVISION ONE-TO-ONE ENTERPRISE PRODUCT SUITE AND RELATED SERVICES
To date, substantially all of our revenues have been attributable to
license sales of the BroadVision One-To-One Enterprise product and related
packaged application products and associated services. We currently expect these
products and services to account for most of our future revenues. If any of our
customers are unable to successfully develop and deploy an online marketplace
using our BroadVision One-To-One application products, our reputation could be
damaged, which could harm our business. In addition, factors negatively
affecting the pricing of or demand for the BroadVision One-To-One application
products, such as increased competition or rapid technological change, could
cause our revenues to decline.
OUR FUTURE FINANCIAL PERFORMANCE IS LARGELY DEPENDENT ON THE SUCCESSFUL
UPGRADING OF OUR CURRENT PRODUCTS AND INTRODUCING NEW PRODUCTS
Our future financial performance will depend, in significant part, on our
successful development and sale of new and enhanced versions of the BroadVision
One-To-One application products and other new products. We may be unable to
upgrade and continue to market the BroadVision One-To-One application products.
We may not be able to successfully develop new products and new products may not
achieve market acceptance.
OUR LENGTHY SALES AND PRODUCT IMPLEMENTATION CYCLES COULD CAUSE DELAYS IN
REVENUE RECOGNITION AND MAKE IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS
Our sales and product implementation cycles are subject to delays over
which we have little or no control. These delays can affect the timing of
revenue recognition and make it difficult to predict our quarterly results.
Licensing our BroadVision One-to-One application products is often an
enterprise-wide decision by prospective customers. The importance of this
decision requires us to engage in a lengthy sales cycle with prospective
customers. During the sales process, we provide a significant level of education
regarding the uses and benefits of our products. Once the decision has been made
to implement our products, our customers or our Worldwide Professional Services
Organization consultants must then commit significant resources over an extended
period of time. In many cases, we expect to recognize a substantial portion of
the revenue related to the sale of our products upon the customer's deployment
or production of the products licensed from us. Delays in license transactions
due to unusually lengthy sales cycles, delays in customer production or delays
in deploying our products could harm our business and can be expected to cause
our operating results to vary significantly from quarter to quarter.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS IN ITS EARLY STAGES OF DEVELOPMENT
AND MAY FAIL TO MATURE INTO A SUSTAINABLE MARKET
Our products and services facilitate online commerce and communication over
public and private networks. The market for these products and services is in
its early stages of development and is rapidly evolving, and a viable market may
fail to emerge or be sustainable. We cannot predict the level of demand and
market acceptance for our products and services, especially because acquisition
of our products and services requires a large capital or other significant
resource commitment. If the market for our products and services does not
continue to mature, our business will be harmed.
Adoption of electronic commerce and knowledge management, particularly by
those individuals and companies that have historically relied upon traditional
means of commerce and communication, will require a broad acceptance of new and
different methods of conducting business and exchanging information. Our future
revenues and profits will substantially depend on the Internet being accepted
and widely used for commerce and communication. If Internet
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<PAGE> 8
commerce does not continue to grow or grows more slowly than expected, our
business will be harmed. In the emerging marketplace of Internet commerce, our
products and services involve a new approach to the conduct of online business.
As a result, intensive marketing and sales efforts may be necessary to educate
prospective customers regarding the uses and benefits of our products and
services, thereby generating demand. Companies that have already invested
substantial resources in other methods of conducting business may be reluctant
to adopt a new approach that may replace, limit or compete with their existing
systems. Similarly, purchasers with established patterns of commerce may be
reluctant to alter those patterns or may otherwise resist providing the personal
data necessary to support our consumer profiling capability. In addition, the
security and privacy concerns of existing and potential online purchasers may
inhibit the growth of online business generally and the market's acceptance of
our products and services in particular. Accordingly, a viable market for our
products and services may not emerge or be sustainable.
A BREACH OF THE ENCRYPTION TECHNOLOGY THAT WE USE COULD EXPOSE US TO LIABILITY,
HARM OUR REPUTATION OR OTHERWISE HARM OUR BUSINESS
If any breach of our security were to occur, we would be exposed to
liability, and our reputation and business could be harmed. A significant
barrier to online commerce and communication is the secure exchange of value and
confidential information over public networks. We rely on encryption and
authentication technology, including public key cryptography technology licensed
from RSA, to provide the security and authentication necessary to effect the
secure exchange of confidential information. Advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
could cause a breach of the RSA or other algorithms that we use to protect
customer transaction data.
OUR PRODUCTS ARE ESPECIALLY SUSCEPTIBLE TO PRODUCT DEFECTS BECAUSE THEY ARE
COMPLEX
Sophisticated software products, like ours, may contain undetected errors
that will not become apparent until after the products are introduced or when
the volume of provided services increases. It is possible that, despite testing
by us and prospective customers, errors will be found in our products. Product
defects could result in all or any of the following consequences to our
business:
- loss of revenues;
- delay in market acceptance;
- diversion of development resources;
- damage to our reputation; or
- increased service and warranty costs.
WE ARE CONTINUING TO SUBSTANTIALLY EXPAND OUR BUSINESS AND OPERATIONS, AND WE
MUST EFFECTIVELY MANAGE AND SUPPORT THIS EXPANSION
We have substantially expanded our business and operations since our
inception in 1993. We expect to continue to experience periods of rapid change.
If we are unable to support this growth effectively, we will have to divert
additional resources away from expanding our business and toward internal
administration. Our past expansion has placed, and any future expansion would
place, significant demands on our administrative, operational, financial and
other resources. We expect operating expenses and staffing levels to increase
substantially in the future. In particular, we intend to continue hiring a
significant number of additional personnel this year and in later years. We also
expect to expend resources on expanding accounting and internal management
systems and implementing a variety of new systems and procedures. If our
revenues do not increase in proportion to our operating expenses, our management
systems do
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<PAGE> 9
not expand to meet increasing demands or our management otherwise fails to
support our expansion effectively, our business will harmed.
WE ARE DEPENDENT ON DIRECT SALES PERSONNEL AND THIRD-PARTY DISTRIBUTION CHANNELS
TO ACHIEVE REVENUE GROWTH
To date, we have sold our products primarily through our direct sales
force. Our ability to achieve significant revenue growth in the future will
largely depend on our success in recruiting and training sufficient direct sales
personnel and establishing and maintaining relationships with distributors,
resellers and systems integrators. Our products and services require a
sophisticated sales effort targeted at the senior management of our prospective
customers. New hires require training and take time to achieve full
productivity. Our recent hires may not become as productive as necessary, and we
may be unable to hire sufficient numbers of qualified individuals in the future.
We have entered into strategic alliance agreements with certain partners,
including Hewlett-Packard, Sema and Security First, under which these partners
have agreed to resell and support our current BroadVision One-to-One product
suite. These contracts are generally terminable by either party upon 30 days
notice of an uncured material breach. Termination of the Hewlett-Packard, Sema,
Security First or other similar alliances could harm our business. We cannot be
certain that we will successfully expand our other distribution channels or that
any expansion will result in revenue increases. If we fail to expand our direct
sales force or other distribution channels, our revenues may not grow or they
may decline.
OUR CUSTOMERS MAY RELY ON THIRD-PARTY SYSTEMS INTEGRATORS FOR THE SUCCESS OF
ONLINE MARKETPLACES
Our prospective customers may rely on third-party systems integrators to
develop, deploy and manage online marketplaces. If we are unable to adequately
train a sufficient number of systems integrators or if, for any reason, a large
number of these integrators adopt a different product or technology instead of
the BroadVision One-To-One application products, our business could be harmed.
WE ARE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Our international activities expose us to numerous additional risks. In the
year ended December 31, 1998 approximately 42% and in the six months ended June
30, 1999 approximately 29% of our total revenues were derived from sales outside
of North America. We currently have nine offices in Europe and Asia. A key
component of our business strategy is to expand our international activities.
Reflecting our commitment to a significant international presence, we have
applied to list our shares of common stock on the Neuer Markt segment of the
Frankfurt Stock Exchange. As we continue to expand internationally, we are
increasingly subject to risks of doing business internationally, including the
following:
- 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 and economic instability;
- fluctuations in currency exchange rates;
- reduced protection for intellectual property rights in some countries;
- cultural barriers;
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<PAGE> 10
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
- potentially adverse tax consequences.
Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support, hire additional personnel, customize products for local
markets and develop relationships with international service providers,
distributors and system integrators. Even if we are able to successfully expand
international operations, we cannot be certain that we will succeed in
maintaining or expanding international market demand for our products.
OUR SUCCESS AND COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO PROTECT OUR
PROPRIETARY TECHNOLOGY
It is essential to the success of our business that we adequately protect
our proprietary technology. Although we hold a U.S. patent, issued in January
1998, on elements of our BroadVision One-To-One Enterprise product, we cannot be
certain that this patent will provide an adequate level of intellectual property
protection. For example, we filed a lawsuit against Art Technology Group, or
ATG, on December 11, 1998, claiming infringement of U.S. Patent No. 5,710,887
and seeking injunctive relief and unspecified damages. On February 3, 1999, ATG
filed an answer and counterclaimed against us seeking judgment for
non-infringement and invalidity of the patent. Our patent claim may not succeed
or our patent may be invalidated. Trial is set for October 16, 2000.
We have also relied on copyright, trade secret and trademark law to protect
our technology. We have registered "BroadVision" and "BroadVision One-To-One" as
trademarks in the United States. It is possible that our competitors or other
companies will adopt product names similar to "One-To-One," thereby impeding our
ability to build brand identity and possibly confusing customers. We provide our
products to end users generally under nonexclusive, nontransferable licenses
during the term of the relevant agreement, which is usually in perpetuity. We
make the source code available for some portions of our products. We protect the
source code for our proprietary software both as a trade secret and as a
copyrighted work. However, disclosing the source code may increase the
likelihood of third-party misappropriation.
As a matter of company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products is difficult, particularly because the
global nature of the Internet makes it difficult to control the ultimate
destination or security of software and other transmitted data. The laws of
other countries may afford us little or no effective protection of our
intellectual property. The steps we have taken to prevent misappropriation of
our technology, including entering into agreements for that purpose, may be
insufficient. In addition, litigation like the lawsuit against ATG may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement or invalidity. Litigation
like this, whether successful or unsuccessful, could result in substantial costs
and diversions of our management resources, either of which could harm our
business.
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WE ARE SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT, WHICH COULD
DIVERT MANAGEMENT RESOURCES AND HARM OUR REPUTATION
Third parties may claim that we have infringed their patent, trademark,
copyright or other proprietary rights. It is also possible that claims will be
made for indemnification resulting from allegations of infringement. Claims like
these could divert management attention, affect our reputation and otherwise
harm our business. In addition, intellectual property claims may be asserted
against us as a result of the use by us, our customers or other third parties of
our products for the transmission, dissemination or display of information on
the Internet. Any claims, with or without merit, could be time consuming,
costly, cause product shipment delays or require that we enter into royalty or
licensing agreements. These licenses might not be available on reasonable terms,
or at all. As a result, any claim like this could harm our business.
THE LOSS OR MALFUNCTION OF TECHNOLOGY LICENSED FROM THIRD PARTIES COULD DELAY
OUR PRODUCT SHIPMENTS
We rely in part on technology that we license from third parties, including
relational database management systems from Oracle and Sybase, object request
broker software from IONA Technologies, database access technology from Rogue
Wave and other software. We integrate this technology with internally developed
software to perform key functions. For example, our products and services
incorporate data encryption and authentication technology licensed from RSA.
These third-party technology licenses might not continue to be available to us
on commercially reasonable terms, or at all. This technology may contain defects
that we cannot control. The loss of any of these technology licenses could cause
delays in introducing our products or services until equivalent technology, if
available, is identified, licensed and integrated. Delays in introducing our
products and services could harm our business.
OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES ARE CRITICAL TO OUR BUSINESS, AND THEY
MAY NOT REMAIN WITH US IN THE FUTURE
Our performance substantially depends on the performance of our executive
officers and key employees. We rely on our ability to retain and motivate highly
qualified personnel, especially our management and highly skilled development
teams. The loss of the services of any of our executive officers or key
employees, particularly our founder and Chief Executive Officer, Dr. Pehong
Chen, could cause us to incur increased operating expenses and divert senior
management resources in searching for replacements. The loss of their services
could also harm our reputation if our customers were to become concerned about
our future operations. We do not have "key person" life insurance policies on
any of our employees. Our future success also depends on our continuing ability
to identify, hire, train and retain other highly qualified technical and
managerial personnel. Competition for these personnel is intense, especially in
the Internet industry. We have in the past experienced, and we expect to
continue to experience, difficulty in hiring and retaining sufficient numbers of
highly skilled employees as a result of our substantial growth and expansion.
OUR BUSINESS COULD BE HARMED BY YEAR 2000 COMPLIANCE ISSUES
Many currently installed computer systems and software products are not
capable of distinguishing 21st century dates from 20th century dates. As a
result, in less than a year, computer systems and software products with
embedded technology used by many companies may need to be upgraded to comply
with these "Year 2000" requirements. This type of Year 2000 error could
potentially cause system failures or miscalculations that could disrupt
operations, including among other things a temporary inability to process
transactions, issue invoices or engage in similar normal business activities.
The most likely worst-case scenarios could include hardware failure and the
failure of infrastructure services provided by government
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<PAGE> 12
agencies and other third parties, such as electricity, telephone service, water
transport and Internet services.
Undetected Year 2000 errors or defects could result in delay or loss of
revenue, diversion of development resources, damage to our reputation and
increased service and warranty costs. We believe that the purchasing patterns of
customers could potentially be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products like ours. Other systems or software used by our
customers may not be Year 2000 compliant. The failure of noncompliant
third-party software or systems could affect the perceived performance of our
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance".
RISKS RELATED TO THE INTERNET INDUSTRY
LIMITATIONS ON THE ONLINE COLLECTION OF PROFILE INFORMATION COULD IMPAIR THE
EFFECTIVENESS OF OUR PRODUCTS
Online users' resistance to providing personal data and laws and
regulations prohibiting use of personal data gathered online without express
consent or requiring businesses to notify their Web site visitors of the
possible dissemination of their personal data could limit the effectiveness of
our products. One of the principal features of the BroadVision One-To-One
application products is the ability to develop and maintain profiles of online
users to assist business managers in determining the nature of the content to be
provided to these online users. Typically, profile information is captured when
consumers, business customers and employees visit a Web site and volunteer
information in response to survey questions concerning their backgrounds,
interests and preferences. Profiles are augmented over time through the
subsequent collection of usage data. Although BroadVision One-To-One products
are 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 resist
providing the personal data necessary to support this profiling capability. The
mere perception by prospective customers that substantial security and privacy
concerns exist among online users, whether or not valid, may indirectly inhibit
market acceptance of our products. In addition, new laws and regulations could
heighten privacy concerns by requiring businesses to notify Web site users that
the data captured from them while online may be used by marketing entities to
direct product messages to them. While we are not aware of any laws or
regulations like this currently in effect or in development in the United
States, other countries and political entities, including the European Union and
its member states, have adopted legal requirements imposing restrictions on the
collection, use and processing of personal data. It is possible that similar
legal requirements could be adopted in the United States. If the privacy
concerns of consumers are not adequately addressed, the effectiveness of our
BroadVision One-to-One application products could be impaired.
IF WE ARE UNABLE TO MEET THE RAPID TECHNOLOGICAL CHANGES IN ONLINE COMMERCE AND
COMMUNICATION, OUR EXISTING PRODUCTS AND SERVICES COULD BECOME OBSOLETE
Our products and services may fail to be competitive if we do not maintain
or exceed the pace of technological developments in Internet commerce and
communication. 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 evolving industry standards and practices. The introduction of products and
services embodying new technologies and the emergence of new industry standards
and
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<PAGE> 13
practices can render existing products and services obsolete. Our future success
will depend, in part, on our ability to do the following:
- develop leading technologies;
- enhance our existing products and services;
- develop new products and services that address the increasingly
sophisticated and varied needs of our prospective customers; and
- respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis.
Internet commerce technology is complex and new products and enhancements
can require long development periods. If we are unable to develop and introduce
new products and services or enhancements in a timely manner in response to
changing market conditions or customer requirements, or if new products and
services do not achieve market acceptance, our business will suffer.
CURRENT AND POTENTIAL COMPETITORS COULD MAKE IT DIFFICULT FOR US TO ACQUIRE AND
RETAIN CUSTOMERS NOW AND IN THE FUTURE
If we fail to compete successfully with current or future competitors, we
may lose market share. The market for online interactive one-to-one applications
is rapidly evolving and intensely competitive. Our customers' requirements and
the technology available to satisfy those requirements continually change. We
expect competition in this market to persist and increase in the future. Our
primary competition includes the following:
- in-house development efforts by prospective customers or partners;
- other vendors of application software or application development
platforms and tools directed at interactive commerce and financial
services, such as ATG, InterWorld, Open Market and Vignette;
- Web content developers that develop custom software or integrate other
application software into custom solutions;
- International Business Machines; and
- Microsoft.
Compared to us, many of these and other competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources. As a result, they may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements. Many of these
companies can also use their greater name recognition and more extensive
customer base to gain market share at our expense. Competitors may be able to
undertake more extensive promotional activities, adopt more aggressive pricing
policies and offer more attractive terms to purchasers than we can. Some of our
current and potential competitors, such as IBM and Microsoft, may bundle their
products to discourage users from purchasing our products. In addition,
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. Competitive pressures may make it
difficult for us to acquire and retain customers, and it may require us to
reduce the price of our products. We may be unable to compete successfully with
current or new competitors.
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<PAGE> 14
NEW AND EXISTING LAWS COULD EITHER DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY
AFFECT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET COMMERCE
The adoption of any laws or regulations that restrict our methods of doing
business or limit the growth of the Internet could decrease demand for our
products and services and increase our cost of doing business. Today, there are
relatively few laws specifically directed towards online services. However, due
to the increasing popularity of the Internet generally and Internet commerce
specifically, we expect that federal, state or foreign agencies will enact laws
and regulations with respect to the Internet. These new laws and regulations
would be likely to address issues like online user privacy, pricing, content and
quality of products and services. If enacted, these laws and regulations could
limit the market for our products and services, which could harm our business.
For example, because our products involve the solicitation of personal data
regarding individual consumers, our business could be limited by laws regulating
the solicitation, collection or processing of this data. The Telecommunications
Act of 1996, enacted in January 1996, prohibits the transmission of some types
of information and content over the Internet. The prohibition's scope and the
liability associated with a Telecommunications Act violation are currently
unsettled. Legislation imposing potential liability upon us for information
carried on or disseminated through our products would likely cause us to
implement costly measures to reduce our exposure to this liability or to
discontinue certain services. Our business could be harmed by the expense
involved in reacting to actual or potential liability associated with the
Telecommunications Act or other Internet-related laws and regulations. In
addition, the increased attention focused upon liability issues as a result of
the Telecommunications Act could limit the growth of Internet commerce, which
could decrease demand for our products.
The United States government regulates the export of encryption technology,
which our products incorporate. Export regulations, either in their current form
or as may be subsequently enacted, may limit our ability to distribute our
software outside the United States. Any revocation or modification of our export
authority or adoption of new laws or regulations relating to the export of
software and encryption technology could limit our international operations. The
unlawful export of our software could also harm our business. Although we take
precautions against unlawful export of our software, the global nature of the
Internet makes it difficult to effectively control the distribution of software.
THE IMPOSITION OF SALES AND OTHER TAXES ON PRODUCTS SOLD BY OUR CUSTOMERS OVER
THE INTERNET COULD HAVE A NEGATIVE EFFECT ON ONLINE COMMERCE AND, AS A RESULT,
ON DEMAND FOR OUR PRODUCTS
The imposition of new sales or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for our products.
Recent federal legislation limits the imposition of state and local taxes on
Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act,
which places a three-year moratorium on state and local taxes on:
- Internet access, unless the tax was already imposed prior to October 1,
1998; and
- discriminatory taxes on electronic commerce.
There is a possibility that Congress may not renew this legislation in
2001. If Congress chooses not to renew this legislation, state and local
governments would be free to impose taxes on electronically purchased goods.
We believe that, in accordance with current industry practice, most
companies that sell products over the Internet do not currently collect sales or
other taxes on shipments of their products into states or foreign countries
where they are not physically present. However, one or more states or foreign
countries may seek to impose sales or other tax collection obligation on
out-of-jurisdiction companies that engage in electronic commerce. A successful
assertion by one or more states or foreign countries that companies engaged in
electronic commerce should collect sales or other taxes on the sale of their
products over the Internet, even though not
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<PAGE> 15
physically present in the state or foreign country, could indirectly reduce
demand for our products.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE
The trading price of our common stock has been and is likely to continue to
be highly volatile. Our stock price is subject to wide fluctuations in response
to a variety of factors, including:
- quarterly variations in operating results;
- announcements of technological innovations;
- announcements of new software or services by us or our competitors;
- changes in financial estimates by securities analysts; or
- other events or factors that are beyond our control.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many high technology companies. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of the prospects of Internet or
electronic commerce companies could depress our stock price regardless of our
results. Other broad market fluctuations may decrease the trading price of our
common stock. In the past, following declines in the market price of a company's
securities, securities class action litigation has often been instituted against
that company. Litigation could result in substantial costs and a diversion of
management's attention and resources.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
We expect that the net proceeds from this offering, our available cash
resources, cash generated from operations, and amounts available under our
commercial credit facilities will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, we may need to raise additional funds 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, our stockholders' percentage ownership will be reduced,
they may experience additional dilution, or these newly issued equity securities
may have rights, preferences, or privileges senior to those of our current
stockholders. Additional financing may not be available when needed on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could harm our business.
BECAUSE WE ARE CURRENTLY UNABLE TO IDENTIFY THE SPECIFIC USES TO WHICH THE NET
PROCEEDS FROM THIS OFFERING WILL BE APPLIED, YOU WILL BE RELYING ON THE JUDGMENT
OF OUR MANAGEMENT REGARDING THE APPLICATION OF THE PROCEEDS
We have not designated any specific use for the net proceeds from our sale
of common stock described in this prospectus. Rather, we expect to use the net
proceeds for general corporate purposes, including working capital.
Consequently, our management will have significant flexibility in applying the
net proceeds of this offering. You will be relying on the judgment of our
management regarding the application of the proceeds. Our management will have
the ability to change the application of the proceeds of this offering without
stockholder approval.
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<PAGE> 16
BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE OF OUR
COMMON STOCK, THEY WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER US
Upon completion of this offering, our present directors and executive
officers and their affiliates will beneficially own approximately 27% of the
outstanding common stock. As a result, if these stockholders act together, they
will be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions like mergers and other business combinations.
This concentration of ownership may also have the effect of delaying or
preventing a change in control over us unless it is supported by our directors
and executive officers.
SOME ANTI-TAKEOVER PROVISIONS MAY AFFECT THE PRICE OF OUR COMMON STOCK
Our Restated Certificate authorizes the board of directors to issue up to
10,000,000 shares of preferred stock. The board also has the authority 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 our stockholders will be subject to, and may be impaired by, the
rights of the holders of any preferred stock that may be issued in the future.
The Restated Certificate and Restated Bylaws 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. These and other provisions contained in our
charter documents and applicable provisions of Delaware law could serve to
depress our 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
our outstanding voting stock or otherwise effect a change of control.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary",
"Risk Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", contains forward-looking statements.
These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expects", "plans",
"anticipates", "believes", "estimates", "predicts", "potential", "continue" or
the negative of these terms or other comparable terminology. These statements
are only predictions. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined in "Risk Factors." These
factors may cause our actual results to differ materially from any
forward-looking statement. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
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<PAGE> 17
USE OF PROCEEDS
We estimate that the net proceeds from the sale of 2,250,000 shares of
common stock that we are selling in this offering will be approximately $126.2
million, based on an assumed offering price of $60.58 per share and after
deducting the estimated underwriting discount (approximately $6.8 million) and
offering expenses payable by us. If the underwriters exercise their option to
purchase additional shares in the offering, we estimate the net proceeds will be
approximately $145.6 million. We will receive the net proceeds from the shares
being offered outside the United States in an international offering in euros.
We anticipate using the net proceeds from this offering for working capital
and general corporate purposes. We may also use a portion of the net proceeds,
currently intended for general corporate purposes, to license, acquire or invest
in new products, technologies or businesses that are complementary to our
business. We have no present plans or commitments and we are not currently
engaged in any negotiations with respect to transactions that are material. Our
board of directors and management will have significant flexibility in applying
the net proceeds of this offering. Pending these uses, we intend to invest the
net proceeds of this offering in short-term, investment grade, interest-bearing
securities.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"BVSN." The following table shows high and low sale prices per share of the
common stock as reported on the Nasdaq National Market for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
FISCAL YEAR 1997
First Quarter............................................... $ 3.46 $ 2.50
Second Quarter.............................................. 3.04 1.46
Third Quarter............................................... 2.46 1.67
Fourth Quarter.............................................. 2.90 1.96
FISCAL YEAR 1998
First Quarter............................................... $ 6.33 $ 2.00
Second Quarter.............................................. 8.38 4.92
Third Quarter............................................... 9.83 3.35
Fourth Quarter.............................................. 14.75 3.08
FISCAL YEAR 1999
First Quarter............................................... $24.46 $ 9.04
Second Quarter.............................................. 24.58 13.04
Third Quarter............................................... 46.63 20.46
Fourth Quarter (through October 20, 1999)................... 60.94 46.33
</TABLE>
-------------------------
On October 20, 1999, the last sale price reported on the Nasdaq National
Market was $60.58 per share. As of October 19, 1999, there were approximately
256 holders of record of our common stock.
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<PAGE> 18
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business, and we do not intend to pay any cash dividends in
the foreseeable future. Future dividends, if any, will be determined by our
board of directors. Any shares outstanding as of the record date for a dividend
and from the date of issuance of these shares shall be entitled to receive, as
all other shares of outstanding common stock, the full dividend when and if a
dividend is declared by our board of directors.
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<PAGE> 19
CAPITALIZATION
The following table shows our capitalization as of June 30, 1999 on an
actual basis and on an as adjusted basis. The as adjusted column gives effect to
our receipt of the estimated net proceeds from the sale of 2,250,000 shares of
common stock we are offering at an assumed price to public of $60.58 per share.
The outstanding share information in the table below excludes:
- 15,457,311 shares subject to outstanding options at a weighted average
exercise price of approximately $6.77 per share; and
- 180,000 shares of common stock issuable upon exercise of outstanding
warrants at an exercise price of $2.83 per share.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
Debt and capital lease obligations, less current portion.... $ 2,616 $ 2,616
-------- --------
Stockholders' equity:
Convertible Preferred Stock, $0.0001 par value; 10,000,000
shares authorized; no shares issued or outstanding,
actual and as adjusted................................. -- --
Common Stock, $0.0001 par value; 500,000,000 shares
authorized; 76,525,173 shares issued and outstanding,
actual; 78,775,173 shares issued and outstanding, as
adjusted............................................... 8 8
Additional paid-in capital.................................. 109,301 235,516
Deferred compensation related to grant of stock options..... (389) (389)
Accumulated other comprehensive income...................... 13,243 13,243
Accumulated deficit......................................... (13,351) (13,351)
-------- --------
Total stockholders' equity............................. 108,812 235,027
-------- --------
Total capitalization.............................. $111,428 $237,643
======== ========
</TABLE>
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto, and other financial information included
elsewhere in this prospectus. The selected consolidated financial data below as
of December 31, 1996, 1997 and 1998, and for the years ended December 31, 1996,
1997 and 1998, are derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1994 and 1995 and balance sheet data as of
December 31, 1994 and 1995 are derived from our audited consolidated financial
statements that are not included in this prospectus. The selected consolidated
statement of operations data for the six months ended June 30, 1998 and 1999 and
the consolidated balance sheet data as of June 30, 1999 are derived from
unaudited consolidated financial statements included elsewhere in this
prospectus. The unaudited consolidated financial statements, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. The interim results for the six
months ended June 30, 1999 are not necessarily indicative of results to be
expected for the year ending December 31, 1999. Historical results are not
necessarily indicative of the results to be expected in the future. See Note 1
of Notes to Consolidated Financial Statements for a description of the method
used to compute basic and diluted net income (loss) per share.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses............................. $ -- $ -- $ 7,464 $18,973 $36,067 $15,297 $28,267
Services...................................... -- 540 3,418 8,132 14,844 6,167 13,673
------- ------- -------- ------- ------- ------- -------
Total revenues.......................... -- 540 10,882 27,105 50,911 21,464 41,940
Cost of revenues:
Cost of software licenses..................... -- -- 330 1,664 1,001 400 1,784
Cost of services.............................. -- 249 2,164 4,284 8,704 3,711 7,945
------- ------- -------- ------- ------- ------- -------
Total cost of revenues.................. -- 249 2,494 5,948 9,705 4,111 9,729
------- ------- -------- ------- ------- ------- -------
Gross profit.................................... -- 291 8,388 21,157 41,206 17,353 32,211
Operating expenses:
Research and development...................... 748 2,575 4,985 7,392 9,227 4,083 6,169
Sales and marketing........................... 512 1,348 12,066 18,413 26,269 12,104 17,684
General and administrative.................... 511 846 2,034 2,990 3,786 1,585 2,882
------- ------- -------- ------- ------- ------- -------
Total operating expenses................ 1,771 4,769 19,085 28,795 39,282 17,772 26,735
------- ------- -------- ------- ------- ------- -------
Operating income (loss)....................... (1,771) (4,478) (10,697) (7,638) 1,924 (419) 5,476
Other......................................... 101 160 552 265 2,115 613 776
------- ------- -------- ------- ------- ------- -------
Net income (loss)............................. $(1,670) $(4,318) $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252
======= ======= ======== ======= ======= ======= =======
Net income (loss) per share:
Basic earnings (loss) per share............... $ (0.12) $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08
======= ======== ======= ======= ======= =======
Shares used in computation -- basic earnings
(loss) per share............................ 35,928 56,445 60,624 70,038 66,732 74,658
======= ======== ======= ======= ======= =======
Diluted earnings (loss) per share............. $ (0.12) $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07
======= ======== ======= ======= ======= =======
Shares used in computation -- diluted earnings
(loss) per share............................ 35,928 56,445 60,624 76,959 74,457 83,838
======= ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------- AS OF JUNE 30,
1994 1995 1996 1997 1998 1999
------- ------ ------- -------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 808 $4,311 $17,608 $ 8,277 $61,878 $53,735
Working capital....................................... 2,208 3,916 18,258 11,485 64,320 72,651
Total assets.......................................... 2,640 5,857 26,714 26,539 101,562 137,198
Debt and capital leases, less current portion......... -- 516 495 3,005 3,194 2,616
Accumulated deficit................................... (1,806) (6,124) (16,269) (23,642) (19,603) (13,351)
Total stockholders' equity............................ 2,526 4,254 21,016 15,121 81,809 108,812
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained or incorporated by reference in
this section, the following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ significantly
from those discussed below. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed in the "Risk
Factors" section and elsewhere in this prospectus. Any forward-looking
statements speak only as of the date such statements are made.
OVERVIEW
We develop, market and support application software solutions for
one-to-one relationship management across the extended enterprise. These
solutions enable businesses to use the Internet as a platform to conduct
electronic commerce, offer online customer self-service and support, deliver
targeted information and provide online financial services. Each of these
capabilities can be provided to all constituents of the extended enterprise,
including: customers, suppliers, partners, distributors and employees. The
BroadVision One-To-One product suite allows businesses to tailor their Web site
content to the needs and interests of individual users by personalizing each
visit on a real-time basis. Our applications interactively capture Web site
visitor profile information, organize the enterprise's content, target that
content to each visitor based on easily constructed business rules, and execute
transactions. We believe the benefits of these applications include enhanced
customer satisfaction and loyalty, increased business volume, greater brand
awareness, reduced costs to service customers and to execute transactions, and
enhanced employee productivity.
We sell our products and services worldwide through a direct sales force,
independent distributors, resellers and system integrators. We also have a
global network of strategic business relationships with key industry platform
and Web developer partners. We also engage in strategic business alliances to
assist us in marketing, selling and developing customer applications.
We also place a strategic emphasis on developing technology alliances in
order to ensure that our products are based on industry standards and that we
are positioned to take advantage of current and emerging technologies. The
benefits of this approach include enabling us to focus on our core competencies
while reducing time to market and simplifying the task of designing and
developing applications for us and our customers.
Our revenues are derived from software license fees and fees charged for
our services. We recognize software license revenues when a non-cancelable
license agreement has been signed and the customer acknowledges an unconditional
obligation to pay, the software product has been delivered, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is considered probable. Software license revenues,
in general, are recognized upon consummation of the sale.
Our professional services include our Strategic Services Group, Interactive
Services Group, Content and Creative Services Group, Education Services Group
and Technical Support Group. Maintenance fees relating to technical support and
upgrades are recognized ratably over the contracted period. Consulting-related
services revenues are typically recognized as services are performed.
Cost of license revenues includes royalties payable to third parties for
software that is either embedded in, or bundled and sold with, our products;
commissioned agent fees paid to distributors; and the costs of product media,
duplication, packaging and other associated manufacturing costs. Cost of
services consists primarily of employee-related costs, third-party
21
<PAGE> 22
consultant fees incurred on consulting projects, post-contract customer support
and instructional training services.
Research and development expenses consist primarily of salaries,
employee-related benefit costs and consulting fees incurred in association with
the development of our products. Costs incurred for the research and development
of new software products are expensed as incurred until the time that
technological feasibility, in the form of a working model, is established, at
which point these costs are capitalized subject to recoverability. The costs we
have incurred subsequent to the establishment of a working model but prior to
general release have not been significant. To date, we have not capitalized any
software development costs. Sales and marketing expenses consist primarily of
salaries, employee-related benefit costs, commissions and other incentive
compensation, travel and entertainment and marketing-related expenditures such
as collateral materials, trade shows, public relations and creative services.
General and administrative expenses consist primarily of salaries,
employee-related benefit costs and professional service fees.
RESULTS OF OPERATIONS
The following table sets forth certain items reflected in our consolidated
statements of operations expressed as a percent of total revenues for the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------
1996 1997 1998 1998 1999
------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses................................ 69% 70% 71% 71% 67%
Services......................................... 31 30 29 29 33
---- ---- ---- ---- ----
Total revenues........................... 100 100 100 100 100
---- ---- ---- ---- ----
Cost of revenues:
Cost of license revenues......................... 3 6 2 2 4
Cost of services revenues........................ 20 16 17 17 19
---- ---- ---- ---- ----
Total cost of revenues........................ 23 22 19 19 23
---- ---- ---- ---- ----
Gross profit............................. 77 78 81 81 77
---- ---- ---- ---- ----
Operating expenses:
Research and development......................... 45 27 18 19 15
Sales and marketing.............................. 111 68 52 57 42
General and administrative....................... 19 11 7 7 7
---- ---- ---- ---- ----
Total operating expenses...................... 175 106 77 83 64
---- ---- ---- ---- ----
Operating income (loss).................. (98) (28) 4 (2) 13
Other......................................... 5 1 4 3 3
---- ---- ---- ---- ----
Income (loss) before income taxes........ (93) (27) 8 1 16
Income tax benefit (expense).................. -- -- -- -- (1)
---- ---- ---- ---- ----
Net income (loss)........................ (93)% (27)% 8% 1% 15%
==== ==== ==== ==== ====
</TABLE>
22
<PAGE> 23
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES
For the six months ended June 30, 1999, total revenues increased 95% to
$41.9 million as compared to $21.5 million for the six months ended June 30,
1998. A summary of our software and services revenues by geographic region is as
follows:
<TABLE>
<CAPTION>
SOFTWARE % SERVICES % TOTAL %
-------- --- -------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1998
Americas............................ $ 7,501 49% $ 4,314 70% $11,815 55%
Europe.............................. 5,731 37 1,073 17 6,804 32
Asia/Pacific........................ 2,065 14 780 13 2,845 13
------- --- ------- --- ------- ---
Total............................... $15,297 100% $ 6,167 100% $21,464 100%
======= === ======= === ======= ===
Six Months Ended June 30, 1999
Americas............................ $19,619 69% $10,127 74% $29,746 71%
Europe.............................. 4,830 17 2,807 21 7,637 18
Asia/Pacific........................ 3,818 14 739 5 4,557 11
------- --- ------- --- ------- ---
Total............................... $28,267 100% $13,673 100% $41,940 100%
======= === ======= === ======= ===
</TABLE>
For the six months ended June 30, 1999, software license revenues increased
85% to $28.3 million as compared to $15.3 million for the six months ended June
30, 1998. The increase in software license revenues is attributable to continued
strong market acceptance for our core competencies and technology; our strategic
focus of leveraging our partner relationships; our expanding range of products
and product functionality; and, to a lesser extent, product pricing increases
that were effective October 1, 1998. As a result, we are attracting new
customers and our existing customer base is generating additional revenues
through increased use of already-developed Web sites and the introduction of new
Web sites within the same organization.
During the six months ended June 30, 1999, we licensed approximately 82 new
end-user customers and 24 new partners, which compares with approximately 45 new
end-user customers and 11 new partners during the six months ended June 30,
1998. As of June 30, 1999, we had licensed over 280 end-user customers and 95
partners, which compares with over 195 end-user customers and 75 partners as of
December 31, 1998 and 150 end-user customers and 55 partners as of June 30,
1998.
For the six months ended June 30, 1999, total services revenues increased
122% to $13.7 million as compared to $6.2 million for the six months ended June
30, 1998. The increase in professional services revenue is a result of our
increased business volumes and a higher level of customer support revenues
derived from a larger installed customer base. We continue to add internal
headcount within our professional services organizations to support the higher
business volumes and have increased our emphasis on leveraging our integrator
partner relationships. Increasingly sophisticated and customer-specific use of
our products has recently caused accelerated demand for our professional
services. However, our strategy of developing business alliances with system
integrators and other third-party professional services organizations to support
our products may in the future result in a decline in professional services
revenues as a percentage of total revenues. Maintenance revenues continue to
increase and were $4.6 million for the six months ended June 30, 1999 as
compared to $1.9 million for the six months ended June 30, 1998.
COST OF REVENUES
In the table below, the percentage of cost of license revenues is
calculated based on total software license revenues, the percentage of cost of
services revenues is calculated based on
23
<PAGE> 24
total services revenues and the percentage of total cost of revenues is
calculated based on total revenues.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 % 1999 %
------ --- ------ ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost of license revenues.............................. $ 400 3% $1,784 6%
Cost of services revenues............................. 3,711 60 7,945 58
------ ------
Total cost of revenues................................ $4,111 19% $9,729 23%
====== ======
</TABLE>
Cost of software licenses increased 346% during the six months ended June
30, 1999 to $1.8 million as compared to $400,000 for the six months ended June
30, 1998. The increase in cost of software licenses, in both absolute dollar and
relative percentage terms, is principally a result of royalties paid to
third-party vendors for software used in conjunction with and sold with our
products. The higher third-party software sales add incremental revenues to our
own product sales but carry a higher cost of license factor in relation to our
own product sales. Royalty costs for third-party software embedded in our
product decreased in relative percentage terms as a result of our renegotiating
a previously existing percentage based royalty arrangement into a prepaid fixed
fee royalty for the period through 2001.
Cost of services increased 114% during the six months ended June 30, 1999
to $7.9 million as compared to $3.7 million for the six months ended June 30,
1998. The increase in cost of services in absolute dollar terms is a result of
expanded business volumes as evidenced by increased services revenues. Overall
costs increased as a result of additions to our professional services staff and
the employment of outside consultants to meet short-term consulting demands.
OPERATING EXPENSES
A summary of our operating expenses is set forth in the following table.
The percentage of expenses is calculated based on total revenues.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
1998 % 1999 %
------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Research and development.............................. $ 4,083 19% $ 6,169 15%
Sales and marketing................................... 12,104 57 17,684 42
General and administrative............................ 1,585 7 2,882 7
------- --- ------- ---
Total operating expenses.............................. $17,772 83% $26,735 64%
======= === ======= ===
</TABLE>
Research and development expenses increased 51% during the six months ended
June 30, 1999 to $6.2 million as compared to $4.1 million for the comparable
period the six months ended June 30, 1998. The increase in research and
development expenses in absolute dollar terms is primarily attributable to
personnel costs for added headcount within those operations involved in the
enhancement of existing applications and the development of our next generation
of products. Research and development expenses, as a percentage of total
revenues, decreased because revenues have increased at a higher rate relative to
expenses.
Sales and marketing expenses increased 46% during the six months ended June
30, 1999 to $17.7 million as compared to $12.1 million for the six months ended
June 30, 1998. The increases in sales and marketing expenses in absolute dollar
terms reflect the cost of hiring additional sales and marketing personnel,
increased commission payments resulting from higher revenues, developing and
expanding sales distribution channels, and expanding promotional activities and
marketing-related programs. Sales and marketing expenses, as a percentage of
24
<PAGE> 25
total revenues, decreased because revenues have increased at a higher rate
relative to expenses.
General and administrative expenses increased 82% during the six months
ended June 30, 1999 to $2.9 million as compared to $1.6 million for the six
months ended June 30, 1998. The increase in general and administrative expenses
in absolute dollar terms is attributable to additional administrative and
management personnel, higher professional services fees and additional
infrastructure to support the expansion of our operations. General and
administrative expenses, as a percentage of total revenues, decreased because
revenues have increased at a higher rate relative to expenses.
INCOME TAXES
During the six month period ended June 30, 1999, we recognized tax expense
of $334,000 at an effective tax rate of approximately 5%. Due to our continuing
trend of positive earnings, we reversed a portion of our valuation allowance
against the previously deferred tax assets for which realization is considered
more likely than not.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
A summary of our software and services revenues by geographic region is as
follows:
<TABLE>
<CAPTION>
SOFTWARE % SERVICES % TOTAL %
-------- --- -------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Americas....................... $ 3,071 41% $ 1,335 39% $ 4,406 41%
Europe......................... 2,257 30 1,023 30 3,280 30
Asia/Pacific................... 2,136 29 1,060 31 3,196 29
------- --- ------- --- ------- ---
Total.......................... $ 7,464 100% $ 3,418 100% $10,882 100%
======= === ======= === ======= ===
Year Ended December 31, 1997
Americas....................... $ 8,584 45% $ 4,288 53% $12,872 48%
Europe......................... 8,835 47 2,015 25 10,850 40
Asia/Pacific................... 1,554 8 1,829 22 3,383 12
------- --- ------- --- ------- ---
Total.......................... $18,973 100% $ 8,132 100% $27,105 100%
======= === ======= === ======= ===
Year Ended December 31, 1998
Americas....................... $19,301 54% $10,029 67% $29,330 58%
Europe......................... 13,879 38 3,065 21 16,944 33
Asia/Pacific................... 2,887 8 1,750 12 4,637 9
------- --- ------- --- ------- ---
Total.......................... $36,067 100% $14,844 100% $50,911 100%
======= === ======= === ======= ===
</TABLE>
1997 VERSUS 1998
For the year ended December 31, 1998, total revenues increased $23.8
million or 88% on a year-over-year basis, which consisted of software license
revenue increases of $17.1 million or 90% and professional services revenue
increases of $6.7 million or 83%.
The increase in software license revenues is attributable to continued
strong market acceptance of our core BroadVision One-To-One Enterprise product,
expanding sales volumes of three complementary packaged application products,
higher deployment license revenues and to a lesser extent, product pricing
increases that were effective October 1, 1998. Application license-related
revenues for our three complementary products increased to $10.2 million in 1998
as compared to $2.4 million in 1997, which represents a 325% increase year over
year.
25
<PAGE> 26
Deployment-related license revenues increased to $14.8 million in 1998 as
compared to $8.1 million in 1997, which represents a 83% increase year over year
and is a result of repeat business and an increasing number of live site
customers.
During the year ended December 31, 1998, we continued to expand our
strategic alliances with key industry partners to develop additional highly
specialized applications.
The increase in professional services revenue results from a higher level
of consulting related services associated with increased business volumes and a
higher level of customer support revenues derived from a larger installed
customer base. Maintenance revenues were $5.1 million in 1998 as compared to
$2.2 million in 1997. During the year ended December 31, 1998, we licensed
approximately 94 new end-user customers and 27 new partners, which compares with
approximately 70 new end-user customers and 34 new partners during the year
ended December 31, 1997. As of December 31, 1998, we had a total installed
license base of over 195 end-user customers and 75 partners, which compares with
approximately 105 end-user customers and 48 partners as of December 31, 1997.
In June 1998, we re-negotiated an existing royalty arrangement with one of
our software vendors. As a result of the renegotiation, we paid the vendor a
fixed fee of $1.25 million for royalties through 2001 and certain internal
development rights through 1999. Previously, we had an existing arrangement with
this vendor whereby we made quarterly royalty payments based on a percentage of
product revenues. Concurrent with the renegotiation, we sold this vendor an
end-user software license totaling $1.25 million, inclusive of maintenance and
support. The sale to this vendor resulted in software license revenues of
approximately $1.0 million during the quarter ended June 30, 1998.
In July 1998, we finalized a strategic alliance with Security First, an
Internet financial services company. Accordingly, we sold Security First
software licenses including certain reseller rights in exchange for 181,610
shares of restricted Security First common stock that had a fair value of
approximately $4.0 million. As part of the agreement, the companies also agreed
to jointly develop and market a suite of Internet-based products based on
Security First's Internet banking products and our BroadVision One-to-One
Financial product. As a result of the transaction, we recognized license
revenues of approximately $1.9 million and deferred revenues of approximately
$2.1 million during the quarter ended September 30, 1998. The $2.1 million of
deferred revenues consisted of approximately $1.0 million of deferred software
license fees and joint development services, $949,000 for three years of
maintenance and support and $175,000 of specified training services. The
deferred software license fees and joint development services revenue will be
recognized as revenue as the joint development services are performed. The
deferred maintenance will be recognized as revenue ratably over the maintenance
term, and the deferred training services will be recognized as the training is
performed.
In addition, we entered into a $3.5 million license and maintenance
agreement with Sema in December 1998. As part of the agreement, Sema purchased
licenses to resell our existing software products and received expanded
territorial rights. The licensing agreement with this reseller resulted in
software license revenues of approximately $2.75 million during the quarter
ended December 31, 1998.
1996 VERSUS 1997
Our total annual revenues were $27.1 million in 1997 as compared to $10.9
million in 1996, which represents an increase of 149% year-over-year. Annual
software license revenues were $19.0 million in 1997 as compared to $7.5 million
in 1996, which represents an increase of 154% year-over-year. Annual
professional services revenues were $8.1 million in 1997 as compared to $3.4
million in 1996, which represents an increase of 138% year-over-year.
26
<PAGE> 27
The increase in license revenues is a result of strong market acceptance of
our core BroadVision One-to-One Enterprise product, which was augmented by the
introduction in 1997 of three complementary packaged application products. The
increase in professional services revenue is a result of higher business
volumes, greater use of our professional consultants and an expanding installed
customer base under maintenance contracts. Maintenance revenues were $2.2
million in 1997 as compared to $599,000 in 1996.
COST OF REVENUES
In the table below, the percentage of cost of license revenues is
calculated based on total software license revenues, the percentage of cost of
services revenues is calculated based on total services revenues and the
percentage of total cost of revenues is based on total revenues.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 % 1997 % 1998 %
------ --- ------ --- ------ ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cost of license revenues.................... $ 330 4% $1,664 9% $1,001 3%
Cost of services revenues................... 2,164 63 4,284 53 8,704 59
------ ------ ------
Total cost of revenues...................... $2,494 23% $5,948 22% $9,705 19%
====== ====== ======
</TABLE>
1997 VERSUS 1998
For the year ended December 31, 1998, cost of license revenues decreased
$663,000 or 40% on a year-over-year basis. Cost of software licenses as a
percent of license revenues was 3% in 1998 as compared to 9% in 1997. Cost of
services revenues during 1998 increased $4.4 million or 103% on a year-over-year
basis. Cost of services as a percent of services revenues was 59% in 1998 as
compared to 53% in 1997.
The decrease in cost of license revenues, in both absolute dollar and
relative percentage terms, was principally a result of lower commissioned agent
fees and third party royalty rates. We continued to expand our in-house sales
force capabilities and during 1998 direct sales that we generated were higher
and commissioned agent sales were lower relative to 1997. In addition, royalty
costs relative to total license revenues decreased as a result of our re-
negotiating a previously existing percentage based royalty arrangement into a
prepaid fixed fee royalty for a period through 2001.
The increase in cost of services revenues in absolute dollar terms during
1998 as compared to 1997 is a result of expanded business volumes as evidenced
by increased services revenues. Overall costs increased as a result of additions
to our professional services staff and the employment of outside consultants to
meet short-term consulting demands. The increase in cost of services as a
percentage of services revenues is a result of higher use of outside consultants
in relation to the extent previously used during the prior year period.
1996 VERSUS 1997
Cost of license revenues on an annual basis was $1.7 million or 9% of
related software license revenues in 1997 as compared to $330,000 or 4% of
related software license revenues in 1996. Cost of license revenues increased in
both absolute dollar and relative percentage terms during 1997 as compared to
1996 due to expanded sales volumes and higher commissioned agent fees as a
result of increased distributor sales volume. Commissioned agent fees were
$703,000 in 1997 as compared to $80,000 in 1996. To a lesser extent, an
increased number of third-party products sold with or embedded in our products
also contributed to the increases.
Cost of services revenues on an annual basis was $4.3 million or 53% of
related services revenues in 1997 as compared to $2.2 million or 63% of related
services revenue in 1996. Cost
27
<PAGE> 28
of services revenues increased 98% in absolute dollar terms during 1997 as
compared to 1996 due to expanded business volumes, as represented by the 138%
increase in total services revenues. The higher level of costs in absolute
dollar terms are attributable to additions to our consulting staff, the
employment of outside consultants to meet short-term consulting demands, an
increasing number of licenses with support or maintenance components and a
higher level of fixed costs resulting from the expansion of our services
organization to meet higher business volumes. The decrease in cost of services
revenues as a percentage of total services revenues during 1997 as compared to
1996 is principally a result of increased use of professional staff.
OPERATING EXPENSES
A summary of our operating expenses is set forth in the following table.
The percentage of expenses is calculated based on total revenues.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 % 1997 % 1998 %
------- --- ------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Research and development........... $ 4,985 46% $ 7,392 27% $ 9,227 18%
Sales and marketing................ 12,066 111 18,413 68 26,269 52
General and administrative......... 2,034 19 2,990 11 3,786 7
------- --- ------- --- ------- --
Total operating expenses........... $19,085 176% $28,795 106% $39,282 77%
======= === ======= === ======= ==
Other income, net.................. $ 552 5% $ 265 1% $ 2,036 4%
======= === ======= === ======= ==
</TABLE>
1997 VERSUS 1998
Research and development expenses for the year were $9.2 million in 1998 as
compared to $7.4 million in 1997 which represents an increase of 25%
year-over-year. Sales and marketing expenses for the year were $26.3 million in
1998 as compared to $18.4 million in 1997 which represents an increase of 43%
year-over-year. General and administrative expenses for the year were $3.8
million in 1998 as compared to $3.0 million in 1997 which represents an increase
of 27% year-over-year. Net other income for the year was $2.0 million in 1998 as
compared to $265,000 in 1997, which represents an increase of 668%
year-over-year.
The increase in research and development expenses in absolute dollar terms
is primarily attributable to personnel costs for added headcount within those
operations involved in the enhancement of existing applications and the
development of our next generation of products. Research and development
expenses, as a percentage of total revenues, decreased because revenues have
increased at a higher rate relative to expenses.
The increases in sales and marketing expenses in absolute dollar terms
reflects the cost of hiring additional sales and marketing personnel, the
continued development of sales distribution channels and the expansion of
promotional activities and marketing-related programs. In addition, commission
rates were higher during 1998 as result of sales people exceeding their sales
quotas. Sales and marketing expenses, as a percentage of total revenues,
decreased because revenues have increased at a higher rate relative to expenses.
The increase in general and administrative expenses in absolute dollar
terms is attributable to additional administrative and management personnel,
higher professional fees and additional infrastructure to support the expansion
of our operations. General and administrative expenses, as a percentage of total
revenues, decreased because revenues have increased at a higher rate relative to
expenses.
28
<PAGE> 29
The increase in net other income is attributable to a higher level of
investment income during the year as a result of earnings on proceeds received
from a follow-on public stock offering in March 1998.
1996 VERSUS 1997
Research and development expenses for the year were $7.4 million in 1997 as
compared to $5.0 million in 1996, which represents an increase of 48%
year-over-year. Sales and marketing expenses for the year were $18.4 million in
1997 as compared to $12.1 million in 1996, which represents an increase of 53%
year-over-year. General and administrative expenses for the year were $3.0
million in 1997 as compared to $2.0 million in 1996, which represents an
increase of 47% year-over-year. Net other income for the year was $265,000 in
1997 as compared to $552,000 in 1996, which represents a decrease of 52%
year-over-year.
The increase in research and development expenses is primarily attributable
to costs associated with additional personnel within those operations for the
enhancement of existing products and the development of new products.
The overall increases in sales and marketing expenditures reflect the cost
of hiring additional sales and marketing personnel, developing and expanding
sales distribution channels, introducing new products and expanding promotional
activities.
The increases in general and administrative expenses are attributable to
the hiring of additional administrative and management personnel, increased
professional fees, additional provision for doubtful accounts and additional
infrastructure to support the expansion of our operations.
INCOME TAXES
For the year ended December 31, 1998, we recorded a net income tax benefit
of $79,000, comprised of a deferred tax benefit of $700,000 and current tax
expense of $621,000.
We recorded a deferred tax benefit during 1998 due to the reversal of a
portion of the valuation allowance previously provided against our deferred tax
assets after evaluation of all available evidence about the realizability of the
deferred tax assets. In determining that it is more likely than not that the net
deferred tax assets as of December 31, 1998 will be realized, we assumed a
limited amount of future taxable income considering all available evidence and
our profitability during 1998. We assumed only a limited amount of future
taxable income after considering factors like a history of operating losses
prior to the second quarter of 1998, the nature of our deferred tax assets, the
lack of significant firm sales backlog and the length of the sales cycle, the
competitive market in which we operate and the lack of carryback capacity to
realize the deferred tax assets.
We recorded current tax expense during 1998 primarily related to foreign
withholding and alternative minimum taxes. During 1996 and 1997, we generated
pre-tax losses of $10.1 million and $7.4 million, respectively. Due to the
uncertainty about the realizability of the deferred tax assets, we recorded a
full valuation allowance to reduce the net deferred tax assets to zero as of
both December 31, 1996 and 1997.
As of December 31, 1998, we had federal net operating loss carryforwards of
approximately $13.0 million and state net operating loss carryforwards of
approximately $5.5 million available to offset future regular and alternative
minimum taxable income. In addition, we had federal research and development
credit carryforwards of approximately $790,000 and state research and
development credit carryforwards of approximately $666,000 available to offset
future tax liabilities. Our federal net operating loss and tax credit
carryforwards expire in the years 2010 through 2012, if not used. The state net
operating loss carryforwards expire in the years 2000 through 2002.
29
<PAGE> 30
The state research and development credits can be carried forward
indefinitely. As of December 31, 1998, our foreign subsidiaries had net
operating loss carryforwards in foreign jurisdictions of approximately $5.4
million that can be used to offset future foreign income. Of these losses,
approximately $1.6 million expire in the years 2001 through 2003. Approximately
$3.8 million of these losses can be carried forward indefinitely. Federal and
state tax laws limit the use of net operating loss carryforwards in certain
situations where changes occur in the stock ownership of a company. We believe
an ownership change like this, as defined, may have occurred and, accordingly,
some of our federal and state net operating loss carryforwards may be limited in
their annual usage. For further information regarding income taxes, see Note 5
of Notes to Consolidated Financial Statements.
30
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statement of
operations data for the eight quarters ended June 30, 1999, as well as that data
expressed as a percentage of our total revenues for the period indicated. This
data has been derived from unaudited consolidated financial statements that, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with the Consolidated Financial Statements and Notes
thereto. The unaudited quarterly information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in
this prospectus. We believe that period-to-period comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................. $ 5,513 $ 6,213 $7,279 $8,018 $9,158 $11,612 $12,783 $15,484
Services........................... 1,641 2,420 2,800 3,367 4,273 4,404 5,681 7,992
------- ------- ------ ------ ------ ------- ------- -------
Total revenues............... 7,154 8,633 10,079 11,385 13,431 16,016 18,464 23,476
Cost of revenues:
Cost of software licenses.......... 460 566 187 213 237 364 747 1,037
Cost of services................... 1,010 1,130 1,620 2,092 2,553 2,439 3,321 4,624
------- ------- ------ ------ ------ ------- ------- -------
Total cost of revenues....... 1,470 1,696 1,807 2,305 2,790 2,803 4,068 5,661
Gross profit......................... 5,684 6,937 8,272 9,080 10,641 13,213 14,396 17,815
Operating expenses:
Research and development........... 2,113 1,797 2,033 2,049 2,394 2,751 2,901 3,268
Sales and marketing................ 4,630 5,323 5,861 6,243 6,285 7,880 7,665 10,019
General and administrative......... 763 780 824 760 977 1,225 1,271 1,611
------- ------- ------ ------ ------ ------- ------- -------
Total operating expenses..... 7,506 7,900 8,718 9,052 9,656 11,856 11,837 14,898
------- ------- ------ ------ ------ ------- ------- -------
Operating income (loss).............. (1,822) (963) (446) 28 985 1,357 2,559 2,917
Other................................ 131 (123) (53) 665 769 734 378 398
------- ------- ------ ------ ------ ------- ------- -------
Net income (loss).................... $(1,691) $(1,086) $ (499) $ 693 $1,754 $ 2,091 $ 2,937 $ 3,315
======= ======= ====== ====== ====== ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues:
Software licenses.................. 77% 72% 72% 70% 68% 73% 69% 66%
Services........................... 23 28 28 30 32 27 31 34
------- ------- ------ ------ ------ ------- ------- -------
Total revenues............... 100 100 100 100 100 100 100 100
Cost of revenues:
Cost of software licenses.......... 6 7 2 2 2 2 4 4
Cost of services................... 14 13 16 18 19 16 18 20
------- ------- ------ ------ ------ ------- ------- -------
Total cost of revenues....... 20 20 18 20 21 18 22 24
Gross profit......................... 80 80 82 80 79 82 78 76
Operating expenses:
Research and development........... 30 21 20 18 18 17 16 14
Sales and marketing................ 65 61 58 55 47 49 41 43
General and administrative......... 11 9 8 7 7 8 7 7
------- ------- ------ ------ ------ ------- ------- -------
Total operating expenses..... 106 91 86 80 72 74 64 64
------- ------- ------ ------ ------ ------- ------- -------
Operating income (loss).............. (26) (11) (4) -- 7 8 14 12
Other, net........................... 2 (2) (1) 6 6 5 2 2
------- ------- ------ ------ ------ ------- ------- -------
Net income (loss).................... (24)% (13)% (5)% 6% 13% 13% 16% 14%
======= ======= ====== ====== ====== ======= ======= =======
</TABLE>
We expect 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 us or
our competitors, the length of our sales cycle, market acceptance of new
products, the pace of development of the market for online commerce, the mix of
our products sold, the size and timing of significant orders and the timing of
customer production or deployment, demand for our products, changes in pricing
policies by us or our
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<PAGE> 32
competitors, changes in our sales incentive plans, budgeting cycles of our
customers, customer order deferrals in anticipation of new products or
enhancements by us or our 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 our
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. We anticipate that a significant portion of our revenues will be
derived from a limited number of orders. We expect that the timing of receipt
and fulfillment of any of these orders will cause our quarterly operating
results to fluctuate. We anticipate that we will make the major portion of each
quarter's product deliveries near the end of each quarter. As a result, short
delays in product deliveries at the end of a quarter could harm operating
results for that quarter. In addition, we intend, in the near term, to increase
significantly our personnel, including our domestic and international direct
sales force. The timing of this expansion and the rate at which new sales people
become productive could also cause our quarterly operating results to fluctuate.
Due to these and other factors, our quarterly revenues and operating
results are difficult to forecast accurately. We believe that period-to-period
comparisons of our operating results may not be meaningful, and you should not
rely upon them as any indication of future performance. It is likely that the
our operating results in one or more future quarters may be below the
expectations of securities analysts and investors. In that event, the trading
price of our common stock would almost certainly decline.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity along with selected ratios are set forth below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998 JUNE 30, 1999
------- ------- ------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments........................... $19,720 $10,473 $61,878 $72,558
Working capital......................... $18,258 $11,485 $64,320 $72,651
Current assets: current liabilities..... 4.6:1 2.4:1 4.9:1 3.9:1
</TABLE>
At June 30, 1999, we had $72.6 million of cash, cash equivalents and liquid
short-term investments, which represents an increase of $10.7 million as
compared to December 31, 1998. We currently have no significant capital
commitments other than obligations under equipment and operating leases and $3.1
million of outstanding term debt under our existing credit facility with our
commercial bank. We have funded our operations by cash generated from
operations, the private placement of common and preferred stock and public
offerings of our common stock. Through May 1996, private placements provided net
proceeds totaling $15.5 million and a public stock offering during June 1996
netted for us proceeds of $20.7 million and during March 1998 netted for us
proceeds of $53.7 million. At June 30, 1999, we had $109.3 million of additional
paid-in capital, consisting primarily of cash raised in our previous equity
offerings and cash received from stock purchases under our equity incentive
plans. This amount reflects an increase of $10.5 million as compared to December
31, 1998, which is attributed to cash received from stock purchases under our
equity incentive plans.
Cash provided by operating activities was $1.4 million in the year ended
December 31, 1998 and $11.0 million for the six months ended June 30, 1999. Cash
used for operating activities was $8.4 million in the year ended December 31,
1996 and $8.7 million in the year ended December 31, 1997. Cash used for
investing activities was $4.4 million in the year ended December 31, 1996, $3.6
million in the year ended December 31, 1997, $6.6 million in the year
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<PAGE> 33
ended December 31, 1998 and $22.8 million for the six months ended June 30,
1999. This cash was primarily directed at capital expenditures and the
acquisition of long-term strategic investments in the United States. Cash
provided by financing activities was $26.1 million in the year ended December
31, 1996, $2.9 million in the year ended December 31, 1997, $58.8 million in the
year ended December 31, 1998 and $3.6 million for the six months ended June 30,
1999, and consists primarily of proceeds from the issuance of stock and, to a
lesser extent, proceeds from borrowings.
We have invested approximately $2.9 million in the year ended December 31,
1996, $6.0 million in the year ended December 31, 1997, $4.5 million in the year
ended December 31, 1998 and $3.9 million during the six months ended June 30,
1999, in U.S. property and equipment, consisting of computer and software,
leasehold improvements and furniture and fixtures. We currently expect that
total investments in property and equipment for 1999 will be approximately $9.0
million. We did not purchase any long-term investments in 1996, 1997 or in the
six months ended June 30, 1999. In the year ended December 31, 1998 we invested
$6.8 million in U.S. and $1.5 million in Asian long-term investments, consisting
of nonmarketable and marketable equity securities. We have funded these
investments by cash generated from operations and the sale of our equity.
RECENT DEVELOPMENTS AND OUTLOOK
On October 19, 1999, we announced our results for the three and nine months
ended September 30, 1999. In the three months ended September 30, 1999, our
revenues increased 122% to $29.8 million from $13.4 million in the three months
ended September 30, 1998. In the nine months ended September 30, 1999, our
revenues increased 106% to $71.8 million from $34.9 million in the nine months
ended September 30, 1998. Our revenues increased primarily due to the
accelerating demand for e-business solutions, and, more specifically, the strong
market acceptance of our products and services. Net income in the three months
ended September 30, 1999 increased 156% to $4.5 million from $1.8 million in the
three months ended September 30, 1998. Net income in the nine months ended
September 30, 1999 increased 452% to $10.7 million from $1.9 million in the nine
months ended September 30, 1998. Our net income increased primarily due to our
increased revenues but also because our operating margin in the three months
ended September 30, 1999 improved to 13% from 7% in the three months ended
September 30, 1998. In the nine months ended September 30, 1999, our operating
margin improved to 13% from 2% in the nine months ended September 30, 1998.
In the three months ended September 30, 1999, our earnings per diluted
share increased 137% to $0.05 per diluted share from $0.02 per diluted share in
the three months ended September 30, 1998. In the nine months ended September
30, 1999, our earnings per diluted share increased 392% to $0.13 per diluted
share from $0.03 per diluted share in the nine months ended September 30, 1998.
In the three months ended September 30, 1999, we licensed approximately 56
new end-user customers and 16 partners, which compares with approximately 19 new
end-user customers and 10 partners in the three months ended September 30, 1998.
In the nine months ended September 30, 1999, we licensed approximately 138 new
end-user customers and 40 partners, as compared to approximately 64 new end-user
customers and 21 partners in the nine months ended September 30, 1998. As of
September 30, 1999, we have licensed over 335 end-user customers and 100
partners, as compared to approximately 169 end-user customers and 69 partners as
of September 30, 1998.
In the three months ended September 30, 1999, our customers commercially
deployed 31 Web sites using our products, which compares with 23 commercially
deployed Web sites in the three months ended September 30, 1998. In the nine
months ended September 30, 1999, our customers commercially deployed 72 Web
sites using our products, which compares with
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<PAGE> 34
59 commercially deployed Web sites in the nine months ended September 30, 1998.
As of September 30, 1999, our customers have commercially deployed over 180 Web
sites using our products, which compares with 90 commercially deployed Web sites
as of September 30, 1998.
To date, we have achieved good market acceptance for our products and have
experienced continued revenue growth. We anticipate that international revenues
will continue to account for a significant amount of total revenues, and we
expect to continue to commit significant time and financial resources to the
maintenance and ongoing development of direct and indirect international sales
and support channels. Our Asia/Pacific operations have experienced reduced
growth rates over recent years as a result of the generally weak economic
conditions of that region. As a result we expect that any significant growth in
international revenues will most likely come from European operations. We cannot
assure you that we will be able to maintain or increase international or
domestic market acceptance for our suite of products.
We expect that research and development, sales and marketing, and general
and administrative expenses will continue to increase in absolute dollar terms
as we continue to expand our business.
We expect that the net proceeds from this offering, our available cash
resources, cash generated from operations, and amounts available under our
commercial credit facilities will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, we may need to raise additional funds 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, our stockholders' percentage ownership will be reduced,
they may experience additional dilution, or these newly issued equity securities
may have rights, preferences, or privileges senior to those of our current
stockholders. Additional financing may not be available when needed on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could harm our business.
YEAR 2000 COMPLIANCE
BACKGROUND AND RISKS -- Many currently installed computer systems and
software and devices with imbedded technology are coded to two digits for time
sensitive dating purposes. Beginning with the year 2000, these date code fields
will need to be coded to four digits in order to distinguish between 21st
century dates and 20th century dates. For example, computer programs that have
date-sensitive software may incorrectly recognize a date using "00" as the year
1900 rather than the year 2000. As a result, computer systems, software products
and devices with embedded technology used by many companies may need to be
upgraded to comply with these "Year 2000" requirements. This type of Year 2000
error could potentially cause system failures or miscalculations that could
disrupt operations, including a temporary inability to process transactions,
issue invoices or engage in similar normal business activities. Although we
believe that our products are Year 2000 compliant, undetected Year 2000 errors
or defects could result in delay or loss or revenue, diversion of development
resources, damage to our reputation and increased service and warranty costs. We
believe that the purchasing patterns of customers could potentially be affected
by Year 2000 issues as companies expend significant resources to correct or
patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
like ours. Other systems or software used by our customers may not be Year 2000
compliant. The failure of noncompliant third-party software or systems could
affect the perceived performance of our products.
STATE OF READINESS -- We use various financial and managerial information
systems within our operations in the United States, Europe and Asia, which we
believe to be or will be Year
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<PAGE> 35
2000 compliant by the end of 1999. As part of our normal course of business, we
analyze our information system requirements in relation to our business
operating goals and strategic objectives, and we are implementing new systems
during 1999 that will be Year 2000 compliant. We have also analyzed our other
systems and our material suppliers and vendors for Year 2000 issues and we
believe they are or will be Year 2000 compliant by the end of 1999. These other
systems include non-information technology systems and services used by us in
our business operations, such as power, telecommunications, security and general
facilities.
COSTS FOR YEAR 2000 COMPLIANCE -- Costs that we may incur pertaining to
Year 2000 compliance issues include identification, assessment, remediation and
testing efforts, as well as potential costs to be incurred by us with respect to
Year 2000 issues of third parties. To date, the costs we have incurred related
to Year 2000 issues have been minimal, even in cases where non-compliant
information technology systems were redeployed or replaced.
CONTINGENCY PLANS -- We have a contingency plan for handling Year 2000
problems that are not detected and corrected prior to their occurrence, and we
are continuing to assess our Year 2000 exposure areas in order to determine what
additional steps, beyond those identified by our internal review to date, are
advisable. Our contingency plan includes adequate internal resources that would
be available to analyze, assess and direct remediation efforts to address
potential issues, back-up systems that do not rely on computers, and alternative
sources of supply. We presently believe that the Year 2000 issue will not pose
significant operational problems for us. However, any failure of ours to
adequately address any unforeseen Year 2000 issue could harm our business. In
addition, if all of the Year 2000 issues are not properly identified, or
adequate assessment, remediation and testing are not timely effected with
respect to Year 2000 problems that are identified, we cannot assure you that the
Year 2000 issue would not harm our results of operations or our relationships
with customers, vendors, partners or others. Additionally, we cannot assure you
that the Year 2000 issues of other entities will not harm our systems or results
of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137,
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Accordingly, we will adopt SFAS No. 133, as amended, beginning on January 1,
2001. SFAS No. 133 establishes standards for the accounting and reporting of
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts. Under SFAS No. 133, entities are
required to carry all derivative instruments at fair value on their balance
sheets. The accounting for changes in the fair value (i.e., gains or losses) of
a derivative instrument depends on whether it has been designated and qualifies
as part of a hedging activity and the underlying purpose for it. We do not
believe that the adoption of SFAS No. 133 will have a significant impact on our
consolidated financial statements or related disclosures.
In December 1998, the Accounting Standards Executive Committee of the AICPA
issued SOP 98-9 Software Revenue Recognition, With Respect to Certain
Transactions, which requires recognition of revenue using the "residual method"
in a multiple-element arrangement when fair value does not exist for one or more
of the delivered elements in the arrangement. Under the "residual method", the
total fair value of the undelivered elements is deferred and subsequently
recognized in accordance with SOP 97-2. We do not expect a material change to
our revenue accounting as a result of the provisions of SOP 98-9.
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<PAGE> 36
BUSINESS
OVERVIEW
We develop, market and support application software solutions for
one-to-one relationship management across the extended enterprise. These
solutions enable businesses to use the Internet as a platform to conduct
electronic commerce, offer online customer self-service and support, deliver
targeted information and provide online financial services. Each of these
capabilities can be provided to all constituents of the extended enterprise,
including: customers, suppliers, partners, distributors and employees. The
BroadVision One-To-One product suite allows businesses to tailor their Web site
content to the needs and interests of individual users by personalizing each
visit on a real-time basis. Our applications interactively capture Web site
visitor profile information, organize the enterprise's content, target that
content to each visitor based on easily constructed business rules, and execute
transactions. We believe the benefits of these applications include enhanced
customer satisfaction and loyalty, increased business volume, greater brand
awareness, reduced costs to service customers and to execute transactions, and
enhanced employee productivity.
INDUSTRY BACKGROUND
ONE-TO-ONE RELATIONSHIP MANAGEMENT ON THE INTERNET
The Internet has changed the nature of business operations and competition
by creating more efficient marketplaces. Information is much more readily
available than ever before. Companies, their customers, suppliers, partners,
distributors, employees and others now have the means to instantaneously share
information, automate business processes and conduct business on a global scale.
Since business customers and consumers have the ability to change vendors at the
click of a button, the need for differentiation and thus the need to personalize
business interactions has greatly increased.
In the past, personalization of products or services was expensive and
inefficient for business customers. Companies had to rely on mass market
channels or expensive face-to-face interactions. Moving from a mass market
channel down to the level of one-to-one is now possible with the advent of the
Internet and the ability to react to customers', partners' and employees'
information and self-service needs in real time. More specifically, with the
Internet, business managers have the ability to capture visitor profile
information, observations and feedback interactively, and to dynamically target
useful information to visitors based on this data. One-to-one relationship
management allows a company to use its knowledge of its customers, suppliers,
partners, distributors and employees to provide personalized interactions and
thus strengthen relationships and loyalty and create and sustain competitive
advantage. One-to-one relationship management provides the foundation for
delivering individually tailored products, services, information, incentives and
transactions. Whether an Internet application is designed primarily for
conducting commerce or providing customer self-service, it offers businesses an
opportunity to extend front-office services or deliver knowledge in a
personalized and cost-effective way to all constituents of the extended
enterprise. In particular, business managers can use advanced Internet
technologies to engage in personalized dialogues with millions of customers.
THE TECHNOLOGY GAP ON THE INTERNET
Managing personalized customer relationships and a high volume of online
transactions and defining business rules are highly complex processes for
business managers. In addition, Web 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 often
"hard-coded" into programs and virtually impossible for non-technical managers
to change
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<PAGE> 37
dynamically. Many of today's Web development tool kits that assist in Web site
development do not offer capabilities for easily maintaining site content and
page generation logic. Most applications are not scalable and require ongoing
tuning and re-engineering to keep up with visitor growth and changes in Internet
technology. Generally, with currently available applications, 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. Developing and maintaining custom applications reduces the resources
available for core business initiatives.
PACKAGED APPLICATIONS FOR ONE-TO-ONE RELATIONSHIP MANAGEMENT
The inefficiencies of using in-house development and support for one-to-one
relationship management have fueled the need for sophisticated packaged
application solutions. These packaged applications provide an attractive
alternative to in-house or third-party custom application development, enabling
companies to get to market more quickly with a solution that can be more readily
maintained and extended as the business evolves. Packaged applications can be a
particularly attractive alternative to in-house or third-party custom
applications development if they can be easily integrated into a company's
existing infrastructure and tailored to the vertical segment in which the
business operates.
To realize the potential of one-to-one relationship management, packaged
applications must support the following activities:
- Attract, retain and service visitors that range from the casual to the
sophisticated by providing dynamic content, interactive dialogues and
communities of interest in a friendly, easy-to-use Web site environment;
- Provide non-technical business managers with the ability to define and
modify the application's business rules and content in real time;
- 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;
- Dynamically target personalized content, products and incentives to
correspond to profile data in order to motivate visitors to interact and
conduct transactions;
- Integrate and interact with back office systems to fully utilize a
company's data and information resources;
- Fulfill financial and information transactions with secure electronic
commerce processes; and
- Offer a consistent end-user experience across multiple customer touch
points such as interactive voice response systems and call centers.
We believe that this trend toward packaged solutions is typical of the
evolution of many uses of business automation software, including accounting,
manufacturing, human resources and sales force management systems.
OUR SOLUTION
We offer a suite of packaged applications and related services to enable
effective one-to-one relationship management. The BroadVision One-To-One product
suite enables companies to capitalize on the Internet, intranets and extranets
for selling, marketing and supporting all of their business constituents:
customers, suppliers, partners, distributors, employees and others. Our products
enable these businesses to organize dynamic profiles of Web site users from
volunteered data and observed behavior, deliver highly specialized content in
response to these
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<PAGE> 38
profiles and securely execute transactions. Business managers are able to modify
business rules and content in real time, offering a personalized experience to
each visitor. Because of the open architecture of our applications, they are
easily integrated with our customers' existing systems and easily expanded as
our customers' needs and businesses grow.
We believe our products enhance our customers' revenue opportunities by
enabling them to build long-term relationships. Their Web site visitors are
engaged by highly personalized real-time interactions and the ability to
transact business securely and are encouraged to remain on the Web site and make
return visits. Our applications also improve the cost-effectiveness of one-to-
one relationship management by enabling non-technical managers to modify
business rules and content in real time and by helping to reduce costs of
customer acquisition and retention, business development and technical support.
In addition, the packaged solution nature of our products decreases our
customers' time to market and allows them to easily manage and expand their Web
sites in a cost-effective manner. Our targeted applications, BroadVision One-
To-One Retail Commerce, BroadVision One-To-One Business Commerce, BroadVision
One-To-One Financial and BroadVision One-To-One Knowledge, have the specific
benefits of addressing personalization needs in the areas of Internet commerce,
Internet financial services and corporate information distribution and
development.
OUR STRATEGY
Our objective is to establish our one-to-one real-time relationship
management solution as the standard for Web sites worldwide. In order to achieve
that objective, we have adopted the following key elements of our strategy:
BECOME THE STANDARD FOR ONE-TO-ONE RELATIONSHIP MANAGEMENT SOLUTIONS. We
intend to establish the BroadVision One-To-One product suite as the standard for
Internet-based one-to-one relationship management across the extended
enterprise. We believe that the growth of one-to-one relationship management
will be driven by complete packaged application solutions that allow businesses
to capitalize more fully on the Internet as a business venue for interacting
with the constituents of their extended enterprise. We believe that we offer the
most complete solution available today for extended one-to-one relationship
management. We intend to maintain our leadership position and become the
standard by continuing to enhance our technology through heavy investment in
research and development activities, incorporating industry-leading components
into our products and employing our technology and human resources as a source
of ongoing technological advantage.
DEVELOP AND ENHANCE OUR TARGETED APPLICATION SOLUTIONS. We will continue to
leverage our core BroadVision One-To-One Enterprise product and our experience
gained from each customer engagement to enhance our application products and
services focused on specific horizontal and vertical markets. Utilizing our
expanding libraries of reusable application objects and templates and working
closely with customers and strategic partners, we believe our products can
deliver targeted application solutions for one-to-one relationship management
that are faster, are of higher quality and have a lower total cost of ownership
than those of our competitors. We currently deliver targeted application
solutions for business-to-consumer and business-to-business commerce, for
financial services and for knowledge management. We intend to remain nimble and
flexible in developing other packaged application products in the general area
of one-to-one relationship management in response to market opportunities that
may arise.
PROVIDE A WIDE RANGE OF PROFESSIONAL SERVICES FOR OUR CUSTOMERS. We will
continue to provide a wide range of professional services to help our customers
develop, integrate, design, implement and support their Web sites. We believe
that our professional services are a critical component of our solutions and
that they have a significant role in ensuring that our customers use our
products successfully and effectively. The demand for our professional services
continues to expand rapidly, and we will leverage our systems integrator
partners in providing
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<PAGE> 39
professional services to our customers. We will also continue to expand our own
professional services capabilities to meet this demand.
EXPAND AND LEVERAGE ALLIANCES WITH KEY BUSINESS PARTNERS. To accelerate the
acceptance of our products and to promote the adoption of the Web as a
commercial marketplace, we have developed cooperative alliances with leading
systems integrators, Internet technology vendors and Web site developers. As of
September 30, 1999, we have signed business alliances with over 100 systems
integration, design, consulting and other services organizations worldwide,
which has expanded our sales and support infrastructure and post-sales
implementation capabilities while broadening market awareness of our products.
We believe that these alliances will provide additional sales and marketing
channels for our products, enable us to more rapidly incorporate additional
functions and platforms into our products and facilitate the successful
deployment of customer applications.
By leveraging our business alliances we intend to:
- increase the number of personnel available to perform application design
and development services for our customers;
- expand our distribution channels; and
- provide additional marketing expertise in certain industry segments while
providing technical expertise in the development of reusable objects and
templates.
We will continue to place an emphasis on establishing additional alliances as
new technologies and standards emerge, although we cannot assure you that we
will be successful in establishing or maintaining such alliances.
GROW OUR INTERNATIONAL PRESENCE. To capitalize on the emergence of the
Internet as a global network, we have established worldwide distribution
capabilities with direct or distributor sales personnel in 43 cities worldwide.
We intend to continue to certify providers of professional services for our
products in these and other countries. Our partners include multinational
systems integrators, as well as partners with a single-country scope of
operations. Our product architecture is designed to support multiple languages.
We currently have available for shipping versions of our BroadVision One-To-One
Enterprise product that support the display of content and interface in Arabic,
Chinese, Hebrew, Japanese, Korean, Slovakian and Turkish as well as most Western
European languages.
Our strategies involve substantial risk. We cannot assure you that we will
be successful in implementing our strategies or that our strategies, even if
implemented, will lead to successful achievement of the our objectives. If we
are unable to implement our strategies effectively, our business may be harmed.
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PRODUCTS
We develop, market and support a suite of packaged applications for
one-to-one relationship management and associated software tools for use in
customizing and maintaining solutions built with these applications.
The table below summarizes certain features of our packaged application
products:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PRODUCT NAME PRODUCT DESCRIPTION
- -------------------------------------------------------------------------------------------------------
Core Application Product:
BroadVision One-To-One Enterprise The core product. Packaged application
solution for rapid development and real-
time operation of large-scale,
personalized Internet, intranet and
extranet business applications. Each of
the following targeted application
products includes the functionality of
BroadVision One-To-One Enterprise.
- -------------------------------------------------------------------------------------------------------
Targeted Application Products:
BroadVision One-To-One Retail Commerce Packaged application solution for
electronic retail commerce.
BroadVision One-To-One Business Commerce Packaged application solution for
business-to-business commerce.
BroadVision One-To-One Financial Packaged application solution for online
financial services companies.
BroadVision One-To-One Knowledge Packaged application solution for online
knowledge management.
</TABLE>
- --------------------------------------------------------------------------------
The table below summarizes certain features of our tool products:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PRODUCT NAME PRODUCT DESCRIPTION
- -------------------------------------------------------------------------------------------------------
BroadVision One-To-One Design Center PC-based tool enabling application
developers and Web authors to quickly and
easily build dynamic Web page templates.
- -------------------------------------------------------------------------------------------------------
BroadVision One-To-One Command Center PC-based tool enabling business managers
to monitor state of Web applications,
interactively change business rules using
wizards in real time and generate reports.
- -------------------------------------------------------------------------------------------------------
BroadVision One-To-One Publishing Center Browser-based tool enabling content
developers and editors to manage the
publishing of new content to the Web site.
- -------------------------------------------------------------------------------------------------------
BroadVision One-To-One Instant Publisher Browser-based tool for casual content
developers.
</TABLE>
- --------------------------------------------------------------------------------
BROADVISION ONE-TO-ONE APPLICATION PRODUCTS
Our five application products -- BroadVision One-To-One Enterprise,
BroadVision One-To-One Retail Commerce, BroadVision One-To-One Business
Commerce, BroadVision One-To-One Financial and BroadVision One-To-One
Knowledge -- provide a spectrum of complementary capabilities offering numerous
business functions and supporting the needs of companies in different
industries.
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BROADVISION ONE-TO-ONE ENTERPRISE. Our base product that provides the
technology platform on top of which the targeted market BroadVision One-To-One
application products are built. This flexible relationship management system
contains cross-industry functionality such as profile and content management,
adapters to third-party systems, and matching technologies and algorithms. It
utilizes an open, scalable application architecture for Web session management,
secure user authentication and authorization, dynamic and personalized page
generation and transaction handling.
BROADVISION ONE-TO-ONE RETAIL COMMERCE. Our enterprise-class application
solution that enables fast-moving, high transaction volume companies to
immediately change their products, prices, promotions and other content to
better meet user needs, even on a user's first visit to a Web site. Full
commerce transaction capabilities include persistent shopping carts, shopping
lists, real-time pricing, automatic tax calculation, shipping and handling cost
computation, payment processing, and order fulfillment and management.
BROADVISION ONE-TO-ONE BUSINESS COMMERCE. Our enterprise-class application
solution that allows companies to effectively integrate with their business
customers' existing systems. BroadVision One-To-One Business Commerce enhances
the ability of a company to support business-to-business transactions by
providing pricing, shipping and handling, tax calculation, payment processing,
customer service, security and order processing capabilities.
BROADVISION ONE-TO-ONE FINANCIAL. Our enterprise-class financial services
application solution that enables banks, brokerages, mutual fund companies and
other financial institutions to rapidly deploy personalized financial services
applications that enable customers to access their account information and
perform a rich set of secure transactions within and between accounts using the
Internet. BroadVision One-To-One Financial provides customers with a Web site
that offers customized interactions that enable financial institutions to
differentiate themselves while enhancing customer relationships.
BROADVISION ONE-TO-ONE KNOWLEDGE. Our enterprise-class application solution
designed to increase the productivity of corporate knowledge workers, including
sales and marketing professionals, channel business partners and executive
management. Optimized for rapid deployment over corporate intranets and
extranets, this application enables individuals and work groups to organize
information into flexible, interactive knowledge channels accessible through Web
browsers. These interactive channels automate the intelligent distribution of
information for employees and partners on a one-to-one, just-in-time basis
throughout an enterprise.
KEY CAPABILITIES OF OUR APPLICATION PRODUCTS
We designed all of these applications products for use in mission-critical,
high-performance environments by customers with demanding architecture,
deployment and maintenance requirements. Some of the key capabilities of the
applications include:
BROAD APPLICABILITY -- robust functionality to support
business-to-business, business-to-consumer and business-to-employee
relationship management, including personalized marketing and
communications, selling and commerce transaction handling and customer
self-service.
EASE OF USE -- separation of the business logic from the applications,
allowing non-technical business managers to modify business rules and
content in real time.
SCALABILITY -- ability to support large numbers of simultaneous users
accessing the system over the Internet, intranets or extranets.
MODULAR COMPONENT ARCHITECTURE BASED ON OPEN STANDARDS -- object-oriented
application code written in C++, Java and JavaScript allowing developers
and system integrators to use, integrate, modify, adapt or extend the
applications with minimal impact on other areas
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to create a rapidly customized product that meets the specific business
requirements of a particular corporate customer. Support for the CORBA
standard for object-oriented computing permits distribution of the
application across multiple processors. This design enables high-volume
performance, flexible application deployment and easy integration with
other third-party or legacy applications.
SECURE TRANSACTION PROCESSING -- secure handling of a wide-range of
commerce and financial services transactions including order pricing and
discount/incentive handling, tax computation, shipping and handling
charges, payment authorization, credit card processing, order tracking,
news and stock feeds -- through a combination of built-in functionality and
integration with other products.
MULTIPLE PLATFORMS -- availability of versions for multiple operating
systems, including Sun Solaris, Microsoft Windows NT and HP-UX. Databases
supported include Oracle, Sybase, Informix and Microsoft SQL Server.
MULTILINGUAL -- availability of content display and interface in Arabic,
Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish and most Western
European languages.
BROADVISION ONE-TO-ONE TOOLS
Our application products are customized and maintained using tools that are
licensed to customers separately from the application products. Inherent to the
functionality of our applications is a set of building blocks comprised of
customizable components, application templates and rule sets that are
instrumental in rapidly building and easily maintaining BroadVision One-To-One
application products. A description of our tools products is as follows:
BROADVISION ONE-TO-ONE DESIGN CENTER. A PC-based tool integrated with
Macromedia(R)'s Dreamweaver 2 that offers Web authors and Internet application
developers faster time to market by shortening the development cycle. It also
requires fewer specialized skills and reduces overall development and
maintenance costs. This tool gives the Web author direct access to our powerful
personalization and functional components through a series of wizards in the
Dreamweaver visual development environment. These wizards generate server-side
JavaScript, which is the primary programming language for our applications. By
making simple point and click choices, the Web author can visually construct a
complete, dynamic application without having to write HTML or JavaScript. In
addition, because the wizards directly access information on our development
server, the code is generated correctly the first time, reducing human error.
The result is increased productivity and accuracy.
BROADVISION ONE-TO-ONE COMMAND CENTER. A PC-based tool that allows
non-technical business managers to make rapid changes to the Web site without
programmer intervention. With this tool, business managers can define rules
incorporating "if-then" relationships to match content to users based on profile
information, transaction history, session behavior and other data. They can also
develop business rules that evaluate user information gathered during previous
interactions and use it to target products and services during subsequent
interactions. Also, business managers can make real-time changes to content and
generate management reports that monitor the activity on their Web site,
enabling the evaluation of the effectiveness of content and services being
offered on the site.
BROADVISION ONE-TO-ONE PUBLISHING CENTER. A Java- and Web-based tool that
allows a distributed and remote team of non-technical content experts to manage
most aspects of site content collaboratively, including creating, editing,
staging, production and archiving. This tool provides personal and shared
in-boxes that enable teams of content creators to collaborate in developing
content. A programming calendar facilitates staging, scheduling and coordination
of content publishing. This tool provides the ability to preview content prior
to publishing, to control
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access to publishing and to capture content classification information. It
supports content created with HTML editors, Microsoft Office products and Lotus
Domino.
BROADVISION ONE-TO-ONE INSTANT PUBLISHER. A Java- and Web-based tool
designed for casual content contributors. It provides simple, personalized
publishing forms, so that casual contributors can leverage the functionality of
the BroadVision One-To-One Publishing Center without becoming expert users.
OTHER PRODUCTS
In addition to our proprietary products, we have entered into agreements
that enable us to resell third-party software products from Bluegill,
CyberSource, Informix, Interwoven, IONA Technologies, Macromedia, Net
Perceptions, Oracle, Sybase and Verity. These are sublicensed to end users and
either incorporated in or sold as options to our products. License revenue from
these third-party products was insignificant and constituted less than 2% of
total software product license revenues in each of the years ended December 31,
1996, 1997 and 1998 and approximately 4% in the six months ended June 30, 1999.
PRODUCT DEVELOPMENT
We believe that our future success will depend in large part on our ability
to enhance the BroadVision One-To-One product suite, develop new products,
maintain technological leadership and satisfy an evolving range of customer
requirements for large-scale interactive online relationship management
applications. Our 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
products to operate with the leading hardware platforms, operating systems,
database management systems and key electronic commerce transaction processing
standards. Since inception, we have made substantial investments in product
development and related activities. Certain technologies have been acquired and
integrated into BroadVision One-To-One products through licensing arrangements.
As of June 30, 1999, there were 75 employees in our product development
organization. Our research and development expenses were $5.0 million in the
year ended December 31, 1996, $7.4 million in the year ended December 31, 1997,
$9.2 million in the year ended December 31, 1998, and $6.2 million in the six
months ended June 30, 1999. To date, we have not capitalized any software
development costs as products are made available for general release relatively
concurrent with the establishment of technological feasibility. We expect to
continue to devote substantial resources to our product development activities.
PROFESSIONAL SERVICES
Our Worldwide Professional Services Organization provides a broad range of
consulting services in support of all of our products. This organization
provides business application expertise, technical know-how and product
knowledge to complement our products and to provide solutions that meet customer
business requirements. By using our services, customers are able to build a
customized application solution to maximize the benefits of one-to-one
relationship management. A summary of the professional services that we provide
is as follows:
STRATEGIC SERVICES. We provide business strategy and process consulting to
assist customers in defining and planning profitable online businesses. Services
include in-depth needs analysis, customer segmentation, site storyboarding and
preparation of detailed plans and procedures necessary to achieve timely and
successful implementation of our software products. Strategic Services
consulting is generally offered on a time and materials basis.
INTERACTIVE SERVICES. We provide technical services for development of
customized BroadVision One-To-One applications, custom interfaces, data
conversions and system integra-
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tion. These consultants participate in a wide range of activities, including
requirements definition and application design, development and implementation.
These consultants also provide advanced technology services focused on
application development for custom objects and templates and database
administration and tuning. Interactive Services consulting is generally offered
on a time and materials basis.
CONTENT AND CREATIVE SERVICES. This group specializes in content
management, sourcing, workflow processes and user-interface design. The group is
made up of BroadVision One-To-One product design experts and a variety of
leading design houses. This unique team combines extensive interactive design
and marketing experience to build effective user interfaces. Content and
Creative Services consulting is generally offered on a time and materials basis.
EDUCATION SERVICES. These services are offered to customers either at our
education facilities or at the customers' locations, as either standard or
customized classes. These classes are priced at either fixed daily rates or on a
per-class basis.
TECHNICAL SUPPORT. Under our standard maintenance agreement, we provide
telephone support and upgrade rights to new releases (including patch releases
as necessary) and product enhancements. The annual maintenance fee for these
services is based upon a percentage of the then-current list price for the
licensed software fee, payable annually in advance.
STRATEGIC ALLIANCES
A significant element of our sales strategy is to engage in strategic
business alliances to assist us in marketing, selling and developing customer
applications. As of June 30, 1999, we have developed key strategic business
alliances with over 95 systems integration, design, consulting and other
services organizations throughout the world, including Andersen Consulting,
ASE/Broadiant, Cambridge Technology Partners, Ernst & Young, Hewlett-Packard,
Itochu, GranVia Internet, NTT Data, Security First and Sema.
In April 1999, we announced a strategic alliance with Hewlett-Packard.
Hewlett-Packard has agreed to resell and support the current BroadVision
One-To-One product suite and to co-develop, sell and support integrated
business-portal solutions that will act as the interface to next generation
e-services for enterprise customers. Hewlett-Packard is leveraging its
approximately 5,000 person global sales force to resell and support the current
BroadVision One-To-One product suite. The new co-developed products are being
developed to run on multiple platforms and to enable enterprise customers to
deploy quickly and easily a series of advanced, personalized business-portal
solutions that provide integrated commerce, marketing and customer-relationship
management across Web sites, e-mail, call centers, PCs, kiosks, mobile phones
and personal digital assistants.
Additionally, we have developed key technology partnerships with leading
Internet focused companies in areas complementary to our solutions, such as data
analysis and reporting, enterprise application integration, enterprise Web
management, call center management, voice recognition, payment processing,
auctioning and XML. These technology partnerships enhance our ability to base
our products on industry standards and to take advantage of current and emerging
technologies. These alliances include companies such as Andromedia, BroadBase
Software, Genesys Systems, Hewlett-Packard, Interwoven, Nuance Communications,
Moai Technologies, OnDisplay, PaylinX, Pegasystems and Security First. Our
technology partnerships support our strategy of integrating throughout the
extended enterprise, from multiple touchpoints such as Nuance's voice
recognition/voice response technology, to integration with enterprise
applications using technology such as Active Software's ActiveWorks.
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CUSTOMERS AND MARKETS
As of September 30, 1999, we have licensed our products to over 335
end-user customers and 100 partners. As of September 30, 1999, our products were
commercially deployed in over 180 live Web sites. We have targeted a number of
markets that we believe to be especially conducive to one-to-one relationship
management applications such as financial services, manufacturing, media and
publishing, retail and distribution, technology, telecommunications, and
transportation. Our primary target customers are Global 2000 organizations that
are at the forefront of building innovative Internet applications to increase
revenues and reduce operational costs. We also target pure-play Internet
companies that have built or are building their core businesses on the Internet.
In the year ended December 31, 1998 and during the nine months ended September
30, 1999, one customer accounted for approximately 11% of our total revenues.
The following table sets forth a representative list of our customers
organized by industry segment.
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------
TARGET INDUSTRY SAMPLE APPLICATIONS SAMPLE CUSTOMERS
- ----------------------------------------------------------------------------------------
Financial services and Home banking Banco Santander
insurance Online brokerage Banque Cantonale de Geneve
Obtaining information on and CCF France
selecting: Citigroup
-Loans Credit Suisse
-Mutual funds The Hartford
-Insurance
-Knowledge management USAA
- ----------------------------------------------------------------------------------------
High technology and Knowledge management Advanced Paradigm
manufacturing Business-to-business Hewlett-Packard
purchasing Macromedia
Business-to-consumer Nortel Networks
purchasing Xerox
- ----------------------------------------------------------------------------------------
Internet Electronic storefronts chipshot.com
Mercata
Outpost.com
Pets.com
- ----------------------------------------------------------------------------------------
Retail and distribution Online shopping Circuit City
Interactive catalogues cozone.com
Hallmark Cards
The Home Depot
OfficeMax
Sears Roebuck
Wal-Mart
- ----------------------------------------------------------------------------------------
Travel and leisure Reservations Air Miles
Travel planning American Airlines
Brand projection, loyalty
programs and affinity
marketing
- ----------------------------------------------------------------------------------------
Telecommunications Commerce: British Telecom
Business-to-business and CellNet
business-to-consumer SwissCom
Online services Telia
Self-service (call centers) TELUS
Vodafone
- ----------------------------------------------------------------------------------------
</TABLE>
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SALES AND MARKETING
We market our products primarily through a direct sales organization with
operations in North America, Europe and Asia/Pacific. On June 30, 1999, our
direct sales organization included 109 sales representatives, managers and sales
support. We have a sales office at our headquarters in Redwood City, California
and have North American sales offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles, Minneapolis and New York City and a sales and service office in
Washington D.C. for the U.S. Federal Government. We have sales offices in
London, England; Paris, France; Wanchai, Hong Kong; Munich, Germany; Milan,
Italy; Tokyo, Japan; Amsterdam, The Netherlands; Wheelock Place, Singapore; and
Basel, Switzerland.
A component of our strategy is continued expansion of our international
activities. We intend to broaden our presence in international markets by
expanding our international sales force and by entering into additional
distribution agreements. We also contract with third-party resellers,
distributors and systems integrators in North America, South America, Europe and
Asia. We intend to increase our use of this distribution channel.
Initial sales activities typically include a demonstration of BroadVision
One-To-One product suite capabilities at the prospect's site, followed by one or
more detailed technical reviews, often presented at our headquarters. The sales
process usually involves collaboration with the prospective customer in order to
specify the scope of the application. Our professional services organization
typically plays a key role in helping customers to design, and then develop,
their applications.
Our marketing efforts are targeted at:
- product strategy development and product management;
- building market awareness through press and analysts;
- producing and maintaining marketing information and sales tools;
- generating and developing customer leads; and
- sourcing and managing relationships with systems integrators, value-added
resellers, creative design and advertising agencies and technology
partners.
As of June 30, 1999, 40 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 and maintaining our Web site.
COMPETITION
The market for one-to-one relationship management applications is rapidly
evolving and intensely competitive. We expect competition to persist and
intensify in the future. Our primary competition currently includes the
following:
- in-house development efforts by prospective customers or partners;
- other vendors of application software or application development
platforms and tools directed at interactive commerce and financial
services, like ATG, InterWorld, Open Market and Vignette;
- Web content developers that develop custom software or integrate other
application software into custom solutions;
- International Business Machines; and
- Microsoft.
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The principal competitive factors affecting the market for our products are:
- depth and breadth of functionality offered;
- ease of application development;
- time required for application development;
- reliance on industry standards;
- product reliability;
- proven track record;
- scalability;
- maintainability;
- personalization and other features;
- product quality;
- price; and
- customer support.
We believe that we presently compete favorably with respect to each of these
factors. However, our market is still evolving, and we cannot assure you that we
will be able to compete successfully with current or future competitors.
TECHNOLOGY
We believe that the technical demands of interactive one-to-one
relationship management on the Internet require an architectural design that is
standards based, open, interoperable and flexible. We have designed our current
product suite as a modular, component based 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 product suite provides an
efficient architecture for customers and partners to build, modify, and control
applications, as well as to integrate them with external business systems. We
believe this architecture also provides a robust foundation on which we can
rapidly develop new products.
We believe our advanced technology enables the delivery of robust, scalable
and innovative one-to-one relationship management solutions into the market
faster and at a lower cost than alternatives. Our technology consists of the
following key elements:
ADHERENCE TO INDUSTRY STANDARDS
Adherence to industry standards protects a customer's investment by
providing compatibility with existing applications, enabling ease of
modification and reducing the need for software to be rewritten. We have
invested substantially in developing our architecture to comply with CORBA, a
standard for applications software design and development widely adopted in the
commercial software industry. 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 application
programming interfaces through the use of the Interface Definition Language
specified by CORBA.
We are also strongly committed to Java and Java-based technologies such as
Enterprise Java Beans, and our application templates are written in JavaScript.
Most of our programs are written in C++ and Java, widely accepted standard
programming languages for developing
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object-oriented applications. In addition to CORBA, C++ and Java, we use other
widely accepted standards in developing our products, including SQL (Structured
Query Language) for accessing relational database management systems, CGI
(Common Gateway Interface) and HTTP (Hypertext Transfer Protocol) for Internet
access, NSAPI (Netscape Application Programming Interface) for access to
Netscape's Internet servers, SSL (Secure Socket Layer) for secure transmissions
over networks and the RC2 and MD5 encryption algorithms supplied by RSA. Our
application products can be operated in conjunction with relational database
management systems provided by Informix, Microsoft, Oracle and Sybase.
N-TIER ARCHITECTURE
Our application products utilize a modular, N-tier architecture that
logically separates application presentation, business rules and data. Between
each of these tiers are session manager and adapters to integrate to external
business systems interface technologies, described below, that establish
seamless interoperability between application components. This architecture
partitions applications across:
- A front-end tier that manages the application presentation and interface
to Web site visitors;
- Application engine tiers that manage 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 relationship management applications. This layer utilizes a
lightweight component model, which can be distributed across multiple
logical and physical processors, thus enabling the N-tier design of the
application; and
- A back-end tier that integrates underlying database management systems
with external business systems that perform specialized relationship
management functions.
SESSION MANAGER
We have 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 relationship management
application. The session manager enables three key activities:
- Maintaining user profile information 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 in real time and
retrieving profile data and business rules to dynamically generate HTML
code that tailors content, Web pages and interactions to the needs and
interests of individual Web site visitors; and
- 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.
COMPONENTS AND APPLICATION TEMPLATES
We believe that the costs and time associated with Internet application
development and maintenance can be substantially reduced with our technology for
object-oriented application development. This technology consists primarily of
customizable components and application templates. Utilized in combination with
our 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
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maintained applications. In addition, application templates, written in
JavaScript, enable business managers to define and implement business rules
through the BroadVision One-To-One Command Center on a real-time basis. Our
consultants currently use these technologies to develop application solutions
for customers, and our Education Services Group offers training classes to
customers and partners on the use of components and application templates.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success and ability to compete are dependent to a significant degree on
our proprietary technology. We rely on a combination of patent, copyright,
trademark, service mark, trade secret laws and contractual restrictions to
protect our proprietary rights in products and services. We hold a patent issued
on January 20, 1998 to us, covering certain elements of our BroadVision
One-To-One Enterprise product. This patent is the subject of a lawsuit described
in "Risk Factors -- Our success and competitive position depends on our ability
to protect our proprietary technology." We have registered "BroadVision" and
"BroadVision One-To-One" as trademarks in the United States. We cannot assure
you that the steps taken by us will prevent misappropriation of our technology
or that agreements entered into for that purpose will be enforceable.
In addition, litigation like the lawsuit against ATG may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. We also
cannot guarantee that infringement or other claims will not be asserted or
prosecuted against us in the future whether resulting from our intellectual
property or licenses from third parties. Such claims or litigation, whether
successful or unsuccessful, could result in substantial costs and diversions of
resources, either of which could harm our business.
We rely upon certain software that we license from third parties, including
relational database management systems from Oracle and Sybase, object request
broker software from IONA Technologies, database access technology from Rogue
Wave Software and other software that is integrated with internally developed
software and used in our software to perform key functions. In this regard, all
of our services incorporate data encryption and authentication technology
licensed from RSA. There can also be no assurance that our third-party
technology licenses will continue to be available to us on commercially
reasonable terms, if at all. The loss of or inability to maintain any of these
technology licenses could result in delays in introduction of our products and
services until equivalent technology, if available, is identified, licensed and
integrated, which could have a material adverse effect on our business.
EMPLOYEES
As of June 30, 1999, we employed a total of 358 full-time employees, of
whom 291 are based in the United States, 50 in Europe and 17 in Asia. 149 of
these full-time employees are in sales and marketing, 75 are in product
development, 93 are in professional services and client support, and 41 are in
finance, administration and operations. We employed 271 full-time employees as
of December 31, 1998, 188 full-time employees as of December 31, 1997 and 148
full-time employees as of December 31, 1996.
We believe that our future success depends on attracting and retaining
highly skilled personnel. Competition for such personnel is intense, and we
cannot assure you that we will continue to be able to attract and retain
high-caliber employees.
Our employees are not represented by any collective bargaining unit. We
have never experienced a work stoppage and consider our employee relations to be
good.
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FACILITIES
Our principal administration, research and development, sales, consulting
and support facilities are located in Redwood City, California, where we occupy
approximately 60,000 square feet pursuant to a lease that expires in 2007. In
the year ended December 31, 1998, our rent for this facility was $1.1 million.
During March 1999, we entered into a lease agreement through December 2007 for
an additional 55,000 square feet of office space adjacent to our corporate
headquarters building in Redwood City, California. Our European headquarters are
located in Bottmingen, Switzerland, where we lease approximately 2,282 square
feet.
We also rent space in various cities to support our sales and field support
activities, including Irvine, CA; Hare Hatch, England; Courbevoie, France; Koln,
Germany; Munchen, Germany; Atlanta, GA; Wanchai, Hong Kong; Schaumburg, IL;
Tokyo, Japan; Burlington, MA; Bethesda, MD; Amersfoort, The Netherlands; New
York, NY; Wheelock Place, Singapore; Madrid, Spain; Dallas, TX; and McLean, VA.
We believe that our existing facilities are adequate to meet our needs for the
foreseeable future.
SUBSIDIARIES
The following is a list of our wholly owned subsidiaries and their
registered addresses:
- BroadVision U.K., Ltd., organized under the laws of England and Wales and
whose registered address is Hare Hatch Grange, Bath Road, Hare Hatch,
Berkshire, RG10 9SA, United Kingdom.
- BroadVision France S.A., organized under the laws of France and whose
registered address is 3 rue Houssaye, 75008, Paris, France.
- BroadVision Deutschland GmbH, organized under the laws of Germany and
whose registered address is Prinzregentenstrasse 20, 80538 Munchen,
Germany.
- BroadVision Asia Pacific Ltd., organized under the Companies Ordinance of
Hong Kong and whose registered address is Room 3203, 32/Fl Central Plaza,
18 Harbour Road, Wanchai, Hong Kong.
- BroadVision Srl, organized under the laws of Italy and whose registered
address is Via Conservatorio 22, 20122 Milano, Italy.
- BroadVision B.V., organized under the laws of The Netherlands and whose
registered address is Huizermaatweg 530, 1276 LM Huizen, The Netherlands.
- BroadVision Singapore PTE. LTD., organized under the laws of Singapore
and whose registered office is 16 Raffles Quay #23-01, Hong Leong
Building, Singapore 048681.
- BroadVision Switzerland, A.G., organized under the laws of Switzerland
and whose registered address is Fiechthagstrasse 4, 4103 Bottmingen,
Switzerland.
LEGAL PROCEEDINGS
On December 11, 1998, we filed a lawsuit against ATG in the Northern
District of California. The complaint alleges that ATG is infringing our U.S.
Patent No. 5,710,887 and seeks injunctive relief and unspecified damages. On
February 3, 1999, ATG filed an answer and counterclaim against us in which ATG
seeks judgment for non-infringement and invalidity of the patent. Trial is set
for October 16, 2000. While the outcome of this lawsuit cannot be predicted with
certainty, we currently expect that this lawsuit will not materially adversely
affect our business. See "Risk Factors -- Our success and competitive position
depends on our ability to protect our proprietary technology" for a description
of the risks associated with this lawsuit.
We are not a party to any other litigation or arbitration proceedings that
would have, or during the last two fiscal years have had, a material effect on
our business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The following table sets forth certain information regarding our directors,
executive officers and key personnel as of September 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Pehong Chen....................... 41 Chairman of the Board, Chief Executive Officer and
President
Randall C. Bolten................. 47 Chief Financial Officer and Vice President, Operations
Clark W. Catelain................. 52 Vice President, Engineering
Eric J. Golin..................... 39 Vice President, Chief Technology Officer
Michael A. Kennedy................ 36 Vice President of Global Strategic Alliances
Giuseppe Kobayashi................ 43 Vice President and General Manager of Asia/Pacific
Operations
Francois Stieger.................. 50 Vice President and General Manager of European
Operations
James W. Thanos................... 51 Vice President and General Manager, Americas
Perry W. Thorndyke................ 50 Vice President, Business Development
Sandra J. Vaughan................. 34 Vice President, Marketing
Kenneth L. Guernsey............... 47 Secretary
David L. Anderson(1)(2)........... 55 Director
Yogen K. Dalal(1)(2).............. 49 Director
Todd A. Garrett................... 52 Director
Koh Boon Hwee(2).................. 48 Director
Carl Pascarella................... 46 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
PEHONG CHEN has served as our Chairman of the Board, Chief Executive
Officer and President since our 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. Dr. Chen founded and, from 1989 to
1992, served as President of Gain Technology, a provider of multimedia
applications development systems, 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 our Chief Financial Officer and Vice
President, Operations, 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 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, 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 our Vice President, Engineering, since June
1995. From 1989 to May 1995, Mr. Catelain served as the Senior Vice President,
Engineering of Gupta, a supplier of client-server database products. Mr.
Catelain received a B.S. in Mathematics and Computer Science from Purdue
University.
ERIC J. GOLIN has served as our Vice President, Chief Technology Officer
since June 1999. From September 1997 to June 1999, Dr. Golin served as our Vice
President of Worldwide
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Professional Services. From September 1994 to September 1997, Dr. Golin served
as our Senior Architecture Engineer and later as Senior Director, Engineering.
From September 1993 to September 1994, Dr. Golin was a principal architect for
OpenVision Technology. From September 1989 to September 1993, Dr. Golin was
Assistant Professor of Computer Science at the University of Illinois at
Urbana-Champaign. Dr. Golin received an B.S., M.S. and a Ph.D. in Computer
Science from Brown University.
MICHAEL A. KENNEDY has served as our Vice President, Global Strategic
Alliances, since September 1997. From September 1995 to August 1997, Mr. Kennedy
served as Senior Director, Marketing. From August 1993 to August 1995, Mr.
Kennedy served as Director, New Media Business Development for Oracle, supplier
of database software. From December 1989 to July 1993, Mr. Kennedy served as
Senior Product Marketing Manager for Oracle. Mr. Kennedy received a B.S. in
Computer Science from the Aberdeen University, Scotland.
GIUSEPPE KOBAYASHI has served as our Vice President and General Manager of
Asia/Pacific Operations since January 1995. From 1994 to the present, Mr.
Kobayashi has also served as consultant to Wind River Systems, 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 Technology. From 1990 to 1992, Mr. Kobayashi
served as Managing Director of Asia Pacific Operations at Teradata, a supplier
of database software. Mr. Kobayashi holds a B.S. in Computer Science from the
University of San Francisco.
FRANCOIS STIEGER has served as our Vice President and General Manager of
European Operations 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.
JAMES W. THANOS has served as our Vice President and General Manager,
Americas since January 1998. From January 1995 to January 1998, Mr. Thanos
served as Vice President of North American Operations of Aurum Software, a sales
force automation company. From May 1994 to January 1995, Mr. Thanos served as
Vice President of Sales of Digital Equipment Corporation. From January 1993 to
December 1994, Mr. Thanos served as Vice President of Sales of Harvest Software,
an optical character recognition software company. From December 1988 to January
1993, Mr. Thanos served as Vice President of Sales Operations of Metaphor, a
decision support software company. Mr. Thanos holds a B.A. in International
Relations from Johns Hopkins University.
PERRY W. THORNDYKE has served as our Vice President, Business Development
since May 1998. From July 1997 to May 1998, Dr. Thorndyke served as our Vice
President, Marketing. From August 1996 to July 1997, Dr. Thorndyke served as our
Vice President, Business and Channel Development. From February 1995 to January
1996, Dr. Thorndyke served as a management consultant to the Vice President,
Marketing for Quintus, a supplier of client/server solutions for customer
information management. From February 1994 to January 1995, Dr. Thorndyke served
as an management consultant on technology strategy for customer information
management systems to independent software vendors and user organizations. From
May 1992 to January 1994, Dr. Thorndyke served as Vice President and Division
Manager for retail banking systems at Wells Fargo Bank. From 1990 to May 1992,
Dr. Thorndyke served as Director of Marketing and Business Development at
Metaphor Computer Systems, a supplier of client-server software applications for
PC-based support decision products. Dr. Thorndyke received a B.A. in Computer
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and Information Sciences from Yale University and a Ph.D. in Cognitive
Psychology from Stanford University.
SANDRA J. VAUGHAN has served as our Vice President, Marketing since May
1998. From June 1996 to April 1998, Ms. Vaughan served as Senior Director and
later as our Vice President, Corporate Marketing. From 1993 to 1996, Ms. Vaughan
served as Group Director, North America Field Marketing of Sybase. From 1989 to
1993, Ms. Vaughan served as Director, Customer Programs of Oracle. Ms. Vaughan
received a B.S. in Managerial Economics from the University of California,
Davis.
KENNETH L. GUERNSEY has served as our Secretary since May 1995. From 1988
to the present, Mr. Guernsey has been a partner in the law firm of Cooley
Godward LLP, where he served as Managing Partner from April 1990 to October
1996. Mr. Guernsey received a B.S. in Mathematics and an M.B.A. and a J.D. from
the University of California, Los Angeles.
DAVID L. ANDERSON has served as one of our directors since November 1993.
Since 1974, Mr. Anderson has been a managing director of Sutter Hill Ventures, a
venture capital investment firm. Mr. Anderson currently serves on the board of
directors of Cytel, Dionex and Molecular Devices. 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 one of our directors since November 1993. He
joined Mayfield Fund, a venture capital investment firm, in September 1991 and
has been a general partner of several venture capital funds affiliated with
Mayfield Fund since November 1992. Dr. Dalal 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.
TODD A. GARRETT has served as one of our directors since January 1999.
Since 1985, Mr. Garrett has held various key executive positions with Proctor &
Gamble, including Vice President, Asia-Pacific, Vice President, U.S. Beauty
Care, Group President, President of Worldwide Strategic Planning, Beauty Care
Products and Senior Vice President. Since October 1996, he has served as Chief
Information Officer of Proctor & Gamble. Mr. Garrett holds a B.A. in
Psychology/Sociology from the University of Rochester and an M.B.A. from Xavier
University.
KOH BOON HWEE has served as one of our directors 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. Mr.
Koh currently serves on the Board of Directors of Excel Machine Tools, Raffles
Medical Group and Qad. Mr. Koh holds a B.S. in Mechanical Engineering from the
University of London and an M.B.A. from Harvard University.
CARL PASCARELLA has served as one of our directors since September 1997.
Since August 1993, Mr. Pascarella has been President and Chief Executive Officer
of Visa USA. From January 1983 to August 1993, he was Assistant Chief General
Manager of the Asia-Pacific region of Visa USA. Before joining Visa USA, Mr.
Pascarella was Vice President of the International Division of Crocker National
Bank. He also served as Vice President of Metropolitan Bank at BankersTrust. Mr.
Pascarella holds a B.A. in Business Administration from the University of
Buffalo and an M.B.A. from Harvard University.
Each of our directors may be contacted at 585 Broadway, Redwood City,
California 94063.
Our board of directors is responsible for managing us in accordance with
the provisions of our Restated Certificate, Restated Bylaws and applicable law.
The number of directors on our board of directors is established by the board of
directors, with the number currently set at six. Of these six members, one
member, Pehong Chen, is also one of our executive officers.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors currently do not receive any cash compensation from us for their
services as members of the board of directors although they are reimbursed for
their expenses in connection with attendance at board and committee meetings.
To date we have granted each of our non-employee directors an option to
purchase between 150,000 and 240,000 shares of our common stock. The options
were granted to each non-employer director upon the later of the closing of our
initial public offering or his election as a director. We may grant our
non-employee directors additional options in the future. To date in 1999, the
only non-employee director who has been granted an option is Mr. Garrett who was
granted a stock option to purchase 240,000 shares of our common stock at an
exercise price of $10.17 per share. The option vests 25% on the one-year
anniversary of the vesting commencement date and monthly thereafter over a
three-year period.
The aggregate cash remuneration paid to our executive officers in fiscal
year 1998 was approximately $2.0 million. See "Principal Stockholders" for a
description of the options held by our directors and executive officers that are
exercisable within 60 days of September 30, 1999.
DIRECTORS' INTERESTS
The beneficial ownership of our common stock by each of our directors is
disclosed in the "Principal Stockholders" table.
We have not granted any loans or provided any guarantees for the benefit of
any director.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of September 30, 1999 by (1) each
of our directors; (2) our Chief Executive Officer and our four other most highly
compensated executive officers for the fiscal year ended December 31, 1998; (3)
all of our executive officers and directors as a group; and (4) each stockholder
known by us to be the beneficial owner of more than 5% of our common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
NUMBER OF ---------------------
SHARES BENEFICIALLY PRIOR TO AFTER THE
NAME OWNED(1) OFFERING OFFERING
---- ------------------- -------- ---------
<S> <C> <C> <C>
Pehong Chen(2)..................................... 19,125,000 23.8% 23.1%
c/o BroadVision, Inc.
585 Broadway
Redwood City, CA 94063
GeoCapital Corp.................................... 5,346,300 6.9 6.7
767 Fifth Ave. 45th Floor
New York, NY 10153
Pilgrim Baxter & Associates........................ 3,894,900 5.0 4.9
825 Duportail Road
Wayne, PA 19087
David L. Anderson(3)............................... 764,430 1.0 *
Randall C. Bolten(4)............................... 615,075 * *
Clark W. Catelain(5)............................... 551,100 * *
Koh Boon Hwee(6)................................... 567,324 * *
Sandra J. Vaughan(7)............................... 319,149 * *
Yogen K. Dalal(8).................................. 246,567 * *
Todd A. Garrett(9)................................. 240,000 * *
Carl Pascarella(10)................................ 150,000 * *
All directors and executive officers as a group (9
persons)(11)..................................... 22,578,645 27.6% 26.8%
</TABLE>
- -------------------------
* Less than one percent
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, we
believe that each of the stockholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 77,440,986 shares outstanding on
September 30, 1999 and 79,690,986 shares of common stock outstanding after
the completion of this offering, adjusted as required by rules promulgated
by the Commission and assuming no exercise of the underwriters'
over-allotment option. 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. These shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. See Note 7 of Notes to Consolidated Financial Statements. The
balance of our outstanding shares of common stock are held by the general
public, including stockholders and employee-stockholders owning less than
5% of our outstanding shares.
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<PAGE> 56
(2) Includes 3,000,000 shares of common stock issuable upon the exercise of a
stock option exercisable within 60 days of September 30, 1999, subject to
repurchase of unvested shares. Excludes 900,000 shares of common stock held
in trust by independent trustees for the benefit of Dr. Chen's children.
(3) Includes 379,338 shares of common stock held in a retirement trust over
which Mr. Anderson exercises voting and investing power. Includes 109,257
shares of common stock owned by Anvest L.P., over which Mr. Anderson
exercises voting and investing power. 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. Includes 150,000 shares of common stock issuable upon the
exercise of a stock option exercisable within 60 days of September 30,
1999, subject to repurchase of unvested shares.
(4) Includes 344,505 shares of common stock held in trust by Mr. Bolten and his
wife for their benefit and 106,719 shares of common stock issuable upon the
exercise of stock options exercisable within 60 days of September 30, 1999,
subject to repurchase of unvested shares.
(5) Includes 287,700 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of September 30, 1999, subject to
repurchase of unvested shares.
(6) Includes 180,000 shares of common stock held by Seven Seas Group Ltd., in
which Mr. Koh holds a controlling interest, and 150,000 shares of common
stock issuable upon the exercise of a stock option exercisable within 60
days of September 30, 1999, subject to repurchase of unvested shares.
(7) Includes 270,999 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of September 30, 1999, subject to
repurchase of unvested shares.
(8) Includes 86,199 shares of common stock held in a family trust over which
Mr. Dalal exercises voting and investing power. Includes 7,500 shares of
common stock held in a retirement trust over which Mr. Dalal exercises
voting and investing power, 150,000 shares of common stock issuable upon
the exercise of stock options exercisable within 60 days of September 30,
1999, subject to repurchase of unvested shares.
(9) Includes 240,000 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of September 30, 1999, subject to
repurchase of unvested shares.
(10) Includes 150,000 shares of common stock issuable upon the exercise of a
stock option exercisable within 60 days of September 30, 1999, subject to
repurchase of unvested shares.
(11) Includes the information contained in the notes above, as applicable.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
CORPORATE INFORMATION
We were incorporated in Delaware in May 1993 and our fiscal year is on a
calendar year basis. Our principal executive offices are located at 585
Broadway, Redwood City, California 94063, and our telephone number in the United
States is (650) 261-5100. Our Web site is located at http://www.broadvision.com.
Information contained in our Web site shall not be deemed to be a part of this
prospectus. Our corporate purpose, as set forth in our Restated Certificate, is
to engage in any lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware.
DEVELOPMENT OF COMMON STOCK
Since we amended and restated our Certificate of Incorporation on June 26,
1996 and through October 5, 1999, our authorized capital stock consisted of
50,000,000 pre-split shares of common stock, par value $0.0001 per share, and
5,000,000 shares of preferred stock, par value $0.0001 per share. On September
30, 1999, we announced a three for one stock split in the form of a two for one
stock dividend, to be paid on October 25, 1999 to all stockholders of record as
of October 11, 1999. Primarily to accommodate this stock split, on October 5,
1999, we amended our Certificate of Incorporation to increase our authorized
capital stock to 500,000,000 shares of common stock, par value $0.0001 per
share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
Unless stated otherwise, the information contained in this prospectus reflects
the stock split. All of our issued shares are in registered (non-bearer) form.
Upon the closing of our initial public offering in June 1996, we had
58,857,312 shares of common stock outstanding. Since that time and as of October
22, 1999, we have issued the following additional shares of common stock: (i)
1,080,000 shares pursuant to the exercise of the underwriters' over-allotment
option in connection with our initial public offering; (ii) 4,631,049 (net of
repurchases) shares upon the exercise of outstanding options; (iii) 1,964,271
shares pursuant to our 1996 Employee Stock Purchase Plan; (iv) 200,127 shares
pursuant to the exercise of outstanding warrants; (v) 10,367,550 shares pursuant
to a follow-on offering of our common stock that closed in March 1998; and (vi)
369,003 shares to Security First pursuant to our strategic alliance in October
1998.
As of October 22, 1999 there were 77,469,312 shares of common stock
outstanding held of record by approximately 256 stockholders. We do not own any
treasury shares.
COMMON STOCK
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 for that purpose. 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 10,000,000
shares of preferred stock in one or more
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<PAGE> 58
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 impair 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 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.
There are no shares of preferred stock outstanding and we have no current plans
to issue any of the preferred stock.
WARRANTS
As of October 22, 1999, we had outstanding warrants to purchase 55,101
shares of common stock at a weighted average exercise price of approximately
$2.83 per share. The warrants, which expire in June 2002 and February 2007,
contain provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrants under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassifications, and consolidations.
OPTIONS
As of October 22, 1999, options to purchase a total of 12,199,671 shares of
common stock were outstanding under our Equity Incentive Plan, and 2,959,953
shares of common stock were available for grant under the Equity Incentive Plan.
Options are generally exercisable for 10 years from their date of grant, subject
to vesting requirements.
EMPLOYEE STOCK PURCHASE PLAN
As of October 22, 1999, we had 1,485,693 shares reserved for future
issuance under the Employee Stock Purchase Plan. 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
specified in the Purchase Plan. Under the Purchase Plan, we issued 684,000
shares to employees in the year ended December 31, 1998.
ANTI-TAKEOVER 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 our company, including the
following:
- 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;
- the Restated Bylaws provide that special meetings of the stockholders may
be called only by the Chairman of the board of directors, the Chief
Executive Officer, the board of directors pursuant to a resolution
adopted by the board of directors or by the holders of not less than 10%
of the outstanding voting stock;
- the Restated Certificate does not include a provision for cumulative
voting for directors whereby a minority stockholder holding a sufficient
percentage of a class of shares could ensure the election of one or more
directors; and
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- the Restated Bylaws establish procedures, including advance notice
procedures, with regard to the nomination of candidates or election as
directors and stockholder proposals.
DELAWARE TAKEOVER STATUTE
We are 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.
STOCKHOLDER MEETINGS
The Restated Certificate provides that stockholders may not take action by
written consent but only at duly called annual or special meetings of
stockholders.
The Restated Bylaws provide that stockholder meetings shall be held at the
place, either within or without the State of Delaware, date and time as may be
designated by the board of directors. If the board of directors does not
designate a place, the meetings shall be held at our principal place of
business. The annual meeting of stockholders for the election of directors and
for other business as may properly be brought before it shall be held on the
date and time as set forth in the notice of meeting.
Special meetings of the stockholders may be called at any time for any
purpose by the Chairman of the board of directors, the Chief Executive Officer,
a majority of the board of directors or the holders of shares of not less than
10% of the outstanding voting stock. Special meeting shall be held at the place,
date and time as designated by the board of directors and specified in the
notice of meeting.
NOTICE OF MEETINGS
Except as otherwise provided by law, written notice of each meeting of
stockholders, whether annual or special, shall be given not less than 10 nor
more than 60 days before the date of the meeting to each stockholder entitled to
vote at the meeting. The notices of all meetings shall state the place, date and
hour of the meeting. The notice of a special meeting shall state, in addition,
the purpose for which the meeting is called.
RECORD DATE
Except as otherwise provided by law, only those persons in whose names
shares stand on our stock records on the record date shall be entitled to vote
at any meeting of stockholders. The record date shall be as set forth in the
notice of meeting.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS
Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must provide timely notice in writing to our Secretary.
To be timely, a notice must be delivered to or mailed and received at our
principal executive offices not later than the 60th day nor earlier than the
90th day prior to the first anniversary of the preceding year's annual meeting.
However, if no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than 30 days from the date contemplated
at the time of the previous year's proxy
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statement, to be timely, a notice must be received not earlier than the 90th day
nor later than the 60th day prior to the annual meeting, provided that if less
than 70 days prior public announcement of the meeting date is made, notice must
be received not later than the 10th day following the date on which notice of
the meeting date is publicly announced.
AUTHORIZED BUT UNISSUED SHARES
As of October 22, 1999, we had 422,530,688 shares of authorized but
unissued common stock and 10,000,000 shares of authorized but unissued preferred
stock. Our authorized but unissued shares are available for future issuance
without stockholder approval. These additional shares may be used for a variety
of corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares could render more difficult or discourage an
attempt to obtain control of our company by means of a proxy contest, tender
offer, merger or otherwise.
STOCK CERTIFICATES
Stockholders are entitled to certificates, in the form as may be prescribed
by our Restated Certificate and by law, certifying the number and class of
shares owned by the stockholder. Each certificate shall be signed by, or in our
name by, the Chairman of the Board of Directors, or the President or a Vice
President, and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary.
LISTING
Our common stock is approved for quotation on the Nasdaq National Market
under the symbol "BVSN." We have applied to list our common stock on the Neuer
Markt segment of the Frankfurt Stock Exchange under the symbol "BDN."
TRANSFER AGENT AND REGISTRAR
American Securities Transfer Incorporated has been appointed as the
transfer agent and registrar for the common stock. Its telephone number in the
United States is (800) 962-4284.
PAYING AND DEPOSITARY AGENTS; NOTICES
In addition to our Secretary, Commerzbank Aktiengesellschaft and its
branches will serve as paying and depositary agents with respect to the deposit
of shares of our common stock in order to exercise the right to attend a
stockholders' meeting and all other measures regarding common stock that may be
taken free of charge when presenting a share certificate.
Stockholder notices will be published in one German national newspaper
approved for official notices by the Frankfurt Stock Exchange.
TRANSFERABILITY, DELIVERABILITY AND CLEARING
Except as otherwise established by agreement and subject to applicable law,
shares may be transferred on our books by the surrender to us or to our transfer
agent, of the certificate representing such shares properly endorsed and with
such proof of authority or the authenticity of signature as we or our transfer
agent may reasonably require.
Shares of our common stock traded on the Neuer Markt will be represented by
a book-entry position credited to The Depository Trust Company, or DTC, who will
hold these shares for Deutsche Borse Clearing AG, or DBC. On or about November
8, 1999, the book-entry position representing shares of our common stock traded
on the Neuer Markt will be credited to DTC. Shares of our common stock are
expected to be accepted for clearance through DTC. Shares of
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our common stock may be credited at the option of Neuer Markt investors either
to a German bank's DBC account or to the accounts of participants with DBC.
The German securities identification number or WKN of our common stock is
901 599. The international securities identification number or ISIN of our
common stock is US 111 4121023. The CUSIP number of our common stock is 111412
10 2.
LEGAL MATTERS
The validity of the shares of common stock we are offering under this
prospectus will be passed upon for us by our counsel, Cooley Godward LLP, San
Francisco, California and certain other legal matters will be passed upon for us
by our counsel, Hengeler Mueller Weitzel Wirtz, Frankfurt, Germany. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California and
Deringer Tessin Herrmann & Sedemund, Frankfurt, Germany.
EXPERTS
Our consolidated balance sheets as of December 31, 1996, 1997 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998, have been
included in the registration statement in reliance upon the report of KPMG LLP,
500 East Middlefield Road, Mountain View, California 94043, independent auditors
and upon the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with the Exchange Act we file
reports, proxy statements and other information with the Securities and Exchange
Commission. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
and at the Commission's Regional Offices located at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Reports,
proxy statements and other information that we file electronically with the
Commission are available at the Commission's Web site at http://www.sec.gov. The
common stock is listed on the Nasdaq National Market, and reports, proxy
statements and other information concerning us may also be inspected at the
offices of the National Association of Securities Dealers, Inc. 1735 K. Street,
N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act with respect to the shares of
common stock we are offering under this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. For further information with respect to
us and the common stock we are offering under this prospectus, reference is made
to the registration statement and the exhibits and schedules filed as a part of
the registration statement. The registration statement may be inspected without
charge at the Securities and Exchange Commission's principal office at 450 Fifth
Street, Washington D.C. 20549, and copies of all or any part thereof may be
obtained from the Public Reference Section, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington D.C. 20549, upon payment of the prescribed
fees.
61
<PAGE> 62
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by us with the Commission and are
incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
3. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, as
amended;
4. Proxy Statement for our 1999 Annual Meeting;
5. Proxy Statement for our 1999 Special Meeting; and
6. The description of the common stock contained in our Registration
Statement on Form 8-A.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the termination
of the offering shall be deemed to be incorporated by reference herein and to be
a part hereof from the date of filing such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
This prospectus incorporates documents by reference that are not presented
in the prospectus or delivered with the prospectus. We will provide without
charge to each person to whom this prospectus has been delivered, and who so
requests, a copy of any and all of the documents referred to above that have
been or may be incorporated by reference into this prospectus and deemed to be
part of the prospectus. We will not provide exhibits to such requested documents
unless the exhibits are specifically incorporated by reference in such
documents. You should direct any requests to Corporate Secretary, BroadVision,
Inc., 585 Broadway, Redwood City, California 94063, telephone number in the
United States (650) 261-5100.
62
<PAGE> 63
BROADVISION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
BroadVision, Inc.:
We have audited the accompanying consolidated balance sheets of
BroadVision, Inc. and subsidiaries as of December 31, 1996, 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BroadVision,
Inc. and subsidiaries as of December 31, 1996, 1997 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Mountain View, California
January 26, 1999, except as to
Note 10 which is as of
October 11, 1999
F-2
<PAGE> 65
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1996 1997 1998 1999
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, and cash equivalents..................... $ 17,608 $ 8,277 $ 61,878 $ 53,735
Restricted cash................................ -- 1,400 -- --
Short-term investments, restricted in 1997..... 2,112 796 -- 18,823
Accounts receivable, less allowance for
doubtful accounts of $191, $671, $788 and
$1,018 for December 31, 1996, 1997 and 1998
and June 30, 1999, respectively............. 3,332 8,783 15,361 21,479
Prepaids and other............................. 317 566 3,589 3,820
-------- -------- -------- --------
Total current assets................... 23,369 19,822 80,828 97,857
Property and equipment, net...................... 3,024 6,467 8,034 9,978
Long-term investments............................ -- -- 11,546 28,286
Other assets..................................... 321 250 1,154 1,077
-------- -------- -------- --------
Total assets........................... $ 26,714 $ 26,539 $101,562 $137,198
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 958 $ 1,863 $ 2,243 $ 3,336
Accrued expenses............................... 2,526 2,168 4,933 7,312
Unearned revenue............................... 409 532 1,918 3,298
Deferred maintenance........................... 924 2,552 6,157 10,165
Current portion of capital lease obligations... 294 773 709 547
Current portion of long-term debt.............. -- 449 548 548
-------- -------- -------- --------
Total current liabilities.............. 5,111 8,337 16,508 25,206
Capital lease obligations........................ 495 803 270 16
Long-term debt................................... -- 2,202 2,924 2,600
Deferred income taxes............................ -- -- -- 529
Other liabilities................................ 92 76 51 35
-------- -------- -------- --------
Total liabilities...................... 5,698 11,418 19,753 28,386
-------- -------- -------- --------
Commitments
Stockholders' equity:
Convertible preferred stock, $0.0001 par value;
10,000 shares authorized; none issued and
outstanding................................. -- -- -- --
Common stock, $0.0001 par value; 500,000 shares
authorized; 59,724, 61,029, 74,388 and
76,525 shares issued and outstanding at
December 31, 1996, 1997 and 1998 and June
30, 1999, respectively...................... 6 6 7 8
Additional paid-in capital..................... 39,312 40,362 98,762 109,301
Deferred compensation.......................... (2,033) (1,605) (555) (389)
Accumulated other comprehensive income......... -- -- 3,198 13,243
Accumulated deficit............................ (16,269) (23,642) (19,603) (13,351)
-------- -------- -------- --------
Total stockholders' equity............. 21,016 15,121 81,809 108,812
-------- -------- -------- --------
Total liabilities and stockholders'
equity............................... $ 26,714 $ 26,539 $101,562 $137,198
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 66
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1996 1997 1998 1998 1999
-------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses................. $ 7,464 $18,973 $36,067 $15,297 $28,267
Services.......................... 3,418 8,132 14,844 6,167 13,673
-------- ------- ------- ------- -------
Total revenues............ 10,882 27,105 50,911 21,464 41,940
Cost of revenues:
Cost of license revenues.......... 330 1,664 1,001 400 1,784
Cost of service revenues.......... 2,164 4,284 8,704 3,711 7,945
-------- ------- ------- ------- -------
Total cost of revenues.... 2,494 5,948 9,705 4,111 9,729
-------- ------- ------- ------- -------
Gross profit.............. 8,388 21,157 41,206 17,353 32,211
Operating expenses:
Research and development.......... 4,985 7,392 9,227 4,083 6,169
Sales and marketing............... 12,066 18,413 26,269 12,104 17,684
General and administrative........ 2,034 2,990 3,786 1,585 2,882
-------- ------- ------- ------- -------
Total operating
expenses................ 19,085 28,795 39,282 17,772 26,735
-------- ------- ------- ------- -------
Operating income (loss)... (10,697) (7,638) 1,924 (419) 5,476
Other income, net................... 552 265 2,036 613 1,110
-------- ------- ------- ------- -------
Income (loss) before
income taxes............ (10,145) (7,373) 3,960 194 6,586
Income tax benefit (expense)........ -- -- 79 -- (334)
-------- ------- ------- ------- -------
Net income (loss)......... $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252
======== ======= ======= ======= =======
Basic earnings (loss) per share..... $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08
======== ======= ======= ======= =======
Diluted earnings (loss) per share... $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07
======== ======= ======= ======= =======
Shares used in computing basic
earnings (loss) per share......... 56,445 60,624 70,038 66,732 74,658
======== ======= ======= ======= =======
Shares used in computing diluted
earnings (loss) per share......... 56,445 60,624 76,959 74,457 83,838
======== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 67
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
---------------- ---------------- PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME DEFICIT
------- ------ ------- ------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1995... 25,803 $ 3 18,924 $2 $ 11,409 $(1,036) $ -- $ (6,124)
Net loss and comprehensive loss.... -- -- -- -- -- -- -- (10,145)
Issuance of Series C convertible
preferred ($0.67 per share)....... 9 -- -- -- 6 -- -- --
Issuance of Series E convertible
preferred ($2.67 per share)....... 1,902 -- -- -- 5,055 -- -- --
Conversion of Series A, B, C and E
preferred to common stock......... (27,714) (3) 27,774 3 -- -- -- --
Issuance of common stock from
public offering, net of costs..... -- -- 10,080 1 20,754 -- -- --
Issuance of stock under employee
stock purchase plan............... -- -- -- -- 394 -- -- --
Issuance of common stock from
exercise of options............... -- -- 3,336 -- 205 -- -- --
Common stock repurchased........... -- -- (390) -- (21) -- -- --
Deferred compensation on stock
options........................... -- -- -- -- 1,510 (1,510) -- --
Amortization of deferred
compensation...................... -- -- -- -- -- 513 -- --
------- --- ------- -- -------- ------- ------- --------
Balances as of December 31, 1996... -- -- 59,724 6 39,312 (2,033) -- (16,269)
Net loss and comprehensive loss.... -- -- -- -- -- -- -- (7,373)
Issuance of stock under employee
stock purchase plan............... -- -- 726 -- 979 -- -- --
Issuance of common stock from
exercise of options............... -- -- 765 -- 81 -- -- --
Common stock repurchased........... -- -- (186) -- (10) -- -- --
Amortization of deferred
compensation...................... -- -- -- -- -- 428 -- --
------- --- ------- -- -------- ------- ------- --------
Balances as of December 31, 1997... -- -- 61,029 6 40,362 (1,605) -- (23,642)
Comprehensive income:
Net income........................ 4,039
Unrealized gain on equity
securities...................... 3,198
Total comprehensive
income.....................
Issuance of common stock from
public offering, net of costs..... -- -- 10,368 1 53,744 -- -- --
Issuance of common stock for
long-term investments............. -- -- 369 -- 1,322 -- -- --
Issuance of common stock from
exercise of warrants.............. -- -- 87 -- -- -- -- --
Issuance of stock under employee
stock purchase plan............... -- -- 684 -- 1,599 -- -- --
Issuance of common stock from
exercise of options............... -- -- 1,899 -- 2,190 -- -- --
Common stock repurchased........... -- -- (48) -- (2) -- -- --
Deferred compensation forfeited due
to voluntary terminations......... -- -- -- -- (693) 693 -- --
Deferred compensation on stock
options........................... -- -- -- -- 240 (240) -- --
Amortization of deferred
compensation...................... -- -- -- -- -- 597 -- --
------- --- ------- -- -------- ------- ------- --------
Balances as of December 31, 1998... -- -- 74,388 7 98,762 (555) 3,198 (19,603)
Comprehensive income:
Net income (unaudited)............ 6,252
Unrealized gain on equity
securities (unaudited).......... 10,045
Total comprehensive income
(unaudited)................
Issuance of common stock under
employee stock purchase plan
(unaudited)....................... -- -- 471 -- 1,709 -- -- --
Issuance of common stock from
exercise of options (unaudited)... -- -- 1,666 1 2,663 -- -- --
Income tax benefits from stock
options exercised (unaudited)..... -- -- -- -- 6,167 -- -- --
Amortization of deferred
compensation (unaudited).......... -- -- -- -- -- 166 -- --
------- --- ------- -- -------- ------- ------- --------
Balances as of June 30, 1999
(unaudited)....................... -- $-- 76,525 $8 $109,301 $ (389) $13,243 $(13,351)
======= === ======= == ======== ======= ======= ========
<CAPTION>
TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME (LOSS) EQUITY
------------- -------------
<S> <C> <C>
Balances as of December 31, 1995... $ 4,254
Net loss and comprehensive loss.... $(10,145) (10,145)
========
Issuance of Series C convertible
preferred ($0.67 per share)....... 6
Issuance of Series E convertible
preferred ($2.67 per share)....... 5,055
Conversion of Series A, B, C and E
preferred to common stock......... --
Issuance of common stock from
public offering, net of costs..... 20,755
Issuance of stock under employee
stock purchase plan............... 394
Issuance of common stock from
exercise of options............... 205
Common stock repurchased........... (21)
Deferred compensation on stock
options........................... --
Amortization of deferred
compensation...................... 513
--------
Balances as of December 31, 1996... 21,016
Net loss and comprehensive loss.... $ (7,373) (7,373)
========
Issuance of stock under employee
stock purchase plan............... 979
Issuance of common stock from
exercise of options............... 81
Common stock repurchased........... (10)
Amortization of deferred
compensation...................... 428
--------
Balances as of December 31, 1997... 15,121
Comprehensive income:
Net income........................ $ 4,039 4,039
Unrealized gain on equity
securities...................... 3,198 3,198
--------
Total comprehensive
income..................... $ 7,237
========
Issuance of common stock from
public offering, net of costs..... 53,745
Issuance of common stock for
long-term investments............. 1,322
Issuance of common stock from
exercise of warrants.............. --
Issuance of stock under employee
stock purchase plan............... 1,599
Issuance of common stock from
exercise of options............... 2,190
Common stock repurchased........... (2)
Deferred compensation forfeited due
to voluntary terminations......... --
Deferred compensation on stock
options........................... --
Amortization of deferred
compensation...................... 597
--------
Balances as of December 31, 1998... 81,809
Comprehensive income:
Net income (unaudited)............ $ 6,252 6,252
Unrealized gain on equity
securities (unaudited).......... 10,045 10,045
--------
Total comprehensive income
(unaudited)................ $ 16,297
========
Issuance of common stock under
employee stock purchase plan
(unaudited)....................... 1,709
Issuance of common stock from
exercise of options (unaudited)... 2,664
Income tax benefits from stock
options exercised (unaudited)..... 6,167
Amortization of deferred
compensation (unaudited).......... 166
--------
Balances as of June 30, 1999
(unaudited)....................... $108,812
========
</TABLE>
F-5
<PAGE> 68
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization......................... 753 1,613 2,947 1,316 1,921
Amortization of deferred compensation................. 513 428 597 180 166
Provision for doubtful accounts and returns........... 196 515 458 283 230
Revenue resulting from non-monetary transactions...... -- -- (2,917) (1,031) --
Amortization of prepaid royalties..................... -- -- 250 -- 167
Changes in operating assets and liabilities:
Accounts receivable................................... (917) (5,966) (7,036) (541) (6,348)
Prepaid expenses and other............................ (536) (194) (2,716) (514) (246)
Accounts payable and accrued expenses................. 2,996 547 3,145 348 3,472
Unearned revenue and deferred maintenance............. (1,238) 1,751 2,633 419 5,388
-------- ------- ------- ------- --------
Net cash provided by (used for) operating
activities...................................... (8,378) (8,679) 1,400 654 11,002
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (2,529) (4,878) (4,198) (2,074) (3,865)
Purchase of long-term investments....................... -- -- (3,000) (1,500) --
Increase in other assets................................ -- -- (237) (139) (90)
Purchase of short-term investments...................... (2,112) (796) -- -- (18,823)
Maturity of short-term investments...................... 196 2,112 796 796 --
-------- ------- ------- ------- --------
Net cash used for investing activities............ (4,445) (3,562) (6,639) (2,917) (22,778)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale/leaseback............................ -- 987 -- -- --
Net change in restricted cash........................... -- (1,400) 1,400 1,400 --
Proceeds from borrowings, net........................... -- 2,651 821 1,095 (324)
Payments on capital lease obligations................... (274) (378) (913) (425) (416)
Proceeds from issuance of common stock, net............. 21,333 1,050 57,532 55,455 4,373
Proceeds from issuance of preferred stock............... 5,061 -- -- -- --
-------- ------- ------- ------- --------
Net cash provided by financing activities......... 26,120 2,910 58,840 57,525 3,633
Net increase (decrease) in cash and cash equivalents...... 13,297 (9,331) 53,601 55,262 (8,143)
Cash and cash equivalents, beginning of period............ 4,311 17,608 8,277 8,277 61,878
-------- ------- ------- ------- --------
Cash and cash equivalents, end of period.................. $ 17,608 $ 8,277 $61,878 $63,539 $ 53,735
======== ======= ======= ======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................. $ 86 $ 108 $ 394 $ 172 $ 177
Cash paid for income taxes.............................. 66 156 428 84 431
Prepaids and other assets acquired through non-monetary
transactions.......................................... -- -- 1,250 -- --
Investments acquired through non-monetary
transactions.......................................... -- -- 4,025 1,250 --
Unearned revenue and deferred maintenance from non-
monetary transactions................................. -- -- 2,358 219 --
Equipment acquired under capital leases................. 380 1,165 316 215 --
Long-term investment acquired in exchange for common
stock................................................. -- -- 1,322 -- --
Deferred compensation on stock options.................. 1,510 -- 240 -- --
Deferred compensation forfeited due to voluntary
terminations.......................................... -- -- 693 693 --
Net unrealized gain on long-term investments............ -- -- 3,198 -- 10,045
Contributed capital -- income tax benefit from stock
option exercises...................................... -- -- -- -- 6,167
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 69
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
BroadVision, Inc. (the "Company") develops, markets and supports
application software solutions for one-to-one relationship management across the
extended enterprise. These solutions enable businesses to use the Internet as a
platform to conduct electronic commerce, offer online customer self-service and
support, deliver targeted information and provide online financial services.
Each of these capabilities can be provided to all constituents of the extended
enterprise, including: customers, suppliers, partners, distributors and
employees. The BroadVision One-To-One product suite allows businesses to tailor
Web site content to the needs and interests of individual users by personalizing
each visit on a real-time basis. The Company's applications interactively
capture Web site visitor profile information, organize the enterprise's content,
target that content to each visitor based on easily constructed business rules
and execute transactions.
BASIS OF PRESENTATION AND USE OF ESTIMATES
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The preparation
of consolidated financial statements in conformity with generally accepted
accounting principles requires management to make certain assumptions and
estimates that affect reported amounts of assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company's revenue recognition policies are in accordance with Statement
of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4,
which was adopted by the Company effective January 1, 1998. There was no
material change to the Company's accounting for revenues as a result of the
adoption of SOP 97-2, as amended. In general, software license revenues are
recognized when a non-cancelable license agreement has been signed and the
customer acknowledges an unconditional obligation to pay, the software product
has been delivered, there are no uncertainties surrounding product acceptance,
the fees are fixed and determinable, and collection is considered probable;
professional services revenues are recognized as such services are performed;
and maintenance revenues, including revenues bundled with software agreements
which entitle the customers to technical support and future unspecified
enhancements to the Company's products, are deferred and recognized ratably over
the related contract period, generally twelve months. Revenues recognized from
multiple-element software arrangements are allocated to each element of the
arrangement based on the fair values of the elements, such as software products,
upgrades, enhancements, post contract customer support, installation, or
training. The determination of fair value is based on objective evidence which
is specific to the Company. If such evidence of fair value for each element of
the arrangement does not exist, all revenue from the arrangement is deferred
until such time that evidence of fair value does exist or until all elements of
the arrangement are delivered.
The Company records unearned revenue for software arrangements when cash
has been received from the customer and the arrangement does not qualify for
revenue recognition under
F-7
<PAGE> 70
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
the Company's revenue recognition policy. The Company records accounts
receivable for software arrangements when the arrangement qualifies for revenue
recognition and cash or other consideration has not been received from the
customer.
In December 1998, AcSEC issued SOP 98-9 Software Revenue Recognition, With
Respect to Certain Transactions, which requires recognition of revenue using the
"residual method" in a multiple-element arrangement when fair value does not
exist for one or more of the delivered elements in the arrangement. Under the
"residual method", the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2. The Company does not
expect a material change to its accounting for revenues as a result of the
provisions of SOP 98-9.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
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 at which time such costs are capitalized,
subject to recoverability. Products are made available for limited release,
concurrent with the achievement of technological feasibility. Accordingly,
software development costs incurred subsequent to the establishment of
technological feasibility have not been significant, and the Company has not
capitalized any software development costs to date.
PREPAID ROYALTIES
Prepaid royalties relating to purchased software to be incorporated and
sold with the Company's software products are amortized as a cost of revenue
either on a straight-line basis over the remaining term of the royalty agreement
or on the basis of projected product revenues, whichever results in greater
amortization.
CASH EQUIVALENTS
The Company considers all debt securities with remaining maturities of
three months or less at the date of purchase to be cash equivalents. The
Company's cash equivalents consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1997 1998 1999
------- ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Money market funds.............................. -- $7,708 $48,900 $30,790
Commercial paper................................ $16,729 -- 11,000 19,991
------- ------ ------- -------
$16,729 $7,708 $59,900 $50,781
======= ====== ======= =======
</TABLE>
SHORT-TERM INVESTMENTS
The Company's short-term investments consisted primarily of debt
securities. They have been classified as available-for-sale and carried at
amortized cost which approximates fair value. As of December 31, 1996,
short-term investments consisted principally of commercial paper. As of December
31, 1997, short-term investments consisted of a one-year certificate of deposit
maintained with the Company's commercial bank as a guarantee for a standby
letter of credit
F-8
<PAGE> 71
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
issued by the bank in favor of the Company's landlord. As of June 30, 1999,
short-term investments consisted of $8,694,000 of debt securities with
maturities of approximately one year and $10,129,000 of mutual bond funds.
CONCENTRATIONS OF CREDIT RISK
Financial assets that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and trade accounts receivable. The Company's cash, cash
equivalents and short-term investments are held with a commercial bank. The
Company markets and sells its products throughout the world and performs ongoing
credit evaluations of its customers. The Company generally does not require
collateral on accounts receivable as the majority of its customers are large,
well-established companies. The Company maintains reserves for potential credit
losses but historically has not experienced any significant losses related to
individual customers or groups of customers in any particular industry or
geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash equivalents, short-term
investments, accounts receivable, accounts payable and debt. The Company does
not have any derivative financial instruments. The Company believes the reported
carrying amounts of its financial instruments approximates fair value, based
upon the short maturity of cash equivalents, short-term investments, accounts
receivable and payable, and based on the current rates available to the Company
on similar debt issues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives (two to five years).
Leasehold improvements are amortized over the corresponding lease term or their
estimated useful lives, whichever is shorter.
The Company evaluates long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property and equipment exceeds its
fair market value.
LONG-TERM INVESTMENTS
As of December 31, 1998 and June 30, 1999, the Company's long-term
investments consisted of investments in nonmarketable equity securities and an
investment in marketable equity securities. The Company currently has no plans
or intentions to dispose of the investments within one year of June 30, 1999.
Accordingly, the investments have been classified as long term. The Company
accounts for its investments in nonmarketable equity securities based on the
cost method as the Company does not have the ability to significantly influence
the operating and financial policies of the investees. Any decline in value,
which is other than a temporary decline, is charged immediately to earnings in
the period in which the impairment occurs. The carrying value of the investments
in nonmarketable equity securities amounted to
F-9
<PAGE> 72
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
$3,000,000 at December 31, 1998. The Company classifies its investment in
marketable equity securities as available for sale. Accordingly, the investment
is recorded at its fair value with any unrealized gains or losses reported as
accumulated other comprehensive income in stockholders' equity and changes in
the unrealized gain or loss are reported as other comprehensive income. Any
decline in value, which is other than a temporary decline, is charged
immediately to earnings in the period in which the impairment occurs. As of
December 31, 1998, the Company's investment in marketable equity securities had
a fair value of $8,546,000, a cost basis of $5,348,000, and an unrealized gain
of $3,198,000. As of June 30, 1999, the Company's investment in marketable
equity securities had a fair value of $25,286,000, a cost basis of $5,348,000,
and an unrealized gain of $19,938,000.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are established to recognize the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply in
the years in which temporary differences are expected to be recovered or
settled. The effects on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
EMPLOYEE STOCK OPTION AND PURCHASE PLANS
The Company accounts for employee stock-based awards in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Pursuant to Statement of Financial
Accounting Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation,
the Company discloses the pro forma effects of using the fair value method of
accounting for stock-based compensation arrangements.
PER SHARE INFORMATION
Basic earnings (loss) per share is computed using the weighted-average
number of shares of common stock outstanding. Diluted earnings (loss) per share
is computed using the weighted-average number of shares of common stock
outstanding and, when dilutive, common equivalent shares from outstanding stock
options and warrants using the treasury stock method.
Excluded from the computation of diluted earnings per share for the year
ended December 31, 1996, are options to acquire 4,566,000 shares of Common Stock
with a weighted-average exercise price of $0.38 and warrants to acquire 39,000
shares of Common Stock with a weighted-average exercise price of $0.67 because
their effects would be anti-dilutive. Excluded from the computation of diluted
earnings per share for the year ended December 31, 1997, are options to acquire
11,106,000 shares of Common Stock with a weighted-average exercise price of
$1.47 and warrants to acquire 281,250 shares of Common Stock with a
weighted-average
F-10
<PAGE> 73
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
exercise price of $2.05 because their effects would be anti-dilutive. The
following table sets forth the basic and diluted earnings (loss) per share
computational data for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -----------------
1996 1997 1998 1998 1999
-------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net income (loss) for basic and
diluted earnings (loss) per share... $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252
======== ======= ======= ======= =======
Weighted-average common shares
outstanding utilized for basic
earnings (loss) per share........... 56,445 60,624 70,038 66,732 74,658
Weighted-average common equivalent
shares outstanding:
Employee common stock options.... --(1) --(1) 6,864 7,506 9,090
Common stock warrant............. --(1) --(1) 57 219 90
-------- ------- ------- ------- -------
Total weighted-average common
and common equivalent shares
outstanding utilized for
diluted earnings (loss) per
share....................... 56,445 60,624 76,959 74,457 83,838
======== ======= ======= ======= =======
Basic earnings (loss) per share....... $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08
======== ======= ======= ======= =======
Diluted earnings (loss) per share..... $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07
======== ======= ======= ======= =======
</TABLE>
- ---------------
(1) The Company incurred a net loss for the indicated period. Accordingly,
common equivalent shares are excluded from the diluted loss per share
calculation because they are antidilutive.
FOREIGN CURRENCY TRANSACTIONS
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Resulting foreign exchange gains and losses are included in the
consolidated results of operations and, to date, have not been significant.
COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, Reporting Comprehensive Income effective
January 1, 1998. SFAS No. 130 establishes standards for the reporting and
disclosure of comprehensive income (loss) and its components. Comprehensive
income (loss) includes all changes in equity during a period except those
resulting from investments by or distributions to owners.
The Company did not have any significant components of other comprehensive
loss for the years ended December 31, 1996 and 1997 and, thus, the comprehensive
loss is the same as net loss for those periods. Comprehensive income for the
year ended December 31, 1998 was $7,237,000. The Company's only component of
accumulated other comprehensive income and other comprehensive income as of and
for the year ended December 31, 1998, and as of and for the six months ended
June 30, 1999, related to the unrealized gain on available-for-sale
F-11
<PAGE> 74
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
investments. As a result of unrecognized tax benefits represented by a valuation
allowance for deferred tax assets, no incremental tax effects were attributed to
unrealized gain for the year ended December 31, 1998. Accordingly, the
unrealized gain is the same on a pre-tax and net of tax basis. The unrealized
gain on available-for-sale investments for the six months ended June 30, 1999,
has been reported net of taxes in the amount of $6,695,000.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of June 30, 1999, and the
results of its operation and its cash flows for the six-month periods ended June
30, 1998 and 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly,
the Company will adopt SFAS No. 133 beginning on January 1, 2001. SFAS No. 133,
as amended, establishes standards for the accounting and reporting of derivative
instruments and hedging activities, including certain derivative instruments
embedded in other contracts. Under SFAS No. 133, entities are required to carry
all derivative instruments at fair value on their balance sheets. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
activity and the underlying purpose for it. The Company does not believe that
the adoption of SFAS No. 133 will have a significant impact on the Company's
consolidated financial statements or related disclosures.
NOTE 2 -- PROPERTY AND EQUIPMENT (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1996 1997 1998 1999
------ ------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures........................... $ 539 $ 636 $1,001 $ 1,164
Computer and software............................ 3,210 5,458 8,662 12,263
Leasehold improvements........................... 138 2,780 3,725 3,827
------ ------- ------ -------
3,887 8,874 13,388 17,254
Less accumulated depreciation and amortization... (863) (2,407) (5,354) (7,276)
------ ------- ------ -------
$3,024 $ 6,467 $8,034 $ 9,978
====== ======= ====== =======
</TABLE>
F-12
<PAGE> 75
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
As of December 31, 1996, 1997 and 1998, and June 30, 1999, leased equipment
totaled approximately $1,105,000, $2,256,000, $2,572,000, and $2,572,000,
respectively. Accumulated amortization for leased equipment totaled
approximately $355,000, $927,000, $1,750,000, and $2,070,000 as of December 31,
1996, 1997 and 1998, and June 30, 1999, respectively.
NOTE 3 -- ACCRUED EXPENSES (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998 1999
------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Employee benefits.................................... $ 254 $ 420 $ 678 $1,008
Commissions and bonuses.............................. 696 833 2,013 2,526
Taxes payable........................................ 129 366 785 1,173
Other................................................ 1,447 549 1,457 2,605
------ ------ ------ ------
$2,526 $2,168 $4,933 $7,312
====== ====== ====== ======
</TABLE>
NOTE 4 -- DEBT
As of December 31, 1998, and June 30, 1999, the Company has a credit
facility with a commercial lender which included outstanding borrowings of
$3,472,000 and $3,148,000, respectively, under a note payable. Borrowings bear
interest at the bank's prime rate (7.75% as of December 31, 1998 and June 30,
1999). Principal and interest is due in consecutive monthly payments through
maturity based on the term of the facility. Principal payments of $548,000 are
due annually from 1999 through 2004 with a final payment of $183,000 due in
2005. Available credit under the Company's credit facilities include a term debt
credit facility of $1,000,000 and a revolving line of credit that provides for
up to $2,300,000 of total borrowings (based on eligible accounts receivable).
During the six months ended June 30, 1999, the Company's commercial lender
increased its term debt and revolving line of credit facilities to provide for
total borrowings of up to $3,000,000 and $5,000,000, respectively. As of
December 31, 1998 and June 30, 1999, the Company has outstanding commitments
totaling $2,196,000 and $2,822,000, respectively, in the form of standby letters
of credit under its revolving line of credit facility (see Note 6).
The credit facility includes covenants which impose certain restrictions on
the payment of dividends and other distributions and requires the Company to
maintain monthly financial covenants, including a minimum quick ratio, tangible
net worth ratio and minimum cash reserves. The minimum cash reserves covenant is
replaced with a minimum debt service coverage ratio upon six consecutive
quarters of profitability. Borrowings are collateralized by a security interest
in substantially all of the Company's owned assets. The Company was in
compliance with all of its financial covenants as of December 31, 1998 and June
30, 1999.
F-13
<PAGE> 76
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
NOTE 5 -- INCOME TAXES
Income before taxes includes losses from foreign operations of
approximately $986,000, $1,567,000 and $2,906,000, for the years ended December
31, 1996, 1997 and 1998, respectively. The components of income tax expense
(benefit) are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Current:
Federal................................................... $ -- $ -- $ 192
State..................................................... -- -- 13
Foreign................................................... -- -- 416
------- ------- ------
Total current..................................... $ -- $ -- $ 621
Deferred:
Federal................................................... -- -- (600)
State..................................................... -- -- (100)
------- ------- ------
Total deferred.................................... $ -- $ -- $ (700)
------- ------- ------
$ -- $ -- $ (79)
======= ======= ======
</TABLE>
The differences between the income tax expense (benefit) computed at the
federal statutory rate of 34% and the Company's actual income tax expense
(benefit) for the periods presented are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Expected income tax expense................................. $(3,449) $(2,507) $1,346
State income taxes, net of federal tax benefit.............. -- -- (58)
Foreign taxes............................................... -- -- 416
Alternative minimum tax..................................... -- -- 97
Utilization of net operating loss carryforwards............. -- -- (2,471)
Decrease in beginning of year valuation allowance........... (600)
Foreign losses not benefited................................ -- -- 988
Net operating losses not benefited.......................... 3,449 2,507 --
Other....................................................... -- -- 203
------- ------- ------
Income tax benefit.......................................... $ -- $ -- $ (79)
======= ======= ======
</TABLE>
F-14
<PAGE> 77
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
The individual components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Depreciation and amortization..................... $ 175 $ 401 $ 766
Accrued liabilities............................... 403 887 723
Capitalized research and development.............. 531 1,024 721
Net operating losses.............................. 5,093 6,408 6,737
Tax credits....................................... 431 1,258 2,180
------- ------- -------
Total deferred tax assets.................... 6,633 9,978 11,127
Less valuation allowance.......................... (6,633) (9,978) (9,153)
------- ------- -------
-- -- 1,974
Deferred tax liabilities -- unrealized gain on
marketable securities.......................... -- -- (1,274)
------- ------- -------
Net deferred tax assets...................... $ -- $ -- $ 700
======= ======= =======
</TABLE>
The total deferred tax assets as of December 31, 1998, include
approximately $1,900,000 relating to the tax benefit arising from the exercise
of stock options, which will be credited to stockholders' equity when recognized
in the form of a reduction of the valuation allowance. In addition, as a result
of the intraperiod income tax allocation provisions of SFAS No. 109, the
deferred tax liability related to the unrealized gain on marketable securities
decreased the valuation allowance for the deferred tax assets and was not
charged to accumulated other comprehensive income in stockholders' equity. The
Company has provided a valuation allowance for a significant portion of its
deferred tax assets as of December 31, 1998. The total valuation allowance
decreased $825,000 from December 31, 1997 to December 31, 1998, of which
$700,000 relates to a change in the beginning-of-the-year valuation allowance.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $12,973,000 and $5,539,000, 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 $790,000 and $666,000, respectively, available to
offset future tax liabilities.
The Company's federal net operating loss and tax credit carryforwards
expire in the years 2010 through 2012, if not utilized. The state net operating
loss carryforwards expire in the years 2000 through 2002. The state research and
development credits can be carried forward indefinitely. As of December 31,
1998, the Company's foreign subsidiaries had net operating loss carryforwards in
foreign jurisdictions of approximately $5,400,000 that can be used to offset
future foreign income. Of these losses, approximately $1,600,000 expire in the
years 2001 through 2003. Approximately $3,800,000 of these losses can be carried
forward indefinitely.
Federal and state tax laws limit the use of net operating loss
carryforwards in certain situations where changes occur in the stock ownership
of a company. The Company believes such an ownership change, as defined, may
have occurred and, accordingly, certain of the Company's federal and state net
operating loss carryforwards may be limited in their annual usage.
F-15
<PAGE> 78
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
NOTE 6 -- COMMITMENTS
Leases
The Company entered into its headquarters facility lease during 1997. The
Company leases this and its other facilities under noncancelable operating lease
agreements expiring through the year 2007. Under the terms of the agreements,
the Company is required to pay property taxes, insurance and normal maintenance
costs. The Company also leases certain equipment under capital leases expiring
through the year 2000.
Subsequently, during March 1999, the Company entered into an operating
lease agreement through December 2007 for an additional 55,000 square feet of
office space adjacent to its corporate headquarters building in Redwood City,
California with annual rental payments of approximately $1,500,000.
A summary of future minimum lease payments is as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
1999........................................................ $ 849 $ 2,236
2000........................................................ 330 1,734
2001........................................................ -- 1,297
2002........................................................ -- 1,346
2003........................................................ -- 1,426
Thereafter................................................ -- 6,018
------ -------
Total minimum lease payments................................ 1,179 $14,057
=======
Less amount representing imputed interest................... 200
------
Present value of net minimum capital lease payments......... 979
Less current portion........................................ (709)
------
Capital leases, excluding current portion................... $ 270
======
</TABLE>
Rental expense relating to operating leases was approximately $571,000,
$1,161,000, and $1,101,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Total minimum sublease payments to be received in the future under
noncancelable subleases total $1,093,000 through May 2000.
Standby Letter of Credit Commitments
As of December 31, 1998, the Company had outstanding commitments in the
form of two standby letters of credit. A letter for $1,400,000 was issued in
favor of the Company's equipment leasing financier on November 12, 1997; with
provisions for automatic annual renewals not to extend beyond April 10, 2000. A
letter for $796,000 was issued in favor of the Company's corporate facility
landlord to secure obligations under the Company's corporate headquarters
facility lease.
Subsequently, during March 1999, a standby letter of credit in the amount
of $498,000 was issued in favor of the Company's corporate facility landlord to
secure obligations relating to a lease for additional facility office space.
F-16
<PAGE> 79
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
NOTE 7 -- STOCKHOLDERS' EQUITY
Convertible Preferred Stock
All outstanding convertible preferred stock and warrants to purchase
convertible preferred stock were converted to common stock and warrants to
purchase common stock at the time of the Company's initial public offering in
June 1996.
Warrants
As of December 31, 1998 and June 30, 1999, there were warrants outstanding
to acquire 180,000 shares of common stock at $2.83 per share related to a
facilities lease. At the date these warrants were granted, the fair value of
these warrants was not significant.
Common Stock
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option and stock purchase plans. Accordingly, the
Company has recorded deferred compensation of $1,510,000 and $240,000 in the
years ended December 31, 1996 and 1998, respectively, for the difference between
the exercise price and the fair value of the common stock underlying options
granted. The deferred compensation is being amortized to expense over the
vesting period of the individual options, generally five years.
As of December 31, 1998, the Company had reserved 17,925,000 shares of
common stock for issuance under its Equity Incentive Plan. As of June 30, 1999,
the Company has reserved 20,625,000 shares of common stock for issuance under
its Equity Incentive 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 date of grant. 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. These options generally expire ten years after the
grant date. 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 Company's 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.
Approximately 48,000 unvested shares were repurchased by the Company during the
year ended December 31, 1998. As of December 31, 1998 and June 30, 1999, 706,545
and 704,937 shares were subject to repurchase at a weighted-average price of
$0.15 and $0.34, respectively.
As of December 31, 1998, the Company's President and Chief Executive
Officer held an option to purchase 1,500,000 shares of common stock at an
exercise price of $1.33 per share. The shares subject to option vest ratably on
a monthly basis over a 60-month period commencing April 1, 1995. As of December
31, 1998 and June 30, 1999, 1,101,000 and 1,250,001 shares were vested,
respectively. In June 1999, the Company's President and Chief Executive Officer
was granted an additional option to purchase 1,500,000 shares of common stock at
an exercise price of $20.00 per share. The shares subject to the second option
vest ratably on a monthly basis over a 60-month period commencing June 23, 1999.
F-17
<PAGE> 80
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
Activity in the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------- SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
------------------- ------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
FIXED OPTIONS (000'S) PRICE (000'S) PRICE (000'S) PRICE (000'S) PRICE
------------- ------- --------- ------- --------- ------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period.... 5,772 $0.04 7,179 $0.92 8,721 $1.50 10,494 $ 2.89
Granted............................... 5,547 1.33 4,038 2.23 4,764 4.56 4,533 15.35
Exercised............................. (3,276) 0.06 (765) 0.10 (1,731) 1.21 (1,569) 1.55
Forfeited............................. (864) 0.94 (1,731) 1.40 (1,260) 1.91 (582) 4.21
------ ------ ------ ------
Outstanding at end of period.......... 7,179 $0.92 8,721 $1.50 10,494 $2.89 12,876 $ 7.38
====== ====== ====== ======
Options vested at end of period....... 927 $0.07 1,923 $0.88 2,409 $1.43 2,424 $ 2.07
====== ====== ====== ======
Weighted-average fair value of options
granted during the period........... $0.76 $2.23 $2.96 $12.95
===== ===== ===== ======
</TABLE>
The following table summarizes stock options outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS VESTED
WEIGHTED-AVG. -----------------------------
NUMBER REMAINING NUMBER
RANGE OF OUTSTANDING CONTRACTUAL LIFE WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG.
EXERCISE PRICES (000'S) IN YEARS EXERCISE PRICE (000'S) EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.02 - $1.77.................. 1,938 7.15 $ 0.31 1,044 $0.22
1.83 - 2.31.................. 2,364 7.40 2.00 618 1.97
2.33 - 2.60.................. 2,286 8.25 2.47 576 2.41
2.63 - 4.21.................. 1,869 9.05 3.76 144 2.75
4.31 - 9.27.................. 2,037 9.57 6.03 27 8.06
------ -----
$0.02 - $9.27.................. 10,494 8.25 $ 2.89 2,409 $1.43
====== =====
</TABLE>
The following table summarizes stock options outstanding as of June 30,
1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS VESTED
WEIGHTED-AVG. -----------------------------
NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING CONTRACTUAL LIFE AVG. EXERCISABLE AVG.
EXERCISE PRICES (000'S) IN YEARS EXERCISE PRICE (000'S) EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.02 - $ 2.17................ 2,775 7.22 $ 1.24 1,254 $1.01
2.21 - 3.67................ 2,814 7.97 2.63 852 2.50
3.88 - 7.96................ 2,592 8.94 5.13 291 4.83
8.00 - 14.25................ 2,937 9.71 12.40 27 8.82
17.29 - 20.00................ 1,758 9.98 19.58 -- --
------ -----
$ 0.02 - $20.00................ 12,876 8.67 $ 7.38 2,424 $2.07
====== =====
</TABLE>
F-18
<PAGE> 81
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
The Company grants options outside of the Company's stock option plan. A
summary of options outside of the plan is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------ SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
-------------------- -------------------- -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
FIXED OPTIONS (000'S) PRICE (000'S) PRICE (000'S) PRICE (000'S) PRICE
------------- ------- ---------- ------- ---------- ------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period................... 60 $0.07 2,133 $1.17 2,385 $1.36 2,217 $ 1.41
Granted.................... 2,181 1.15 462 1.83 -- -- 459 14.73
Exercised.................. (60) 0.07 -- -- (168) 0.62 (96) 2.25
Forfeited.................. (48) 0.27 (210) 0.27 -- -- -- --
----- ----- ----- -----
Outstanding at end of
period................... 2,133 $1.17 2,385 $1.36 2,217 $1.41 2,580 $ 3.75
===== ===== ===== =====
Options vested at end of
period................... 591 $1.45 1,185 $1.20 1,491 $1.34 1,617 $ 1.30
===== ===== ===== =====
Weighted-average fair value
of options granted during
the period............... $0.68 $1.83 $ -- $11.85
===== ===== ===== ======
</TABLE>
The 2,217,000 and 2,580,000 options outstanding as of December 31, 1998 and
June 30, 1999, respectively, have exercise prices ranging from $0.27 to $20.44
and a weighted-average contractual life of 6.22 and 5.88 years, respectively. As
of December 31, 1998 and June 30, 1999, no shares were subject to repurchase.
Employee Stock Purchase Plan
As of December 31, 1998, the Company had reserved 2,400,000 shares for
issuance under the Company's Employee Stock Purchase Plan (the "Purchase Plan").
As of June 30, 1999, the Company has reserved 3,300,000 shares for issuance
under the Company's Purchase Plan. 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. Under the Purchase Plan, the Company issued 726,000, 684,000 and 471,000
shares to employees in the years ended December 31, 1997 and 1998 and in the six
month period ended June 30, 1999, respectively.
Under SFAS No. 123, compensation cost is recognized for the fair value of
the employees' purchase rights, which was estimated using the Black-Scholes
option pricing model with no expected dividends, an expected life of 7 months,
and the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------ SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
-------- -------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Risk-free interest rate............. 6.50% 5.05% 4.48% 4.82%
Volatility.......................... 60% 67% 112% 104%
</TABLE>
F-19
<PAGE> 82
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
The weighted-average fair value of the purchase rights granted in the years
ended December 31, 1996, 1997, 1998, and the six month period ended June 30,
1999, was $0.87, $0.72, $1.39 and $3.24, respectively.
Pro Forma Disclosure
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with no expected dividends and the
following weighted-average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------- SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
--------- --------- --------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected life....................... 5.0 years 2.8 years 3.0 years 3.7 years
Risk-free interest rate............. 6.50% 5.91% 4.70% 5.75%
Volatility.......................... 60% 67% 112% 104%
</TABLE>
Had compensation cost for the Company's stock option plan and stock
purchase plan been determined consistent with SFAS No. 123, the Company's
reported net income (loss) and net income (loss) per share would have been
changed to the amounts indicated below (in thousands except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------- SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
-------- ------- ------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss):
As reported.......................... $(10,145) $(7,373) $ 4,039 $ 6,252
Pro forma............................ $(11,270) $(9,551) $(1,885) $(1,508)
Basic net income (loss) per share:
As reported.......................... $ (0.18) $ (0.12) $ 0.06 $ 0.08
Pro forma............................ $ (0.20) $ (0.16) $ (0.03) $ (0.02)
Diluted net income (loss) per share:
As reported.......................... $ (0.18) $ (0.12) $ 0.05 $ 0.07
Pro forma............................ $ (0.20) $ (0.16) $ (0.03) $ (0.02)
</TABLE>
NOTE 8 -- 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 a limitation of $10,000 in the year ended December 31,
1998. Employees vest immediately in their contributions and earnings thereon.
The plan allows for, but does not require, Company matching contributions. As of
December 31, 1998 and June 30, 1999, the Company has not made any such matching
contributions.
NOTE 9 -- GEOGRAPHIC, SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company adopted the provisions of SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information, during 1998. SFAS No. 131
establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information
F-20
<PAGE> 83
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
to report is based on the way that management organizes the operating segments
within the Company for making operational decisions and assessments of financial
performance. The Company's chief operating decision maker is considered to be
the Company's Chief Executive Officer ("CEO"). The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated
information about revenues by geographic region and by product for purposes of
making operating decisions and assessing financial performance.
The disaggregated financial information on a product basis reviewed by the
CEO is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Software licenses:
One-To-One Enterprise...................... $ 7,464 $14,479 $17,799 $ 8,354 $ 4,586
One-To-One Packaged Solutions.............. -- 4,494 18,268 6,943 23,681
Services..................................... 2,819 5,981 9,739 4,269 9,063
Maintenance.................................. 599 2,151 5,105 1,898 4,610
------- ------- ------- ------- -------
Total Company.............................. $10,882 $27,105 $50,911 $21,464 $41,940
======= ======= ======= ======= =======
</TABLE>
The Company sells its products and provides services worldwide through a
direct sales force, independent distributors, value-added resellers, and system
integrators. It currently operates in three primary regions, the Americas which
includes North and South America, Europe which includes Eastern and Western
Europe and the Middle East, and Asia/Pacific which includes the Pacific Rim and
the Far East. Information regarding the business operations of these regions are
as follows (In thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Americas................................... $ 4,406 $12,872 $29,330 $11,815 $29,746
Europe..................................... 3,280 10,850 16,944 6,804 7,637
Asia/Pacific............................... 3,196 3,383 4,637 2,845 4,557
------- ------- ------- ------- -------
Total Company.............................. $10,882 $27,105 $50,911 $21,464 $41,940
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1997 1998 1999
------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Identifiable assets:
Americas.......................................... $28,093 $25,362 $ 99,343 $134,748
Europe............................................ 366 822 1,754 1,880
Asia/Pacific...................................... 471 355 465 570
------- ------- -------- --------
Total Company..................................... $28,930 $26,539 $101,562 $137,198
======= ======= ======== ========
</TABLE>
F-21
<PAGE> 84
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED)
During the year ended December 31, 1996, approximately 10% of the Company's
revenues were attributable to one customer. During the year ended December 31,
1997, approximately 11% of the Company's revenues were attributable to one
customer. During the year ended December 31, 1998, no customer accounted for 10%
or more of the Company's revenues. During the six months ended June 30, 1999,
one customer accounted for approximately 11% of the Company's total revenues.
NOTE 10 -- SUBSEQUENT EVENTS
On October 6, 1999, the Company's Board of Directors increased the
authorized shares of common stock and convertible preferred stock to 500,000,000
and 10,000,000, respectively. In addition, the Board of Directors increased the
aggregate number of shares of common stock available to be issued under the
Company's Equity Incentive Plan by 3,000,000 shares.
On October 11, 1999, the Company effected a three-for-one stock split of
its common stock in the form of a stock dividend. Stockholders of record on
October 11, 1999, will receive two additional shares of common stock for each
share held on that date. The shares are to be distributed on October 25, 1999.
The accompanying consolidated financial statements have been retroactively
restated to give effect to the stock split.
F-22
<PAGE> 85
UNDERWRITING
BroadVision and the underwriters for the U.S. offering (the "U.S.
Underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered in the United States. Subject to certain
conditions, each U.S. Underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., BancBoston
Robertson Stephens Inc., ABN AMRO Incorporated, Banc of America Securities LLC,
Commerzbank Capital Markets Corporation and Friedman, Billings, Ramsey & Co.,
Inc. are the representatives of the U.S. Underwriters.
<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
----------------- ------------------
<S> <C>
Goldman, Sachs & Co. ..................................
BancBoston Robertson Stephens Inc. ....................
ABN AMRO Incorporated..................................
Banc of America Securities LLC.........................
Commerzbank Capital Markets Corporation................
Friedman, Billings, Ramsey & Co., Inc..................
----------
Total........................................ 1,125,000
==========
</TABLE>
----------------------
If the U.S. Underwriters sell more shares than the total number set forth
in the table above, the U.S. Underwriters have an option to buy up to an
additional 168,750 shares from BroadVision to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the U.S. Underwriters will severally purchase shares in approximately
the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by BroadVision. Such amounts
are shown assuming both no exercise and full exercise of the U.S. Underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by BroadVision
-------------------
No Exercise Full Exercise
------------ --------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
BroadVision has entered into an underwriting agreement with the
underwriters for the sale of 1,125,000 shares outside of the United States. The
terms and conditions of both offerings are the same and the sale of shares in
both offerings are conditioned on each other. Goldman, Sachs & Co. oHG,
BancBoston Robertson Stephens International Ltd., ABN AMRO Rothschild, Bank of
America International Limited and Commerzbank Aktiengesellschaft are
representatives of the underwriters for the international offering outside of
the United States (the "International Underwriters"). BroadVision has granted
the International Underwriters a similar option to purchase up to an aggregate
of an additional 168,750 shares. Shares sold by the International Underwriters
will be priced in euros. The initial price to public set forth on the cover of
this
U-1
<PAGE> 86
prospectus will be translated into euros at the rate of $1.00 = E , the
noon buying rate in The City of New York for cable transfers in foreign
currencies certified by the Federal Reserve Bank of New York for customs
purposes (the "Noon Buying Rate"). On October 20, 1999, the Noon Buying Rate for
the euro was E 1.00 = $1.0765.
The underwriters for both of the offerings have entered into an agreement
in which they have agreed to restrictions on where and to whom they and any
dealer purchasing from them may offer shares as a part of the distribution of
the shares. The underwriters also have agreed that they may sell shares among
each of the underwriting groups.
BroadVision and holders of 22,578,645 shares of the common stock have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
90 days after the date of this prospectus, except with the prior written consent
of the representatives. This agreement does not apply to any existing employee
benefit plans, or shares issued in connection with certain acquisitions or in
conjunction with an agreement involving a technical manufacturing or marketing
collaboration, provided that such shares (i) do not represent, in the aggregate,
more than 15% of BroadVision's then outstanding shares of stock, (ii) are issued
in a transaction not requiring registration under the Act and (iii) are subject
to these same share transfer restrictions. In addition, BroadVision and its
Chief Executive Officer, who holds an aggregate of 19,125,000 shares of common
stock, have agreed to a lock-up with the Deutsche Borse AG, pursuant to the
rules of admission of the Neuer Markt. Pursuant to this lock-up, BroadVision and
its Chief Executive Officer may not, for a period of six months from the date of
commencement of trading on the Neuer Markt, offer or sell shares of the
Company's common stock, or take other measures economically equivalent to a sale
of the common stock. Deutsche Borse AG may grant exemptions from this lock-up
under certain circumstances.
In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offerings are in progress.
The U.S. underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market and on the Neuer Markt of the Frankfurt Stock Exchange, in the
over-the-counter market or otherwise.
BroadVision estimates that its share of the total expenses for the
offering, excluding underwriting discounts and commissions, will be
approximately $3,275,000.
BroadVision has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the U.S. Securities Act of
1933.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offering being made outside of the
United States, to persons located in the United States.
U-2
<PAGE> 87
GLOSSARY
Browser-based Tool............ Tool that runs in any HTML browser.
C++........................... An object-oriented platform programming
language.
CGI........................... "Common Gateway Interface" is the interface
used by HTTP servers to execute a process or
application in response to a request.
CORBA......................... "Common Object Request Broker Architecture"
allows applications to communicate with one
another no matter where they are located or who
has designed them.
Extranet...................... External internet web application for
customers' partners and customers.
HTTP.......................... "HyperText Transfer Protocol" is the protocol
developed for communication between browsers
and web servers.
Interface Definition
Language...................... "IDL" is the language used that defines the
CORBA protocol of application interfaces.
Intranet...................... Internal internet web application for
customers' employees and internal users.
Java.......................... An object-oriented platform neutral programming
language developed by Sun Microsystems.
JavaScript.................... An open, cross-platform object scripting
language for the creation and customization of
applications developed by NetScape.
Modular Component
Architecture.................. Software system that provides architecture for
developing an application in logical
components, and support for integrating
together.
N-tier Architecture........... Applications whose logical processes can be
distributed across multiple host machines,
typically to provide a scalable design.
NSAPI......................... "NetScape Application Program Interface" is a
high performance alternative to CGI.
Object-oriented Application
Code.......................... An application written in an object-oriented
language, such as C++ or Java.
Packaged Applications......... Pre-built application software packages that
require less customization to be deployed.
PC-based Tool................. Tool that runs on the Windows/PC platform.
Real-time Interaction......... Providing immediate responses to actions or
requests.
Relationship Management....... Managing relationships with customers.
SQL........................... "Standard Query Language" is a database
language for accessing relational databases.
SSL........................... "Secure Sockets Layer" is a security protocol
that provides data encryption, server
authentication, message
G-1
<PAGE> 88
integrity, and optional client authentication
for a TCP/IP connection.
Systems Integrators........... Companies whose focus is on integrating systems
to provide solutions to customers' business
needs.
Wizards....................... Graphical interface that walks a user through a
series of steps to achieve a task.
XML........................... "eXtensible Markup Language" is the universal
format for structured documents and data on the
Web.
G-2
<PAGE> 89
[INSIDE FRONT COVER]
LEFT CAPTION: One-to-One
Text: Know the Customers.
With the advent of the Internet, business managers may never have face-to-face
contact with millions of their customers, customers who now have the ability to
change vendors at the click of a button. As a result, compared to traditional
businesses, e-Businesses are faced with a greatly increased need for
differentiation and thus the need to personalize business interactions.
BroadVision helps companies around the world personalize e-commerce by enabling
the delivery of the information that customers want, need and expect.
BROADVISION LOGO
LEFT CAPTION: One-to-One
Text: Empower Employees.
We believe that the most effective intranets offer personalized content,
navigation and alerts. By personalizing content, BroadVision can enhance the
workflow and knowledge management capabilities of an organization. By
personalizing navigation, employees quickly find information they need. And
personalized notifications instantly advise employees when information important
to them arrives or changes.
BROADVISION LOGO
[This page has four close-up photos of people's faces]
[INSIDE BACK COVER]
LEFT CAPTION: One-to-One
Text: Streamline Business Partners.
BroadVision delivers one of the first e-Business applications to permit business
partners such as distributors, resellers and suppliers to access, by themselves,
commonly requested information such as inventory status, order status and ship
dates. These personalized corporate knowledge portals feature personalized
navigation and personalized content to allow business partners to help
themselves.
BROADVISION LOG
Text: Get To Know BroadVision.
We develop, market and support application software solutions for one-to-one
relationship management. We help companies around the world personalize their
interactions and transactions with all constituents of the extended enterprise,
including customers, employees and business partners.
BROADVISION LOGO
LOWER CAPTION: One-to-One
[This page has six close-up photos of people's faces]
<PAGE> 90
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
Special Note Regarding Forward-
Looking Statements................. 16
Use of Proceeds...................... 17
Price Range of Common Stock.......... 17
Dividend Policy...................... 18
Capitalization....................... 19
Selected Consolidated Financial
Data............................... 20
Management's Discussion and
Analysis of Financial Condition and
Results of Operations.............. 21
Business............................. 36
Management........................... 51
Principal Stockholders............... 55
Description of Capital Stock......... 57
Legal Matters........................ 61
Experts.............................. 61
Available Information................ 61
Additional Information............... 61
Incorporation of Certain Documents by
Reference.......................... 62
Index to Financial Statements........ F-1
Underwriting......................... U-1
Glossary............................. G-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,250,000 Shares
BROADVISION, INC.
Common Stock
----------------------
LOGO
----------------------
GOLDMAN, SACHS & CO.
ROBERTSON STEPHENS
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
BANC OF AMERICA
SECURITIES LLC
COMMERZBANK CAPITAL MARKETS CORP.
FRIEDMAN BILLINGS RAMSEY
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates,
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 27,723
NASD filing fee............................................. 9,033
Nasdaq National Market Additional Listing Fee............... 15,250
Accounting fees and expenses................................ 230,000
Legal fees and expenses..................................... 500,000
Blue Sky fees and expenses (including counsel fees)......... 5,000
Printing and engraving expenses............................. 300,000
Transfer Agent and Registrar fees and expenses.............. 5,000
Advertising and Public Relations............................ 1,950,000
Miscellaneous............................................... 232,994
----------
Total............................................. $3,275,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a court to award or a corporation's board of directors to grant indemnification
to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Registrant's Restated Certificate and Restated Bylaws provide for mandatory
indemnification of its directors and permissive indemnification of officers,
employees and other agents to the maximum extent permitted by the DGCL. The
Registrant has entered into indemnification agreements with its directors. The
indemnification agreements provide the Registrant's directors with further
indemnification to the maximum extent permitted by the DGCL. The Company also
has obtained directors and officers insurance to insure its directors and
officers against certain liabilities, including liabilities under the securities
laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Cooley Godward LLP
23.1 Report on Financial Statement Schedule and Consent of KPMG
LLP (included on page II-5)
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney+
</TABLE>
- ------------------------
+ Previously filed as an Exhibit to this Form S-3 (No. 333-86557).
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall
II-1
<PAGE> 92
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 197(h) under the Securities Act shall be deemed to be a part
of this Registration Statement as of the time it was declared
effective.
(2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redwood City, State of California, on October 22,
1999.
BROADVISION, INC.
By: /s/ PEHONG CHEN
------------------------------------
Pehong Chen
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PEHONG CHEN Chairman of the Board, President and October 22, 1999
- ------------------------------------------ Chief Executive Officer (Principal
Pehong Chen Executive Officer)
/s/ RANDALL C. BOLTEN Vice President, Operations and Chief October 22, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Randall C. Bolten and Accounting Officer)
* DAVID L. ANDERSON Director October 22, 1999
- ------------------------------------------
David L. Anderson
* YOGEN K. DALAL Director October 22, 1999
- ------------------------------------------
Yogen K. Dalal
* TODD A. GARRETT Director October 22, 1999
- ------------------------------------------
Todd A. Garrett
* KOH BOON HWEE Director October 22, 1999
- ------------------------------------------
Koh Boon Hwee
* CARL PASCARELLA Director October 22, 1999
- ------------------------------------------
Carl Pascarella
*By: /s/ PEHONG CHEN
-----------------------------------
Pehong Chen
Attorney-in-fact
</TABLE>
II-3
<PAGE> 94
REPORT ON FINANCIAL STATEMENT SCHEDULE AND
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BroadVision, Inc.:
The audits referred to in our report dated January 26, 1999, except as to
Note 10 which is as of October 11, 1999, included the related financial
statement schedule as of December 31, 1996, 1997 and 1998, and for each of the
years in the three-year period ended December 31, 1998. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We consent to the use of our reports incorporated by reference and included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
KPMG LLP
Mountain View, California
October 22, 1999
II-4
<PAGE> 95
BROADVISION, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS(1) END OF PERIOD
------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996................ $ -- $196 $ 5 $191
==== ==== ==== ====
Year Ended December 31, 1997................ $191 $515 $ 35 $671
==== ==== ==== ====
Year Ended December 31, 1998................ $671 $458 $341 $788
==== ==== ==== ====
</TABLE>
- ---------------
(1) Represents net charge-offs of specific receivables.
II-5
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Cooley Godward LLP
23.1 Report on Financial Statement Schedule and Consent of KPMG
LLP (included on page II-5)
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney+
</TABLE>
- ------------------------
+ Previously filed as an Exhibit to this Form S-3 (No. 333-86557).
<PAGE> 1
BROADVISION, INC.
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
------------
..................... , 1999
Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
ABN AMRO Incorporated
Banc of America Securities LLC
Commerzbank Capital Markets Corporation
Friedman, Billings, Ramsey & Co., Inc.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
BroadVision, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
1,125,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 168,750 additional shares (the "Optional Shares") of Common Stock, par
value $0.0001 per share ("Stock") of the Company (the Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto as
Exhibit A, (the "International Underwriting Agreement") providing for the sale
by the Company of up to a total of 1,125,000 shares of Stock (the "International
Shares"), including the overallotment option thereunder, through arrangements
with certain underwriters outside the United States (the "International
Underwriters"), for whom Goldman Sachs & Co. oHG, BancBoston Robertson Stephens
International Ltd., ABN AMRO Rothschild, Bank of America International Limited
and Commerzbank Aktiengesellschaft are acting as lead managers. Anything herein
or therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Agreement are hereby expressly made conditional
on one another. The Underwriters hereunder and the International Underwriters
are simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which
<PAGE> 2
provides, among other things, for the transfer of shares of Stock between the
two syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11 herein,
and except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-86557) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto but including
all documents incorporated by reference in the prospectus contained therein, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any, increasing
the size of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Act"), which became effective upon filing, no other document with respect to
the Initial Registration Statement or document incorporated by reference therein
has heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and the
Rule 462(b) Registration Statement, if any, including all exhibits thereto and
including (i) the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part
of the Initial Registration Statement at the time it was declared effective and
(ii) the documents incorporated by reference in the prospectus contained in the
Initial Registration Statement at the time such part of the Initial Registration
Statement became effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is
hereinafter called the "Prospectus"; any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of such Preliminary Prospectus or Prospectus, as
the case may be; any reference to any amendment or supplement to any Preliminary
Prospectus or the Prospectus shall be deemed
2
<PAGE> 3
to refer to and include any documents filed after the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and incorporated by reference in such
Preliminary Prospectus or Prospectus, as the case may be; and any reference to
any amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section 13(a) or
15(d) of the Exchange Act after the effective date of the Initial Registration
Statement that is incorporated by reference in the Registration Statement);
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Act or the
Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any further
documents so filed and incorporated by reference in the Prospectus or any
further amendment or supplement thereto, when such documents become effective or
are filed with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act or the Exchange Act, as applicable, and
the rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman, Sachs &
Co. expressly for use therein;
(d) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects, to the requirements of the
Act and the rules and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the Registration Statement
and any amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any statements
or omissions made in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein;
3
<PAGE> 4
(e) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus;
(f) Each of the Company and its subsidiaries has good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property or do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(g) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(h) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles or the limitation on availability of equitable
remedies;
(i) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus, the
Registration Statement and any document incorporated by reference; and all of
the issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable and
(except for
<PAGE> 5
directors' qualifying shares) are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equitable interests or claims;
(j) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder and under the International Underwriting Agreement have
been duly and validly authorized and, when issued and delivered against payment
therefor as provided herein and in the International Underwriting Agreement,
will be duly and validly issued and fully paid and non-assessable, will be sold
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, and will conform to the description of the Stock contained
in the Prospectus;
(k) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the Company
with all of the provisions of this Agreement and the International Underwriting
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or Bylaws
of the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or foreign
securities or Blue Sky laws or the bylaws, rules and regulations of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(l) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or Bylaws or in default in the performance
or observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(m) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and fair;
(n) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which (i) might prevent consummation of the
transactions contemplated hereby, (ii) if determined adversely to
5
<PAGE> 6
the Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, or (iii) is required to be disclosed in the Registration Statement
or Prospectus and is not so disclosed; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(o) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(p) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(q) KPMG LLP, who have certified certain financial statements of the
Company and its subsidiaries, are independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder; the audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company and its
subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidate
financial information, filed with the Commission as part of or incorporated by
reference into the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included or incorporated by reference in
the Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included or incorporated by reference in the Registration Statements;
(r) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries or result in any
material loss or interference with the Company's business or operations. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data or
in the operation of mechanical or electrical systems of any kind will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000;
6
<PAGE> 7
(s) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise;
(t) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been provided and
there is no tax deficiency that has been or, to the best of the Company's
knowledge, might properly and validly be asserted against the Company or any of
its subsidiaries that would have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise; and all tax
liabilities are adequately provided for on the books of the Company and its
subsidiaries;
(u) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise;
(v) To the best of the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. No
7
<PAGE> 8
collective bargaining agreement exists with any of the Company's employees and,
to the best of the Company's knowledge, no such agreement is imminent;
(w) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus and any Incorporated Document; other than as disclosed in the
Registration Statement and Prospectus and any Incorporated Document, the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights; and other than as disclosed in the
Registration Statement and Prospectus and any Incorporated Document, the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise;
(x) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from The Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating terminating such
registration or listing;
(y) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Optional Shares are to
be purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act;
(z) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any such contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof;
(aa) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares;
(bb) Except as set forth in the Registration Statement and Prospectus
and any Incorporated Document, (i) the Company is in material compliance with
all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, (ii)
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the Company has received no notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus and any
Incorporated Document, (iii) the Company will not be required to make future
material capital expenditures to comply with Environmental Laws and (iv) no
property which is owned, leased or occupied by the Company has been designated
as a Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local law;
(cc) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences; and
(dd) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus and any
Incorporated Document.
(ee) The Company does not have any Significant Subsidiaries as defined
pursuant to Rule 1-02 of Regulation S-X.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 168,750 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the purpose of covering sales of shares in
excess of the number of Firm Shares. Any such election to purchase Optional
Shares may be exercised only by written notice from you to the Company, given
within a period of 30 calendar days after the date of this Agreement, setting
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forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event earlier than the First Time of Delivery (as defined in Section 4 hereof)
or, unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company,
("DTC") for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company, to Goldman, Sachs &
Co. at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1999 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, California 94303 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A meeting will
be held at the Closing Location at .......p.m., New York City time, on the New
York Business Day next preceding such Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of
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business on the second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to the last Time of Delivery which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to file promptly all reports and any definitive
proxy or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the Shares; to
advise you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the use of
any Preliminary Prospectus or prospectus, of the suspension of the qualification
of the Shares for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M. New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Act or the Exchange Act,
to notify you and upon your request to file such document and to prepare and
furnish without charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to
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prepare and deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement, any securities of
the Company that are substantially similar to the Shares, including but not
limited to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than (i) pursuant to employee stock plans or agreements
described in the Prospectus and adopted prior to, or upon the conversion or
exchange of convertible or exchangeable securities outstanding as of, the date
of this Agreement or (ii) in connection with the acquisition by the Company of
another business, product or technology, or to a strategic investor or partner
of the Company in conjunction with an agreement involving a technical
manufacturing or marketing collaboration; provided that in each case that such
shares of Stock or other securities (when taken together with all such other
securities previously issued pursuant to this Section 5(e)(ii) do not, or would
not upon conversion or exchange, represent more than 15% of the Company's
then-outstanding shares of Stock, that such securities are issued in connection
with a transaction not requiring registration under the Act and that such shares
are subject to the same restrictions on sale provided by this Section 5(e)),
without your prior written consent. To the extent the Company intends to offer,
sell, contract to sell or otherwise transfer any securities of the Company
pursuant to Section 5(e)(ii), the Company shall give the Underwriters written
notice, pursuant to Section 12 herein, of such intention at least twenty (20)
days prior to the consummation of such transaction;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
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(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting Agreement
in the manner specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement, the Blue Sky
Memorandum, closing documents (including compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; and (viii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make. The
Underwriters also agree to pay their travel and related expenses in connection
with the "road show" for the public offering of the Shares.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such
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Time of Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
shall have furnished to you such written opinion or opinions (a draft of each
such opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), the second sentence
of (viii), (xii), (xiv) and (xvii) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Cooley Godward LLP, counsel for the Company, shall have furnished
to you their written opinion (a draft of such opinion is attached as Annex II(b)
hereto), dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company either has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so qualified in any
such jurisdiction (such counsel being entitled to rely in respect of the opinion
in this clause upon opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that such counsel shall
state that they believe that both you and they are justified in relying upon
such opinions and certificates);
(iii) The authorized, issued and outstanding capital stock of the
Company was as set forth in the Prospectus under the caption "Capitalization" as
of the date stated therein, the issued and outstanding shares of capital stock
of the Company have been duly and validly authorized and issued and are fully
paid and nonassessable; and, to such counsel's knowledge, will not have been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right;
(iv) The Firm Shares or the Optional Shares, as the case may be,
have been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the
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terms hereof, will be duly and validly issued and fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, or, to such
counsel's knowledge, right of first refusal or other similar right of
stockholders;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental proceedings
pending or overtly threatened to which the Company is a party or of which any
property of the Company is the subject which, if determined adversely to the
Company, would individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position, stockholders' equity
or results of operations of the Company;
(vi) The Company has the corporate power and authority to enter
into this Agreement and the International Underwriting Agreement and to issue,
sell and deliver to the Underwriters the Shares. This Agreement and the
International Underwriting Agreement have been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company, and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and limitations on availability of equitable remedies;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with all of
the provisions of this Agreement and the International Underwriting Agreement
and the consummation of the transactions herein and therein set forth will not
conflict with or result in a material breach or violation of any of the terms or
provisions of, or constitute a material default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to such
counsel to which the Company is a party or by which the Company is bound or to
which any of the property or assets of the Company is subject and which has been
identified to us by the Company as material and filed as an exhibit to the
Registration Statement or any Incorporated Document pursuant to Item 10 of Rule
601 promulgated under the Securities Act, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or Bylaws of the
Company or any material violation of any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its properties except for the
rules and regulations of the NASD and state securities and Blue Sky laws, as to
which such counsel need not express any opinion;
(viii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws or the bylaws, rules and
regulations of the NASD (as to which such counsel need express no opinion) in
connection with the purchase and distribution of the Shares by the Underwriters;
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(ix) To such counsel's knowledge, the Company is not in material
violation of its Certificate of Incorporation or Bylaws or in material default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such counsel to which
it is a party or by which it or any of its properties may be bound;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, are accurate and summarize the information called for
with respect to such matters to the extent required by the Act and the rules and
regulations thereunder;
(xi) The Company is not an "investment company", as such term is
defined in the Investment Company Act;
(xii) The documents incorporated by reference in the Prospectus
or any further amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements, related schedules other
financial data and accounting data derived therefrom, as to which such counsel
need express no opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material respects
with the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder;;
(xiii) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act;
(xiv) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a character
required under the Act and the applicable Rules and Regulations to be described
or referred to in the Registration Statement or Prospectus or any Incorporated
Document or to be filed as an exhibit to the Registration Statement or any
Incorporated Document which are not described or referred to therein or filed as
required;
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements, related schedules other
financial data and accounting data derived therefrom, as to which such counsel
need express no opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder; and such
counsel does not know of any amendment to the Registration Statement required to
be filed or of any contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be incorporated
by reference into the Prospectus or required to be described in the Registration
Statement or the Prospectus which are not filed or incorporated by reference or
described as required;
In addition, such counsel shall state the following: in connection with the
preparation of the Registration Statement and the Prospectus, it has
participated in conferences with officers
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and representatives of the Company and with its certified public accountants, as
well as with representatives of the Underwriters and their counsel. At such
conferences, the contents of the Registration Statement and the Prospectus and
related matters were discussed. Such counsel has not independently verified, and
accordingly, except as specified in subparagraphs (iv) and (xi) above, is not
confirming and assumes no responsibility for the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus. On the
basis of the foregoing, nothing has come to such counsel's attention that has
caused it to believe (i) that the Registration Statement (except as to the
financial statements, related schedules, other financial data and accounting
data derived therefrom, as to which such counsel need express no belief) at the
effective date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) that the Prospectus (except as to the
financial statements, related schedules, other financial data and accounting
data derived therefrom, as to which such counsel need express no belief) as of
its date or at the Time of Delivery, contained or contains any untrue statement
of material fact or omitted or omits to state a material fact necessary, in
order to make the statements therein, in light of circumstances under which they
were made, not misleading. In rendering such opinion, such counsel may state
that they express no opinion as to the laws of any jurisdiction outside the
United States.
(d) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG LLP shall have
furnished to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto (the executed copy of the letter delivered prior to the execution
of this Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective amendment to
the Registration Statement and as of each Time of Delivery is attached as Annex
I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause (i) or
(ii), is in the judgment of the Representatives so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the terms and
in the manner contemplated in the Prospectus;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the
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Company's securities on NASDAQ; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York or California State
authorities; or (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(g) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(h) The Company has obtained from each officer and director and
delivered to the Underwriters executed copies of an agreement, substantially to
the effect set forth in Subsection 5(e) hereof in form and substance
satisfactory to you;
(i) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(j) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a
18
<PAGE> 19
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in
19
<PAGE> 20
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Shares purchased under this Agreement (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters with respect to the Shares purchased under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the
20
<PAGE> 21
Company that you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the purchase of such Shares,
you or the Company shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
21
<PAGE> 22
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
22
<PAGE> 23
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the Company
for examination upon request, but without warranty on your part as to the
authority of the signers thereof.
Very truly yours,
BroadVision, Inc.
By:
-----------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
ABN AMRO Incorporated
Banc of America Securities LLC
Commerzbank Capital Markets Corporation
Friedman, Billings, Ramsey & Co., Inc.
By Goldman, Sachs & Co.
By:
-------------------------------------
Name:
Title:
On behalf of each of the Underwriters
23
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co..........................
BancBoston Robertson Stephens Inc............
ABN AMRO Incorporated........................
Banc of America Securities LLC...............
Commerzbank Capital Markets Corporation......
Friedman, Billings, Ramsey & Co., Inc........
--------------- ------------------
Total....................................
=============== ==================
</TABLE>
24
<PAGE> 25
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included or incorporated by reference in the Registration Statement or the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act or the Exchange Act, as applicable, and
the related published rules and regulations thereunder; and, if applicable,
they have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the consolidated
interim financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports thereon, copies of
which have been separately furnished to the representatives of the
Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus and/or
included in the Company's quarterly report on Form 10-Q incorporated by
reference into the Prospectus as indicated in their reports thereon copies
of which have been separately furnished to the Representatives; and on the
basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Exchange Act and the related published rules and regulations, nothing came
to their attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Exchange Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus and
included or incorporated by reference in Item 6 of the Company's Annual
Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 10-K for such fiscal years;
25
<PAGE> 26
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated by reference
in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus and/or included or incorporated
by reference in the Company's Quarterly Reports on Form 10-Q
incorporated by reference in the Prospectus do not comply as to form
in all material respects with the applicable accounting requirements
of the Exchange Act and the related published rules and regulations,
or (ii) any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus or included in the Company's Quarterly Reports on Form 10-Q
incorporated by reference in the Prospectus, for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived the unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply
26
<PAGE> 27
as to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest balance sheet
included or incorporated by reference in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives,
or any increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to
the specified date referred to in clause (E) there were any decreases
in consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified by
the Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus (excluding
documents incorporated by reference) or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives
or in documents incorporated by reference in the Prospectus specified by
the Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
its subsidiaries and have found them to be in agreement.
27
<PAGE> 28
EXHIBIT A
BROADVISION, INC.
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
----------
UNDERWRITING AGREEMENT
(INTERNATIONAL VERSION)
----------
..................... , 1999
Goldman Sachs & Co. oHG
BancBoston Robertson Stephens International Ltd.
ABN AMRO Rothschild
Bank of America International Limited
Commerzbank Aktiengesellschaft
As representatives of the several Underwriters
named in Schedule I hereto
c/o Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB, England
Ladies and Gentlemen:
BroadVision, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
1,125,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 168,750 additional shares (the "Optional Shares") of Common Stock, par
value $0.0001 per share (the "Stock") of the Company (the Firm Shares and the
Optional Shares which the Underwriters elect to purchase pursuant to Section 2
hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto (the
"U.S. Underwriting Agreement"), providing for the offering by the Company of up
to a total of 1,125,000 shares of Stock (the "U.S. Shares") including the
overallotment option thereunder through arrangements with certain underwriters
in the United States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co.,
BancBoston Robertson Stephens Inc., ABN AMRO Incorporated, Banc of America
Securities LLC, Commerzbank Capital Markets Corporation and Friedman, Billings,
Ramsey & Co., Inc. are acting as representatives. Anything herein and therein to
the contrary notwithstanding, the respective closings under this Agreement and
the U.S. Underwriting Agreement are hereby
28
<PAGE> 29
expressly made conditional on one another. The Underwriters hereunder and the
U.S. Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Stock between the
two syndicates and for consultation by the Lead Managers hereunder with Goldman,
Sachs & Co. prior to exercising the rights of the Underwriters under Section 7
hereof. Two forms of prospectus are to be used in connection with the offering
and sale of shares of Stock contemplated by the foregoing, one relating to the
Shares hereunder and the other relating to the U.S. Shares. The latter form of
prospectus will be identical to the former except for certain substitute pages
as included in the registration statement and amendments thereto as mentioned
below. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the
context may otherwise require, references hereinafter to the Shares shall
include all of the shares of Stock which may be sold pursuant to either this
Agreement or the U.S. Underwriting Agreement, and references herein to any
prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both of the U.S. and the international versions
thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters or
to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to
Goldman Sachs & Co. oHG ("GSI"), and, in general, all such provisions and
defined terms shall be applied mutatis mutandis as if the incorporated
provisions were set forth in full herein having regard to their context in this
Agreement as opposed to the U.S. Underwriting Agreement.
17. The Company hereby makes with the Underwriters the same
representations, warranties and agreements as are set forth in Section 1 of the
U.S. Underwriting Agreement, which Section is incorporated herein by this
reference.
18. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $......, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
29
<PAGE> 30
The Company hereby grants to the Underwriters the right to purchase at
their election up to 168,750 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
19. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to and
with the Company the representations and agreements of such Underwriter as a
member of the selling group contained in Sections 3(d) and 3(e) of the form of
Selling Agreements.
20. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as GSI may request upon at least forty-eight hours' prior notice to the
Company shall be delivered by or on behalf of the Company to GSI, through the
facilities of the Depository Trust Company ("DTC"), for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of Federal (same-day) funds to the account
specified by the Company to Goldman, Sachs & Co. at least forty-eight hours in
advance. The Company will cause the certificates representing the Shares to be
made available for checking and packaging at least twenty-four hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
DTC or its designated custodian (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
New York City time, on ............., 1999 or such other time and date as GSI
and the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York City time, on the date specified by GSI in the
written notice given by GSI of the Underwriters' election to purchase such
Optional Shares, or such other time and date as GSI and the Company may agree
upon in writing. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery", such time and date for delivery of the
Optional Shares, if not the First Time of Delivery, is herein called the "Second
Time of Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 of the U.S. Underwriting
Agreement, including the cross receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 7(k) of the U.S.
Underwriting Agreement hereof, will be delivered at the offices of Brobeck,
Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto,
California 94303 (the "Closing Location"), and the Shares will be delivered at
the Designated Office, all at such Time of Delivery. A meeting will be held at
the Closing Location at .......p.m., New York City time, on the New York
Business Day next preceding such Time of Delivery, at which meeting the final
drafts of the documents to be delivered pursuant to the preceding
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<PAGE> 31
sentence will be available for review by the parties hereto. For the purposes of
this Section 4, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close.
21. The Company hereby makes to the Underwriters the same agreements as
are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
22. The Company and the Underwriters hereby agree with respect to certain
expenses on the same terms as are set forth in Section 6 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
23. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery, to the condition that all representations and
warranties and other statements of the Company herein are, at and as of such
Time of Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and
additional conditions identical to those set forth in Section 7 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
24. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
31
<PAGE> 32
Preliminary Prospectus, the Registration Statement or Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through GSI expressly
for use therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Shares
purchased
32
<PAGE> 33
under this Agreement (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters
with respect to the Shares purchased under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus relating to such Shares.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
25. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may
33
<PAGE> 34
thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligation of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
26. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
27. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Section 6 and Section 8 hereof, but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through GSI for all out-of-pocket
expenses approved in writing by GSI, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 6 and 8 hereof.
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<PAGE> 35
28. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550; and if to the
Company shall be delivered or sent by registered mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: Secretary; provided, however, that any notice to an
Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail,
telex or facsimile transmission to such Underwriter at its address set forth in
its Underwriters' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company by GSI upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
29. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
30. Time shall be of the essence of this Agreement.
31. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
32. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE> 36
If the foregoing is in accordance with your understanding, please sign
and return to us [five] counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (International Version), the form of which shall be
furnished to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
BroadVision, Inc.
By:
-----------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman Sachs & Co. oHG
BancBoston Robertson Stephens International Ltd.
ABN AMRO Rothschild
Bank of America International Limited
Commerzbank Aktiengesellschaft
By: Goldman Sachs & Co. oHG
By:
-------------------------------------
Name:
Title:
On behalf of each of the Underwriters
36
<PAGE> 37
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co..........................
BancBoston Robertson Stephens Inc............
ABN AMRO Incorporated........................
Bank of America International Limited........
Commerzbank Aktiengesellschaft...............
--------------- ------------------
Total....................................
=============== ==================
</TABLE>
37
<PAGE> 1
Exhibit 5.1
[COOLEY GODWARD LLP LETTERHEAD]
October 22, 1999
BroadVision, Inc.
585 Broadway
Redwood City, CA 94063
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by BroadVision, Inc. (the "Company") of a Registration Statement
on Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") covering the underwritten public offering of up to
2,587,500 post-split shares of common stock (the "Shares"), including 337,500
shares for which the Underwriters have been granted an over-allotment option.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation, as amended, and Amended and Restated Bylaws and the originals or
copies certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below, and (ii) assumed that the
Shares will be sold by the Underwriters at a price established by the Pricing
Committee of the Company's Board of Directors.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Jamie E. Chung
------------------------
Jamie E. Chung
