-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S0ilBhs/uDX+ICXyVJq6pL+Hqxl0JrnTvKvLRnPEoIjms/cXwGW1K4+s8Zr/XTip ngh6DEDJ/klzNJbQngCwjA== 0000898430-96-005111.txt : 19961107 0000898430-96-005111.hdr.sgml : 19961107 ACCESSION NUMBER: 0000898430-96-005111 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19961106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOPUS TECHNOLOGY INC CENTRAL INDEX KEY: 0000894705 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943134998 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-15593 FILM NUMBER: 96654827 BUSINESS ADDRESS: STREET 1: 1900 POWELL ST SUITE 700 CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 5104280500 MAIL ADDRESS: STREET 1: 1900 POWELL STREET CITY: EMERYVILLE STATE: CA ZIP: 94608 S-1 1 FORM S-1 OF SCOPUS TECHNOLOGY INC. AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996 REGISTRATION NO. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- SCOPUS TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- CALIFORNIA 7372 94-3134998 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) ---------------- 1900 POWELL ST., SUITE 700 EMERYVILLE, CA 94608 (510) 428-0500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- MICHELE L. AXELSON CHIEF FINANCIAL OFFICER SCOPUS TECHNOLOGY, INC. 1900 POWELL ST., SUITE 700 EMERYVILLE, CA 94608 (510) 597-5800 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: JEFFREY D. SAPER, ESQ. PETER E. WILLIAMS III, ESQ. HOWARD S. ZEPRUN, ESQ. CORI M. ALLEN, ESQ. J. ROBERT SUFFOLETTA, ESQ. MORRISON & FOERSTER LLP WILSON SONSINI GOODRICH & ROSATI 755 PAGE MILL ROAD PROFESSIONAL CORPORATION PALO ALTO, CA 94304 650 PAGE MILL ROAD (415) 813-5600 PALO ALTO, CA 94304-1050 (415) 493-9300 ---------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. 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 1993, 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, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [_]________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE
=========================================================================================== PROPOSED MAXIMUM TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER SHARE(2) PRICE (1)(2) FEE - ------------------------------------------------------------------------------------------- Common Stock............ 2,300,000 shares $37.3125 $85,818,750 $26,010 ===========================================================================================
(1) Includes up to 300,000 shares of Common Stock which may be purchased by the Underwriters to cover overallotments, if any. (2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the registration fee, based on the average high and low trading prices for the Common Stock as reported by the Nasdaq National Market on October 30, 1996. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. =============================================================================== ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS + +OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Issued November 6, 1996 2,000,000 Shares [LOGO OF SCOPUS TECHNOLOGY] COMMON STOCK OF THE 2,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,000,000 SHARES ARE BEING SOLD BY THE COMPANY AND 1,000,000 SHARES ARE BEING SOLD BY THE SELLING SHAREHOLDERS. THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY'S COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "SCOP." ON NOVEMBER 4, 1996, THE LAST SALE PRICE OF THE COMMON STOCK, AS REPORTED ON THE NASDAQ NATIONAL MARKET, WAS $37 7/8 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK." ----------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 5 HEREOF. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- PRICE $ A SHARE -----------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO TO DISCOUNTS AND TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS ------ ------------- --------- ------------ Per Share......................... $ $ $ $ Total (3)......................... $ $ $ $
- ----- (1) The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses payable by the Company estimated at $400,000. (3) Certain Selling Shareholders have granted the Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 300,000 additional Shares at the price to public less underwriting discounts and commissions for the purpose of covering over- allotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to Selling Shareholders will be $ , $ and $ , respectively. See "Underwriters." ----------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Morrison & Foerster LLP, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1996 at the offices of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ----------- MORGAN STANLEY & CO. Incorporated MONTGOMERY SECURITIES DONALDSON, LUFKIN & JENRETTE Securities Corporation UBS SECURITIES , 1996 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 The Company............................................................... 4 Risk Factors.............................................................. 5 Use of Proceeds........................................................... 12 Dividend Policy........................................................... 12 Price Range of Common Stock............................................... 12 Capitalization............................................................ 13 Selected Consolidated Financial Data...................................... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 15 Business.................................................................. 23 Management................................................................ 36 Certain Transactions...................................................... 42 Principal and Selling Shareholders........................................ 43 Description of Capital Stock.............................................. 45 Shares Eligible for Future Sale........................................... 46 Underwriters.............................................................. 47 Legal Matters............................................................. 48 Experts................................................................... 48 Additional Information.................................................... 48 Available Information..................................................... 49 Index to Consolidated Financial Statements................................ F-1
---------------- This Prospectus contains certain registered and unregistered trademarks of Scopus and of other entities. Certain of the statements contained in this Prospectus are forward-looking statements. The Company's actual results could differ materially from those in some forward-looking statements. See "Risk Factors." ---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITERS." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. THE COMPANY Scopus is a leading provider of client/server software solutions for the customer information management market. The Company's applications, Scopus SupportTEAM, Scopus ServiceTEAM, Scopus QualityTEAM, Scopus SalesTEAM and Scopus Voyager automate external customer support, the product design change process, sales and marketing activities and internal help desk support. Scopus applications are designed to enable organizations to build a knowledgebase of customer information that can be accessed and used by individuals throughout the enterprise to improve the effectiveness and efficiency of customer support in order to increase customer satisfaction. The Company's products are based on a modular, open architecture and support a variety of client computing platforms, industry standard relational databases and server operating systems and operate over local area networks, intranets and the internet. Scopus products offer customers a unique combination of built-in functionality, customizability, adaptability and scalability. The Company also offers consulting, training and maintenance services to facilitate the installation and use of the Company's products. The Company sells its software and services through a direct sales force in North America and Europe and has relationships with independent distributors in Europe and Asia Pacific. The Company has licensed its products to over 250 customers, including Autodesk, Bell South, Boeing, Intuit, LA Cellular, Netscape Communications, Octel, Olivetti, Sequent Computers, Stream International, Sun Microsystems, U.S. Robotics, VISA International and WorldCom. THE OFFERING Common Stock offered.............. 2,000,000 shares, including 1,000,000 shares by the Company and 1,000,000 shares by the Selling Shareholders Common Stock to be outstanding after the offering............... 12,926,521 shares (1) Use of proceeds................... For general corporate purposes, including working capital. See "Use of Proceeds." Nasdaq National Market symbol..... SCOP
SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30, ------------------------------------ --------------- 1992 1993 1994 1995 1996 1995 1996 ----- ------ ------- ------- ------- ------- ------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues.......... $ 782 $2,704 $ 6,535 $15,250 $28,596 $12,049 $23,804 Gross margin............ 453 1,770 5,676 11,309 20,807 7,395 18,787 Income from operations.. 42 314 676 1,486 2,691 309 3,174 Net income.............. 42 201 567 973 1,990 227 2,349 Net income per share(2). $0.01 $ 0.03 $ 0.07 $ 0.10 $ 0.18 $ 0.02 $ 0.18 Number of shares used to compute net income per share (2).............. 6,612 7,352 8,476 9,683 10,965 10,786 12,757
SEPTEMBER 30, 1996 ------------------- AS ACTUAL ADJUSTED(3) ------- ----------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and investments...................... $28,112 $63,504 Working capital............................................. 30,547 65,939 Total assets................................................ 48,342 83,734 Shareholders' equity........................................ 37,460 72,852
- ------- (1) Based on shares outstanding as of September 30, 1996. Does not include an aggregate of (i) 1,322,606 shares issuable at a weighted average exercise price of $7.15 per share upon the exercise of options outstanding as of such date under the Company's 1991 Stock Option Plan (the "Option Plan"), of which options to purchase 308,307 shares were exercisable at September 30, 1996 and (ii) 41,250 shares issuable at a weighted average exercise price of $19.48 per share upon the exercise of options outstanding as of such date under the Company's Director Option Plan (the "Director Plan"). See Note 10 of Notes to Consolidated Financial Statements. (2) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the number of shares used to compute net income per share. (3) Reflects the sale of 1,000,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $37 7/8 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. 3 THE COMPANY Scopus is a leading provider of client/server software solutions for the customer information management market. The Company's applications, Scopus SupportTEAM, Scopus ServiceTEAM, Scopus QualityTEAM, Scopus SalesTEAM and Scopus Voyager, automate external customer support, the product design change process, sales and marketing activities and internal help desk support. Scopus applications are designed to enable organizations to build a knowledgebase of customer information that can be accessed and used by individuals throughout the enterprise to improve the effectiveness and efficiency of customer support in order to increase customer satisfaction. As the knowledgebase grows, organizations can use the resulting reservoir of customer information to develop better products, market products more effectively and provide more efficient and effective customer support. Businesses and other organizations are increasingly focusing on customer service and satisfaction as a means of gaining a competitive advantage. Realizing that improving customer service and satisfaction can be as important in attracting and retaining customers as product design, quality and price, many organizations are reorienting their businesses to be more customer- centric and more responsive to customer needs. In pursuit of improved customer support and satisfaction, many organizations are increasingly distributing responsibility for sales and customer service broadly throughout their organizations. In addition, many of these organizations are extending responsibility for sales and customer service to their "extended enterprises" of distributors, value-added resellers and other outsourcing partners. These trends, coupled with the proliferation of client/server computing, have fueled the demand for software applications that automate customer information management throughout the extended enterprise. As a result of intense competition driven by factors such as deregulation and technological advances, companies are becoming increasingly focused on providing high levels of customer service to attract new customers while retaining existing customers. In particular, high-volume call centers have emerged as a strategic component of customer service in certain industries. Scopus believes that its products offer a cost-effective solution for high- volume call centers. The Company is currently targeting the call center market and intends to continue to expend significant sales and marketing efforts in this market. The Company's integrated suite of client/server applications offers organizations a unique combination of built-in functionality, customizability, adaptability and scalability. In addition to providing a pre-packaged solution, the Company's technology allows organizations to slightly tailor or extensively customize Scopus applications without time consuming and costly source code programming changes. Scopus products are designed with a modular, open architecture which enables the applications to be integrated with one another and with third party products, including equipment for computer/telephony integration. The products also support a variety of client computing platforms, industry standard relational databases and server operating system, and operate over local area networks, intranets and the internet. The Company also offers consulting, training and post-contract ("maintenance") support services to facilitate the installation and use of the Company's products. The Company sells its software and services through a direct sales force in North America and Europe and has relationships with independent distributors in Europe and Asia Pacific. The Company is continuing to develop relationships with systems integrators, third party distributors and hardware and software vendors both domestically and internationally. The Company has licensed its products to over 250 customers, including Autodesk, Bell South, Boeing, Intuit, LA Cellular, Netscape Communications, Octel, Olivetti, Sequent Computers, Stream International, Sun Microsystems, U.S. Robotics, VISA International and WorldCom. The Company was incorporated in March 1991. The Company's principal executive office is located at 1900 Powell Street, Suite 700, Emeryville, California 94608 and its telephone number is (510) 597-5800. Except as otherwise noted herein, all references to "Scopus" or the "Company" refer to Scopus Technology, Inc., a California corporation, and its subsidiaries. 4 RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. The statements contained in this Prospectus that are not purely historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exhhange Act of 1934, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. The Company's actual results could differ materially from those anticipated in these forward- looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. In evaluating the Company's business, prospective investors should consider carefully the following factors in addition to the other information set forth in this Prospectus. Variability of Operating Results; Uncertainty of Future Operating Results. The Company was incorporated in March 1991 and introduced its first product in February 1992. Although the Company has been profitable each fiscal year since inception, there can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis in the future. In addition, the Company's revenues and operating results have varied substantially in the past and are likely to vary substantially in the future due to a variety of factors, including (i) the timing and size of the Company's individual license transactions, and, in particular, the fact that the Company's revenues in any quarter can be largely dependent on a limited number of large licenses, (ii) the fact that a significant portion of the Company's revenues in any given quarter are recognized in the last month, weeks or even days of the quarter, (iii) the relatively long sales cycle for the Company's software products, which is typically six to nine months, (iv) the relative proportion of total revenues derived from license revenues and services and maintenance revenues, (v) the timing of the introduction of new products or product enhancements by the Company and its competitors, (vi) the extent of customization required by any individual license transaction, which can result in deferral of significant revenues until completion or acceptance of certain customized portions of the software, (vii) changes in customer budgets, (viii) seasonality of technology purchases by customers and general economic conditions, (ix) the mix of revenues among various distribution channels and between domestic and international customers, (x) the relative proportion of implementation services performed by the Company for which the Company engages independent contractors, which are typically more costly than internal personnel and (xi) the relative proportion of license revenues derived from third party products distributed by the Company in conjunction with its products. Therefore, the Company believes that period to period comparisons of its revenues and operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. During the quarter ended September 30, 1996, the Company experienced a license revenue growth rate of 36% compared to the immediately preceding quarter. The Company does not anticipate sustaining such sequential quarterly growth rates in the future. Estimating future revenues is difficult because the Company ships its products soon after an order is received and as such does not have a significant backlog. Thus, quarterly license revenues are heavily dependent upon orders received and shipped within the same quarter. Moreover, the Company has generally recorded 50% to 70% of its total quarterly revenues in the third month of the quarter, with a concentration of these revenues in the last half of that third month. This concentration of revenues is influenced by customer tendencies to make significant capital expenditures at the end of a fiscal quarter. The Company expects these revenue patterns to continue for the foreseeable future. In addition, quarterly license revenues are dependent on the timing of revenue recognition, which can be affected by many factors, including the timing of customer installations, completion of customization activity and the fulfillment of acceptance criteria. The Company has from time to time experienced delays in recognizing revenues with respect to certain orders. Despite the uncertainties in its revenue patterns the Company's operating expenses are based upon anticipated revenue levels and such expenses are incurred on an approximately ratable basis throughout the quarter. As a result, if expected revenues are deferred or otherwise not realized in a quarter for any reason, the Company's business, operating results and financial condition would be materially adversely affected. The Company intends to continue to increase its research and development expenditures in order to pursue its strategy of developing applications tailored to the requirements of specific additional vertical markets, and to 5 continue to increase sales and marketing expenditures significantly as the Company expands its domestic and international sales and marketing staff and develops indirect sales and distribution channels. In addition, general and administrative expenses have increased each quarter since the quarter ended September 30, 1995 as the Company began to invest in the infrastructure needed to support its growing operations. Accordingly, to the extent that such expenses precede or are not subsequently followed by increased revenues, the Company's business, operating results and financial condition will be materially adversely affected. Due to all of the foregoing factors, it is likely that in some future quarter the Company's total revenues or operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely decline, perhaps substantially. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Intense Competition. The customer information management software market is relatively new, intensely competitive, highly fragmented, subject to rapid change, and highly sensitive to new product introductions and marketing efforts by industry participants. The Company competes with a variety of other companies depending on the target market for their products. These competitors include (i) a select number of companies, such as Clarify Inc. and The Vantive Corporation, targeting the enterprise-wide customer information market; (ii) a substantial number of small private companies and certain public companies, such as Remedy Corporation, Siebel Systems, Inc., Aurum Software, Inc. and Software Artistry, Inc., which offer products targeted at one or more specific markets, including the customer support market, the help desk market, the quality assurance market and the sales and marketing automation market; (iii) professional services organizations, such as Andersen Consulting, that design and develop custom systems; (iv) large information technology providers such as International Business Machines Corporation ("IBM") and Computer Associates International, Inc.; and (v) the internal information technology departments of potential customers, which develop proprietary customer information management applications. Among the Company's potential competitors are also a number of large hardware and software companies that may develop or acquire products that compete with the Company's products. In this regard, SAP AG and Oracle Corporation have each introduced a customer support module as part of their application suites. The Company believes that many existing competitors and new market entrants will attempt to develop fully integrated customer information management systems that will compete with the Company's products. See "Business--Competition." Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced operating margins and loss of market share, any one of which could materially adversely affect the Company's business, results of operations or financial condition. Many of the Company's current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than can the Company. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not materially adversely affect the Company's business, operating results and financial condition. Dependence on Implementation Relationships. The Company historically relied on internal resources and subcontracted consultants on an as-needed basis to provide consulting and implementation services for the Company's products. In recent periods, the Company has sought to increase the use of third party consultants and system integrators to provide implementation, customization and consulting services directly to the Company's customers. The Company's increasing reliance on such third party consultants and systems integrators poses several risks that could have a material adverse effect on the Company's business, operating results or financial condition. For example, there can be no assurance that these third party providers, who will have direct obligations to the Company's customers, will be able to provide a level of quality of service required to meet the needs of such customers. If the Company is unable to develop further and to maintain effective, 6 long-term relationships with these third parties, or if these third parties fail to meet the needs of the Company's customers in a timely fashion, the Company's business, operating results and financial condition will be materially and adversely affected. Further, there can be no assurance that these third party providers, many of whom have significantly greater financial, technical, personnel and marketing resources than the Company, will not market software products that compete with the Company's products, or will not otherwise reduce or discontinue their relationship with or support of the Company and its products. Finally, many of these current and potential third party providers have existing relationships or may undertake relationships with the Company's direct competitors. The inability to recruit, or the loss of, important third party systems integrators or professional consulting firms would have a material adverse effect on the Company's business, operating results and financial condition. Rapid Technological Change; Dependence on Product Development. The market for the Company's products is characterized by rapid technological advances, evolving industry standards in computer hardware and software technology, changes in customer requirements and frequent new product introductions and enhancements. The Company is currently investing significant resources in product development and expects to continue to do so in the future. The Company's future success will depend on its ability to continue to enhance its current product line and to continue to develop and introduce new products that keep pace with competitive product introductions and technological developments, satisfy diverse and evolving customer requirements and otherwise achieve market acceptance. There can be no assurance that the Company will be successful in continuing to develop and market on a timely and cost-effective basis fully functional product enhancements or new products that respond to technological advances by others, or that these products will achieve market acceptance. In addition, the Company has in the past experienced delays in the development, introduction and marketing of new and enhanced products, and there can be no assurance that the Company will not experience similar delays in the future. Any failure by the Company to anticipate or respond adequately to changes in technology and customer preferences, or any significant delays in product development or introduction, would have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Research and Development." Due to the complexity and sophistication of the Company's software products, the Company's products from time to time contain defects or "bugs" which can be difficult to correct. Furthermore, as the Company continues to develop and enhance its products, there can be no assurance that the Company will be able to identify and correct defects in such a manner as will permit the timely introduction of such products. Moreover, despite extensive testing, the Company has from time to time discovered defects only after its products have been used by many customers. There can be no assurance that software defects will not cause delays in product introductions and shipments, result in increased costs, require design modifications, or impair customer satisfaction with the Company's products. Any such event could materially adversely affect the Company's business, operating results and financial condition. Expansion of Distribution Channels. The Company has historically sold its products through its direct sales force and a limited number of distributors. The Company's ability to achieve significant revenue growth in the future will depend in large part on its success in recruiting and training sufficient sales personnel and establishing relationships with distributors, resellers and systems integrators. The Company is currently investing, and plans to continue to invest, significant resources to expand its domestic and international direct sales force and develop distribution relationships with certain third party distributors, resellers and systems integrators. The Company's existing distribution relationships are generally non-exclusive and can be terminated by either party without cause. The Company's distributors also sell or can potentially sell products offered by the Company's competitors. There can be no assurance that the Company will be able to retain or attract a sufficient number of its existing or future third party distribution partners or that such partners will recommend, or continue to recommend, the Company's products. The inability to establish or maintain successful relationships with distributors, resellers or systems integrators could have a material adverse effect on the Company's business, operating results or financial condition. In addition, there can be no assurance that the Company will be able to successfully expand its direct sales force or other distribution channels. Any failure by the Company to expand its direct sales force or other distribution channels would materially adversely affect the Company's business, operating results and financial condition. See "Business--Strategy" and "--Sales and Marketing." 7 Expansion of International Operations; Foreign Currency Fluctuations. An important element of the Company's strategy is to expand its international operations. In this regard, although the Company has established subsidiaries in the United Kingdom, Canada and France and is currently investing significant resources in its international operations, including the development of certain third party distributor relationships and the hiring of additional sales representatives, international sales to date have been limited and there can be no assurance that the Company will be successful in expanding its international operations. In the event the Company is able to increase international revenues increase as a percentage of total revenues, the Company's business, operating results or financial condition could be materially adversely affected by risks inherent in conducting business internationally, such as changes in currency exchange rates, longer payment cycles, difficulties in staffing and managing international operations, problems in collecting accounts receivable, seasonal reductions in business activity during the summer months in Europe and certain other parts of the world, increases in tariffs, duties, price controls or other restrictions on foreign currencies and trade barriers imposed by foreign nationalities. In this regard, to the extent the Company's international operations expand, the Company expects that an increasing portion of its international license revenues will be denominated in foreign currencies. In addition, the Company has only limited experience in developing localized versions of its products and marketing and distributing its products internationally. There can be no assurance that the Company will be able to successfully localize, market, sell and deliver its products internationally. The inability of the Company to successfully expand its international operations in a timely manner could materially adversely affect the Company's business, operating results or financial condition. Management of Growth. The Company's business has grown rapidly, with total revenues increasing from $15.3 million in fiscal 1995 to $28.6 million in fiscal 1996 and $23.8 million in the first six months of fiscal 1997. The growth of the Company's business and expansion of its customer base has placed and is expected to continue to place a significant strain on the Company's management and operations. The Company's future operating results will depend on its ability to continue to broaden the Company's senior management group. In this regard, certain key members of the Company's management, including its Chief Financial Officer and Vice President, Europe have recently joined the Company. From time to time, engineers and other employees have left the Company for various reasons, and the Company's future success will depend on its ability to attract, hire and retain skilled employees and to hire replacements for employees that leave the Company. The Company's expansion has also resulted in substantial growth in the number of its employees and the burden placed upon its operating and financial systems, resulting in increased responsibility for both existing and new management personnel. In addition, the Company's ability to effectively manage and support its growth will be substantially dependent on its ability to continue to build upon its financial and management controls, reporting systems and procedures on a timely basis and to expand and maintain highly trained internal and third party resources to provide product customization, implementation, training and other support services. The Company also expects to increase its customer support operations to the extent the installed base of the Company's products continues to grow. Accordingly, the Company's future operating results will depend on the ability of its management and other key employees to continue to implement and improve its systems for operations, financial control and information management, to recruit, train and manage its employee base, in particular, its direct sales force and customer support organization, and to work effectively with third party consulting and implementation service providers. There can be no assurance that the Company will be able to manage or continue to manage its recent or any future growth successfully, and any inability to do so would have a material adverse effect on the Company's business, operating results and financial condition. There also can be no assurance that the Company will be able to sustain the rates of revenue growth that it has experienced in the past. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management--Directors and Executive Officers." Developing Markets; Product Concentration. The Company's future financial performance will depend in large part on the growth in demand for individual customer information management applications as well as the number of organizations adopting comprehensive customer information systems for their client/server computing environments. The markets for these applications are relatively new and developing. If the demand for customer information management applications develops more slowly than the Company currently anticipates, it would 8 have a material adverse effect on the demand for the Company's applications and on its business, operating results and financial condition. The Company currently markets five application products, together with related application service modules and a customization tool which are licensed for use in conjunction with the Company's applications. Although the Company's application service modules and customization tool are offered separately from the Company's applications, the Company believes it is unlikely that any significant revenues could be derived from such modules and such tool unless the customer is using at least one of the Company's applications. Accordingly, in the event the Company's applications are not accepted by the marketplace, the Company's business, operating results and financial condition would be materially adversely affected. Intellectual Property Rights. The Company's success is dependent on its ability to protect its proprietary technology. The Company licenses its products in object code form only, although it has source code escrow arrangements with certain customers. The Company relies on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect its proprietary rights. The Company does not have any patents or patent applications pending, and existing copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of certain countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Accordingly, there can be no assurance that the Company will be able to protect its proprietary rights against unauthorized third party copying or use, which could materially adversely affect the Company's business, operating results or financial condition. Despite the Company's efforts to protect its proprietary rights, attempts may be made to copy or reverse engineer aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Moreover, there can be no assurance that others will not develop products that infringe the Company's proprietary rights, or that are similar or superior to those developed by the Company. Policing the unauthorized use of the Company's products is difficult. Litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results or financial condition. As is common in the software industry, the Company from time to time receives notices from third parties claiming infringement by the Company's products of third party proprietary rights. While the Company is not currently subject to any such claim, the Company expects its software products will increasingly be subject to such claims as the number of products and competitors in the Company's industry segments grows and the functionality of products overlaps. Any such claim, with or without merit, could result in signifiant litigation costs and require the Company to enter into royalty and licensing agreements, which could have a material adverse effect on the Company's business, operating results or financial condition. Such royalty and licensing agreements, if required, may not be available on terms acceptable by the Company or at all. The Company also relies on certain technology which it licenses from third parties, including software which is integrated with internally developed software and used in the Company's products to perform key functions. There can be no assurance that these third party technology licenses will continue to be available to the Company on commercially reasonable terms. The loss of or inability of the Company to maintain any of these technology licenses could result in delays or reductions in product shipments until equivalent technology could be identified, licensed and integrated. Any such delays or reductions in product shipments would materially adversely affect the Company's business, operating results and financial condition. Dependence on Key Personnel. The Company's success depends to a significant extent upon a limited number of members of senior management and other key employees, including Ori Sasson, the Company's Chairman, President and Chief Executive Officer. The Company does not maintain key man life insurance on any such persons. The loss of the service of one or more key managers or other employees could have a material adverse effect upon the Company's business, operating results or financial condition. In addition, the Company 9 believes that its future success will depend in large part upon its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel in the computer software industry is intense. There can be no assurance the Company will be successful in attracting and retaining such personnel, and, the failure to do so, could have a material adverse effect on the Company's business, operating results or financial condition. Product Liability. Although the Company has not experienced any product liability claims to date, the sale and support of products by the Company and the incorporation of products from other companies may entail the risk of product liability claims. The Company's license agreements with its customers typically contain provisions intended to limit the Company's exposure to such claims, but such provisions may not be effective in limiting the Company's exposure. A successful product liability action brought against the Company could have a material adverse effect upon the Company's business, operating results or financial condition. Volatility of Share Price. The market price for the Company's Common Stock has been and is expected to continue to be significantly affected by factors such as the announcement of new products or product enhancements by the Company or its competitors, technological innovation by the Company or its competitors, quarterly variations in the Company's results of operations or the results of operations of the Company's competitors, changes in earnings estimates or recommendations by securities analysts and general market conditions. In particular, the stock prices for many companies in the technology and emerging growth sector have experienced wide fluctuations which have often been unrelated to the operating performance of such companies. Such fluctuations may adversely affect the market price of the Company's Common Stock. Control by Officers, Directors and Affiliated Entities. Upon completion of this offering, the Company's executive officers and directors and venture capital funds affiliated with such directors will beneficially own in the aggregate approximately 29.8% of the issued and outstanding shares of Common Stock. Accordingly, such shareholders will have significant influence over the outcome of all matters (including the election of directors and any merger, consolidation or sale of all or substantially all of the Company's assets) submitted to the shareholders for approval. This ownership interest in the Company may also have the effect of making certain transactions more difficult or impossible, absent the support of such shareholders. Such transactions could include proxy contests, mergers involving the Company, tender offers and open market purchase programs involving Common Stock that could give shareholders of the Company the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. See "Principal and Selling Shareholders" and "Description of Capital Stock." Effect of Antitakeover Provisions. The Company's Board of Directors has the authority to issue up to 2,500,000 shares of Preferred Stock and to determine the price, rights, preferences and privileges of such shares without any further vote or action by the Company's shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of Preferred Stock that may be issued in the future. While the Company has no present intention to issue shares of Preferred Stock, such issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. In addition, such Preferred Stock may have other rights, including economic rights senior to the Common Stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the Common Stock. See "Description of Capital Stock." Discretionary Use of Proceeds of Offering. The Company has no current specific plans for use of the net proceeds of this offering. As a consequence, the Company's management will have the ability to allocate the net proceeds of the offering in its discretion. There can be no assurance that the proceeds will be utilized in a manner that the shareholders deem optimal or that the proceeds can or will be invested to yield a significant return upon the completion of the offering. Upon completion of the offering, the Company will have more than $63.5 million of cash, cash equivalents and investments (assuming a public offering price of $37 7/8 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company), substantially all of which will be invested in short-term, interest bearing, investment grade obligations for an indefinite period of time. See "Use of Proceeds." 10 Shares Eligible for Future Sale. Sales of substantial numbers of shares of Common Stock into the public market after this offering could adversely affect the prevailing market price of the Common Stock. In addition to the 2,000,000 shares of Common Stock offered hereby and shares currently traded or available for sale in the open market, an aggregate of approximately 5,200,000 shares of Common Stock currently outstanding or issuable on exercise of outstanding options will become eligible for sale 90 days after the date of this Prospectus upon expiration of certain lock-up agreements with the Company or the Underwriters, subject in certain cases to certain volume and other resale restrictions under Rule 144. See "Shares Eligible for Future Sale." 11 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,000,000 shares of Common Stock offered by the Company hereby are estimated to be approximately $35.4 million, assuming a public offering price of $37 7/8 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. The principal purpose of this offering is to obtain additional capital to fund the growth of the Company. The proceeds of the offering are expected to be used for working capital and other general corporate purposes, including expansion of the Company's domestic and international sales, marketing and customer support organizations, expected increases in research and development expenses to fund the development of new products and product enhancements, and costs associated with anticipated expansion and subsequent relocation of its facilities. However, management of the Company has not allocated any specific portion of the net proceeds to such general corporate purposes and management will have the ability to allocate such proceeds in its discretion. See "Risk Factors-- Discretionary Use of Proceeds of Offering." A portion of the net proceeds may also be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies; however, the Company has no present plans, agreements or commitments and is not currently engaged in any negotiations with respect to any such transactions. Pending use of the net proceeds, the Company intends to invest such funds in short-term, interest-bearing, investment grade obligations. The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholders. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock, and does not expect to pay cash dividends in the foreseeable future. PRICE RANGE OF COMMON STOCK The Company's Common Stock has traded publicly on the Nasdaq National Market under the symbol "SCOP" since November 16, 1995. The Company's initial public offering price was $12.00 per share. The following table lists the high and low sales prices for the Company's Common Stock for the periods indicated as reported by the Nasdaq National Market:
HIGH LOW ------- ------ Fiscal Year Ending March 31, 1997: Third Quarter (through November 4, 1996)...................... $42 1/4 $ 29 Second Quarter ............................................... 32 1/2 13 3/4 First Quarter ................................................ 24 11 1/2 Fiscal Year Ending March 31, 1996: Fourth Quarter ............................................... 25 1/4 13 7/8 Third Quarter (beginning November 16, 1995)................... 28 3/4 16 3/4
On November 4, 1996, the last reported sales price of the Company's Common Stock on the Nasdaq National Market was $37 7/8 per share. As of November 4, 1996, there were approximately 2,000 beneficial holders of the Company's Common Stock. 12 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1996 and as adjusted to give effect to the sale by the Company of 1,000,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $37 7/8 per share (after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company):
SEPTEMBER 30, 1996 -------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Shareholders' equity: Preferred stock, $0.01 par value; 2,500,000 shares authorized; none issued and outstanding................ $ -- $ -- Common stock, $0.001 par value; 50,000,000 shares authorized; 11,926,521 shares issued and outstanding, actual; 12,926,521 shares issued and outstanding, as adjusted(1)............................................ 12 13 Additional paid-in capital.............................. 31,509 66,900 Deferred compensation................................... (179) (179) Cumulative translation adjustment....................... (5) (5) Retained earnings....................................... 6,123 6,123 ------- ------- Total shareholders' equity .......................... 37,460 72,852 ------- ------- Total capitalization................................ $37,460 $72,852 ======= =======
- -------- (1) As of September 30, 1996, excludes (i) 1,322,606 shares of Common Stock issuable upon the exercise of options outstanding under the Option Plan, of which options to purchase 308,307 shares were exercisable at September 30, 1996, and (ii) 41,250 shares of Common Stock issuable upon the exercise of options outstanding under the Director Plan. As of September 30, 1996, 1,033,070 shares were available for future issuance under the Option Plan, 33,750 shares were available for future issuance under the Director Plan and 157,920 shares of Common Stock were reserved for future issuance under the Company's Employee Stock Purchase Plan (the "Purchase Plan"). See Note 10 of Notes to Consolidated Financial Statements. 13 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data of the Company set forth below should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. The consolidated statement of operations data for the years ended March 31, 1994, 1995 and 1996 and the consolidated balance sheet data at March 31, 1995 and 1996 are derived from the audited consolidated financial statements included elsewhere in this Prospectus. The consolidated statement of operations data for the years ended March 31, 1992 and 1993 and the consolidated balance sheet data at March 31, 1992, 1993 and 1994 are derived from audited consolidated financial statements not included in this Prospectus. The consolidated statement of operations data for the six months ended September 30, 1995 and 1996 and the consolidated balance sheet data at September 30, 1996 are derived from unaudited consolidated financial statements included elsewhere in this Prospectus. The unaudited consolidated financial statements have been prepared by the Company on a basis consistent with the Company's audited consolidated financial statements and in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such information. The results of operations for the six months ended September 30, 1996 are not necessarily indicative of results that may be expected for the full fiscal year or any future period.
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, ----------------------------------- --------------- 1992 1993 1994 1995 1996 1995 1996 ----- ------ ------ ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Licenses................ $ 369 $2,002 $5,011 $11,097 $19,753 $ 7,704 $17,424 Services and maintenance............ 413 702 1,524 4,153 8,843 4,345 6,380 ----- ------ ------ ------- ------- ------- ------- Total revenues......... 782 2,704 6,535 15,250 28,596 12,049 23,804 ----- ------ ------ ------- ------- ------- ------- Cost of revenues: Licenses................ 266 723 305 601 874 626 839 Services and maintenance............ 63 211 554 3,340 6,915 4,028 4,178 ----- ------ ------ ------- ------- ------- ------- Total cost of revenues. 329 934 859 3,941 7,789 4,654 5,017 ----- ------ ------ ------- ------- ------- ------- Gross margin.............. 453 1,770 5,676 11,309 20,807 7,395 18,787 ----- ------ ------ ------- ------- ------- ------- Operating expenses: Sales and marketing..... 126 524 2,754 5,937 10,565 4,051 9,703 Research and development............ 239 666 1,532 2,716 5,382 2,283 3,860 General and administrative......... 46 266 714 1,170 2,169 752 2,050 ----- ------ ------ ------- ------- ------- ------- Total operating expenses.............. 411 1,456 5,000 9,823 18,116 7,086 15,613 ----- ------ ------ ------- ------- ------- ------- Income from operations.... 42 314 676 1,486 2,691 309 3,174 Other income, net......... 1 7 22 59 468 51 576 ----- ------ ------ ------- ------- ------- ------- Income before provision for income taxes......... 43 321 698 1,545 3,159 360 3,750 Provision for income taxes.................... 1 120 131 572 1,169 133 1,401 ----- ------ ------ ------- ------- ------- ------- Net income................ $ 42 $ 201 $ 567 $ 973 $ 1,990 $ 227 $ 2,349 ===== ====== ====== ======= ======= ======= ======= Net income per share (1).. $0.01 $ 0.03 $ 0.07 $ 0.10 $ 0.18 $ 0.02 $ 0.18 ===== ====== ====== ======= ======= ======= ======= Shares used in per share computation (1).......... 6,612 7,352 8,476 9,683 10,965 10,786 12,757 ===== ====== ====== ======= ======= ======= =======
MARCH 31, ---------------------------------- SEPTEMBER 30, 1992 1993 1994 1995 1996 1996 ---- ------ ------ ------- ------- ------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and investments.............. $147 $1,085 $ 901 $ 3,553 $29,254 $28,112 Working capital........... 228 1,143 1,755 5,671 29,891 30,547 Total assets.............. 308 2,385 5,504 11,424 41,581 48,342 Mandatorily redeemable preferred stock.......... -- 1,000 1,400 1,400 -- -- Total shareholders' equity................... 248 449 1,126 5,900 33,455 37,460
- -------- (1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the number of shares used to compute net income per share. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus contains forward-looking statements that involve risks and uncertainties. The statements contained in this Prospectus that are not purely historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exhhange Act of 1934, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. The Company's actual results could differ materially from those anticipated in these forward- looking statements as a result of certain factors, including those set forth below, under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW The Company was founded in March 1991 to develop, market and support client/server software applications and tools for the customer information management market. The Company has been profitable in each fiscal year since its inception. The Company's business has grown rapidly with total revenues increasing from $15.3 million in fiscal 1995 to $28.6 million in fiscal 1996 and from $12.0 million for the first six months of fiscal 1996 to $23.8 million for the first six months of fiscal 1997. The Company's revenues consist of license revenues and services and maintenance revenues. License revenues are comprised of fees for the license of the Company's products, and services and maintenance revenues are comprised of fees for consulting, training and post-contract support ("maintenance"). In recent periods, the Company has sought to increase the use of third party consultants and system integrators to provide implementation, customization and consulting services directly to the Company's customers. The Company's increasing reliance on such third party consultants and systems integrators poses several risks that could have a material adverse effect on the Company's business, operating results and financial condition. For example, there can be no assurance that these third party providers, who have direct obligations to the Company's customers, will be able to continue to provide a level of quality of service required to meet the needs of such customers. If the Company is unable to develop further and to maintain effective, long-term relationships with these third parties, or if these third parties fail to meet the needs of the Company's customers in a timely fashion, the Company's business, operating results and financial conditions will be materially and adversely affected. The Company's quarterly operating results have varied substantially in the past and are likely to vary substantially from quarter to quarter in the future due to a variety of factors. Estimating future revenues is difficult because the Company ships its products soon after an order is received and as such does not have a significant backlog. Thus, quarterly license revenues are heavily dependent upon orders received and shipped within the same quarter. Moreover, the Company has generally recorded 50% to 70% of its total quarterly revenues in the third month of the quarter, with a concentration of these revenues in the last half of that third month. This concentration of revenues is influenced by customer tendencies to make significant capital expenditures at the end of a fiscal quarter. The Company expects these revenue patterns to continue for the foreseeable future. In addition, quarterly license revenues are dependent on the timing of revenue recognition, which can be affected by many factors, including the timing of customer installations, completion of customization activity and the fulfillment of acceptance criteria. In this regard the Company has from time to time experienced delays in recognizing revenues with respect to certain orders. Despite the uncertainties in its revenue patterns, the Company's operating expenses are based upon anticipated revenue levels and such expenses are incurred on an approximately ratable basis throughout the quarter. As a result, if expected revenues are deferred or otherwise not realized in a quarter for any reason, the Company's business, operating results and financial condition would be materially adversely affected. 15 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain consolidated statement of operations data expressed as a percentage of total revenues:
SIX MONTHS ENDED YEAR ENDED MARCH SEPTEMBER 31, 30, ------------------- ------------ 1994 1995 1996 1995 1996 ----- ----- ----- ----- ----- Revenues: Licenses................................... 76.7% 72.8% 69.1% 63.9% 73.2% Services and maintenance................... 23.3 27.2 30.9 36.1 26.8 ----- ----- ----- ----- ----- Total revenues........................... 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Cost of revenues: Licenses................................... 4.6 3.9 3.0 5.2 3.5 Services and maintenance................... 8.5 21.9 24.2 33.4 17.6 ----- ----- ----- ----- ----- Total cost of revenues................... 13.1 25.8 27.2 38.6 21.1 ----- ----- ----- ----- ----- Gross margin................................. 86.9 74.2 72.8 61.4 78.9 ----- ----- ----- ----- ----- Operating expenses: Sales and marketing........................ 42.2 38.9 37.0 33.6 40.8 Research and development................... 23.4 17.8 18.8 19.0 16.2 General and administrative................. 10.9 7.7 7.6 6.2 8.6 ----- ----- ----- ----- ----- Total operating expenses................. 76.5 64.4 63.4 58.8 65.6 ----- ----- ----- ----- ----- Income from operations....................... 10.4 9.8 9.4 2.6 13.3 Other income, net............................ 0.3 0.4 1.6 0.4 2.4 ----- ----- ----- ----- ----- Income before provision for income taxes..... 10.7 10.2 11.0 3.0 15.7 Provision for income taxes................... 2.0 3.8 4.0 1.1 5.9 ----- ----- ----- ----- ----- Net income................................... 8.7% 6.4% 7.0% 1.9% 9.8% ===== ===== ===== ===== =====
YEARS ENDED MARCH 31, 1994, 1995 AND 1996 Revenues The Company recognizes revenue in accordance with the provisions of Statement of Position 91-1 "Software Revenue Recognition." The Company generates revenue primarily from licensing the rights to use its software products to end users and to a lesser extent from sublicense fees from resellers. The Company also generates revenues from consulting, training and maintenance services performed for customers who license its products. Revenues from perpetual software license agreements are recognized as revenue upon receipt of an executed license agreement, (or an unconditional purchase order under an existing license agreement), and shipment of the software, if there are no significant post-delivery obligations and collection of the receivables is probable. Revenues from maintenance services are recognized ratably over the term of the maintenance periods which is typically one year. If maintenance services are included free of charge or discounted in a license agreement, such amounts are unbundled from the license fee at their fair market value based upon the value established by independent sales of such maintenance services to customers. Consulting and training revenues are generally recognized as the services are performed. Consulting services are typically performed under separate service agreements and are usually performed on a time and materials basis. Such services primarily consist of implementation services related to the installation of the Company's products and do not include significant customization to or development of the underlying software code. Total revenues increased 133% from $6.5 million in fiscal 1994 to $15.3 million in fiscal 1995 and increased 88% from $15.3 million in fiscal 1995 to $28.6 million in fiscal 1996. 16 Licenses. License revenues increased from $5.0 million in fiscal 1994 to $11.1 million in fiscal 1995 and $19.8 million in fiscal 1996, representing 77%, 73% and 69% of total revenues in the respective periods. The increase in license revenues in each period was primarily attributable to increasing market awareness and acceptance of the Company's products, continuing enhancement and increasing breadth of the Company's product offerings, expansion of the Company's sales and marketing organization and increased sales to new industry segments. Services and Maintenance. Revenues from services and maintenance increased from $1.5 million in fiscal 1994 to $4.2 million in fiscal 1995 and $8.8 million in fiscal 1996, representing 23%, 27% and 31% of total revenues in the respective periods. The increases in services and maintenance revenues is primarily the result of an increase in demand for consulting and systems implementation services from customers purchasing the Company's products for large scale, enterprise-wide implementations, and an increase in maintenance revenues from a larger installed product base. In fiscal 1996, the Company began establishing relationships with third party consulting firms to allow those firms to work directly with the Company's customers. As a result, services and maintenance revenues comprised a lower percentage of total revenues in the second half of fiscal 1996 as compared to the first half of fiscal 1996. Cost of Revenues Licenses. Cost of licenses consists primarily of royalty payments to third party software vendors and costs of product media, duplication and packaging. Cost of licenses was $305,000 in fiscal 1994, $601,000 in fiscal 1995, and $874,000 in fiscal 1996, representing 6%, 5% and 4% of license revenues in the respective periods. Services and Maintenance. Cost of services and maintenance consists of costs for personnel to provide customer support, training and consulting services, as well as costs paid to third party consulting firms for those services. Cost of services and maintenance was $554,000 in fiscal 1994, $3.3 million in fiscal 1995 and $6.9 million in fiscal 1996, representing 36%, 80% and 78% of services and maintenance revenues in the respective periods. The substantial increase in cost of services and maintenance as a percentage of total revenues from fiscal 1994 to 1995 was primarily due to the use of third party software consulting organizations and employees to meet the substantial increase in demand for product consulting and large scale implementation services and, to a lesser extent, higher than expected costs associated with certain fixed fee consulting arrangements. While the cost of services and maintenance revenues as a percentage of services and maintenance revenues decreased only slightly from fiscal 1995 to 1996, the Company realized a significant reduction in these costs as a percentage of related service revenues between the first half and second half of fiscal 1996 as these costs decreased from 93% to 64% of such revenues, respectively. To make this improvement, the Company added new management, established relationships with third party consulting firms that allow those firms to work directly with the Company's customers, established new procedures for estimating the scope of consulting projects and shifted the pricing responsibility for that work to its consulting services organization. Operating Expenses Sales and Marketing. Sales and marketing expenses increased from $2.8 million in fiscal 1994 to $5.9 million in fiscal in 1995 and $10.6 million in fiscal 1996, representing 42%, 39% and 37% of total revenues in the respective periods. The increased dollar amounts of such spending are attributable to the Company's continued expansion of its direct sales force in the U.S. and Europe and increased marketing activities to support the Company's expanded product line. The Company is in the process of significantly increasing direct sales and marketing expenditures to address certain international and vertical markets. As a result, such expenses may increase as a percentage of total revenues in future periods. Research and Development. Research and development expenses increased from $1.5 million in fiscal 1994 to $2.7 million in fiscal 1995 and $5.4 million in fiscal 1996, representing 23%, 18% and 19% of total revenues in the respective periods. The increases in the dollar amounts of such spending were the result of increased staffing and associated support costs of software engineers and consultants in connection with expansion and enhancement of the Company's product line and its quality assurance and testing organization. 17 Based on the Company's research and development process, costs incurred between the establishment of technological feasibility which has been defined as a working model and the time the related product is offered for sale have been insignificant and therefore have not been capitalized in accordance with Statement of Financial Accounting Standards No. 86. All research and development costs are expensed as incurred. General and Administrative. General and administrative expenses increased from $714,000 in fiscal 1994 to $1.2 million in fiscal 1995 and $2.2 million in fiscal 1996, representing 11% of total revenues for fiscal 1994 and 8% of total revenues for both fiscal 1995 and 1996. These increases in dollar amounts were primarily due to increased staffing and related expenditures required to enhance the infrastructure to support the Company's growth. Other Income, Net. Other income, net, increased from $22,000 in fiscal 1994 to $59,000 in fiscal 1995 and $468,000 in fiscal 1996. The substantial increase in fiscal 1996 was primarily due to investment income earned on the proceeds from the Company's initial public offering in November 1995. Provision for Income Taxes. The Company's effective tax rates were 19% for fiscal 1994, and 37% for both fiscal 1995 and 1996. Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109. The effective income tax rate differs from the statutory income tax rate in each year primarily due to the utilization of research and development credits. SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 Revenues Total revenues increased 98% from $12.0 million for the six months ended September 30, 1995 to $23.8 million for the six months ended September 30, 1996. Licenses. License revenues increased 126% from $7.7 million for the six months ended September 30, 1995 to $17.4 million for the six months ended September 30, 1996, representing 64% and 73% of total revenues in the respective periods. The increase in license revenues was primarily due to increasing market awareness and acceptance of the Company's products, continuing enhancement and increasing breadth of the Company's product offerings, expansion of the Company's sales and marketing organization and sales to new industry segments. The increase in license revenues as a percentage of total revenues reflects the Company's continued focus on the product side of its business and the increased use of outside third party consulting firms to provide implementation services directly to the Company's customers. Services and Maintenance. Services and maintenance revenues increased 47% from $4.3 million for the six months ended September 30, 1995 to $6.4 million for the six months ended September 30, 1996, representing 36% and 27% of total revenues in the respective periods. The decrease in services and maintenance revenues as a percentage of total revenues reflects the Company's increased use of outside third party consulting firms to provide implementation services directly to the Company's customers and increased out of the box functionality of the Company's products, which results in less implementation services related to certain customer installations. Cost of Revenues Licenses. Cost of licenses increased from $626,000 in the six months ended September 30, 1995 to $839,000 in the six months ended September 30, 1996, representing 8% and 5% of license revenues in the respective periods. The decrease in cost of licenses as a percent of license revenues was primarily the result of a decrease in sales of third party software products which resulted in lower royalty fees paid to third party software vendors. Although the Company does not expect revenues and costs from the distribution of third party software products to be significant in future periods, period to period fluctuations in the level of such revenues may occur and the Company's gross margins and results of operations could be materially adversely affected. 18 Services and Maintenance. Cost of services and maintenance increased from $4.0 million for the six months ended September 30, 1995 to $4.2 million for the six months ended September 30, 1996, representing 93% and 66% of services and maintenance revenues in the respective periods. The decrease in cost of services as a percent of service revenues reflects improvements in productivity and efficiencies in both the professional services and technical support organizations. Additionally, maintenance revenues as a percentage of total service and maintenance revenues increased during the six months ended September 30, 1996 and the costs associated with providing maintenance generally are lower as a percentage of revenues than the costs associated with consulting services. Operating Expenses Sales and Marketing. Sales and marketing expenses increased from $4.1 million for the six months ended September 30, 1995 to $9.7 million for the six months ended September 30, 1996, representing 34% and 41% of total revenues in the respective periods. The increase in sales and marketing expenses in absolute dollars and as a percentage of total revenues is primarily the result of costs associated with the expansion of the Company's sales and marketing organization, both domestically and internationally, and the additional investments being made as the Company implements its vertical market strategy. Research and Development. Research and development expenses increased from $2.3 million for the six months ended September 30, 1995 to $3.9 million for the six months ended September 30, 1996, representing 19% and 16% of total revenues in the respective periods. The increased investment in research and development expenses in absolute dollars primarily reflects increased expenses related to salaries and other expenses for the addition of software engineers and reflects the Company's continued investment in enhancing existing products and developing new product offerings. General and Administrative. General and administrative expenses increased from $753,000 for the six months ended September 30, 1995 to $2.1 million for the six months ended September 30, 1996, representing 6% and 9% of total revenues in the respective periods. This increase in expenses both in absolute dollars and as a percentage of total revenues reflects the Company's decision to continue its investment in the enhancement of infrastructure to support its growth. Other Income, Net. Other income, net, increased from $51,000 for the six months ended September 30, 1995 to $576,000 for the six months ended September 30, 1996. The increase was primarily due to investment income earned on the proceeds from the Company's initial public offering in November 1995. Provision for Income Taxes. The Company's effective tax rate was 37% for both the six months ended September 30, 1995 and 1996. While the Company does not have any significant available tax credits at March 31, 1996, the Company may generate additional tax credits as it develops products in the future. See Note 5 of Notes to Consolidated Financial Statements. 19 SELECTED QUARTERLY OPERATING RESULTS The following tables set forth the Company's statement of operations data for each of the ten quarters in the period ended September 30, 1996, as well as the percentage of the Company's total revenues represented by each item. This unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere in this Prospectus and, in management's opinion, reflects all adjustments (consisting only of normal recurring entries) necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED --------------------------------------------------------------------------------------------- JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1994 1994 1994 1995 1995 1995 1995 1996 1996 1996 -------- --------- -------- -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Licenses............... $2,046 $1,904 $3,128 $4,019 $3,667 $4,037 $5,206 $6,843 $ 7,381 $10,043 Services and mainte- nance................. 641 801 879 1,832 2,445 1,900 2,198 2,300 2,922 3,458 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Total revenues....... 2,687 2,705 4,007 5,851 6,112 5,937 7,404 9,143 10,303 13,501 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Cost of revenues: Licenses............... 68 9 119 405 122 504 131 117 595 244 Services and mainte- nance................. 318 513 713 1,796 2,516 1,511 1,404 1,484 1,961 2,217 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Total cost of reve- nues................ 386 522 832 2,201 2,638 2,015 1,535 1,601 2,556 2,461 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Gross margin............ 2,301 2,183 3,175 3,650 3,474 3,922 5,869 7,542 7,747 11,040 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Operating expenses: Sales and marketing.... 1,136 1,102 1,716 1,983 1,995 2,056 2,954 3,560 4,061 5,642 Research and develop- ment.................. 458 597 763 898 1,024 1,259 1,583 1,516 1,780 2,080 General and adminis- trative............... 265 299 234 372 363 390 583 833 850 1,200 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Total operating ex- penses.............. 1,859 1,998 2,713 3,253 3,382 3,705 5,120 5,909 6,691 8,922 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Income from operations.. 442 185 462 397 92 217 749 1,633 1,056 2,118 Other income (expense), net.................... (46) 35 38 32 37 14 118 299 311 265 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Income before provision for income taxes....... 396 220 500 429 129 231 867 1,932 1,367 2,383 Provision for income taxes.................. 146 82 185 159 48 85 320 716 519 882 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Net income.............. $ 250 $ 138 $ 315 $ 270 $ 81 $ 146 $ 547 $1,216 $ 848 $ 1,501 ====== ====== ====== ====== ====== ====== ====== ====== ======= ======= Net income per share.... $ 0.03 $ 0.01 $ 0.03 $ 0.03 $ 0.01 $ 0.01 $ 0.05 $ 0.11 $ 0.07 $ 0.12 ====== ====== ====== ====== ====== ====== ====== ====== ======= ======= Shares used in per share computation............ 9,014 9,968 9,975 9,991 10,577 10,925 11,531 10,965 12,740 12,773 ====== ====== ====== ====== ====== ====== ====== ====== ======= ======= AS A PERCENT OF TOTAL REVENUES: Revenues: Licenses............... 76.1% 70.4% 78.1% 68.7% 60.0% 68.0% 70.3% 74.8% 71.6% 74.4% Services and mainte- nance................. 23.9 29.6 21.9 31.3 40.0 32.0 29.7 25.2 28.4 25.6 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Cost of revenues: Licenses............... 2.6 0.3 3.0 6.9 2.0 8.5 1.8 1.3 5.8 1.8 Services and mainte- nance................. 11.8 19.0 17.8 30.7 41.2 25.4 19.0 16.2 19.0 16.4 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Total cost of reve- nues................ 14.4 19.3 20.8 37.6 43.2 33.9 20.8 17.5 24.8 18.2 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Gross margin............ 85.6 80.7 79.2 62.4 56.8 66.1 79.2 82.5 75.2 81.8 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Operating expenses: Sales and marketing.... 42.3 40.7 42.8 33.9 32.6 34.6 39.9 38.9 39.4 41.8 Research and develop- ment.................. 17.0 22.1 19.0 15.3 16.8 21.2 21.4 16.6 17.3 15.4 General and adminis- trative............... 9.9 11.1 5.9 6.4 5.9 6.6 7.8 9.1 8.3 8.9 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Total operating ex- penses.............. 69.2 73.9 67.7 55.6 55.3 62.4 69.1 64.6 65.0 66.1 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Income from operations.. 16.4 6.8 11.5 6.8 1.5 3.7 10.1 17.9 10.2 15.7 Other income (expense), net.................... (1.7) 1.3 0.9 0.5 0.6 0.2 1.6 3.2 3.0 2.0 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Income before provision for income taxes....... 14.7 8.1 12.5 7.3 2.1 3.9 11.7 21.1 13.2 17.7 Provision for income taxes.................. 5.4 3.0 4.6 2.7 0.8 1.4 4.3 7.8 5.0 6.6 ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- Net income.............. 9.3% 5.1% 7.9% 4.6% 1.3% 2.5% 7.4% 13.3% 8.2% 11.1% ====== ====== ====== ====== ====== ====== ====== ====== ======= =======
20 License revenues have increased each quarter since the quarter ended June 30, 1995, as a result of the increased acceptance of the Company's product offerings and expansion of the Company's sales and marketing efforts over the past six quarters. Cost of licenses varies from period to period primarily due to the amount of royalties payable by the Company to third-party software suppliers. In each of the three month periods ended March 31, 1995 and June 30, 1995, the Company experienced significant increases in its services and maintenance revenues due primarily to an increase in the number and complexity of its licenses, many of which required significant levels of implementation consulting. During these periods, cost of services and maintenance revenues increased as the Company significantly increased its use of third party subcontractors to augment its internal consulting organization. In addition, the Company incurred losses on several fixed fee consulting arrangements on which it was unable to bill customers for consulting services performed by internal consulting personnel and third party subcontractors. As a result, the Company realized a loss on its services and maintenance revenues for the three months ended June 30, 1995 and a gross margin of 2% on its services and maintenance revenues for the three months ended March 31, 1995. Beginning in the three months ended September 30, 1995, the Company undertook efforts to facilitate direct relationships between its customers and third party systems integrators, implemented additional procedures to better define the scope and pricing of consulting services and discontinued fixed fee consulting arrangements. These efforts contributed to an increase in the gross margin on services and maintenance revenues from 20% for the three months ended September 30, 1995 to between 33% and 36% for each of the last four quarters, and a decrease in services and maintenance revenues as a percentage of total revenues from 32% for the quarter ended September 30, 1995 to between 25% and 30% for each of the last four quarters. The Company intends to continue to increase its research and development expenditures in order to pursue its strategy of developing applications tailored to the requirements of specific additional vertical markets, and to continue to increase sales and marketing expenditures significantly as the Company expands its domestic and international sales and marketing staff and develops indirect sales and distribution channels. In addition, general and administrative expenses have increased each quarter since the quarter ended September 1995 as the Company began to invest in the infrastructure needed to support its growing operations. Accordingly, to the extent that continued increases in such expenses are not accompanied by increased revenues, the Company's business, operating results and financial condition will be materially adversely affected. Although the Company has been profitable each fiscal year since inception, there can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis in the future. In addition, the Company's revenues and operating results have varied substantially in the past and are likely to vary substantially in the future due to a variety of factors, including (i) the timing and size of the Company's individual license transactions, and, in particular, the fact that the Company's revenues in any quarter can be largely dependent on a limited number of large licenses, (ii) the fact that a significant portion of the Company's revenues in any given quarter are recognized in the last month, weeks or even days of the quarter, (iii) the relatively long sales cycle for the Company's software products, which is typically six to nine months, (iv) the relative proportion of total revenues derived from license revenues and services and maintenance revenues, (v) the timing of the introduction of new products or product enhancements by the Company and its competitors, (vi) the extent of customization required by any individual license transaction, which can result in deferral of significant revenues until completion or acceptance of certain customized portions of the software, (vii) changes in customer budgets, (viii) seasonality of technology purchases by customers and general economic conditions, (ix) the mix of revenues among various distribution channels and between domestic and international customers, (x) the relative proportion of implementation services performed by the Company for which the Company engages independent contractors, which are typically more costly than internal personnel, and (xi) the relative proportion of license revenues derived from third party products distributed by the Company in conjunction with its products. Therefore, the Company believes that period to period comparisons of its revenues and operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. During the quarter ended September 30, 1996 the Company experienced a license revenue growth rate of 36% compared to the immediately preceding quarter. The Company does not anticipate sustaining such a sequential quarterly growth rate in the future. 21 LIQUIDITY AND CAPITAL RESOURCES In November 1995, the Company completed an initial public offering of 2,760,000 shares of its Common Stock, of which 2,225,000 shares were issued and sold by the Company and 535,000 were sold by selling shareholders. The Company recorded net proceeds of $23.9 million from such offering. Prior to its initial public offering, the Company funded its operations through private sales of equity securities and cash generated from operations. The Company began to generate cash from operating activities during the last half of fiscal 1995. The Company generated cash of $1.2, $3.4 and $1.0 million from operating activities during fiscal 1995 and 1996 and for the six months ended September 30, 1996, respectively, primarily as a result of net income offset in part by increases in accounts receivables. From March 31, 1995 to September 30, 1996, the Company's accounts receivables increased from $5.6 million to $11.5 million. The increase in accounts receivables resulted from the growth in revenues during the same period. The average days sales outstanding decreased during the same period from 87 days at March 31, 1995 to 76 days at September 30, 1996. The levels of accounts receivables at each quarter end will be affected by the concentration of revenues in the final weeks of each quarter and may be negatively affected by expanded international revenues in relation to total revenues as licenses to international customers often have longer payment terms. During fiscal 1994 and 1995, the Company's principal uses of cash for investing activities were the purchase of fixed assets and totaled $492,000 and $1.5 million, respectively. During fiscal 1996 and the six months ended September 30, 1996, the Company invested $7.5 and $5.9 million, respectively, in short term investments and invested $1.8 and $2.8 million in fixed assets, primarily computer hardware and software to support the growing organization. As of September 30, 1996 the Company had no significant capital commitments. Cash provided by financing activities included $400,000 and $3.8 million from the issuance of preferred stock in fiscal 1994 and 1995, respectively, and in fiscal 1996 consisted primarily of $23.9 million in proceeds from the Company's initial public offering. The Company believes that the net proceeds from the sale of the Common Stock offered by the Company together with cash flow from operations and existing cash and cash investments balances will be sufficient to meet its cash needs for at least the next 12 months. 22 BUSINESS Scopus is a leading provider of client/server software solutions for the customer information management market. The Company's applications, Scopus SupportTEAM, Scopus ServiceTEAM, Scopus QualityTEAM, Scopus SalesTEAM and Scopus Voyager, automate external customer support, the product design change process, sales and marketing activities and internal help desk support. Scopus applications are designed to enable organizations to build a knowledgebase of customer information that can be accessed and used by individuals throughout the enterprise to improve the effectiveness and efficiency of customer support in order to increase customer satisfaction. The Company's products are based on a modular, open architecture and support a variety of client computing platforms, industry standard relational databases and server operating systems, and operate over local area networks, intranets and the internet. Scopus products offer customers a unique combination of built-in functionality, customizability, adaptability and scalability. The Company also offers consulting, training and maintenance services to facilitate the installation and use of the Company's products. INDUSTRY BACKGROUND Businesses and other organizations are increasingly focusing on customer service and satisfaction as a means of gaining a competitive advantage. Realizing that improving customer service and satisfaction can be as important in attracting and retaining customers as product design, quality and price, these organizations are reorienting their businesses to become customer- centric and more responsive to customer needs. In pursuit of improved customer support and satisfaction, many organizations have distributed responsibility for sales and customer service broadly throughout their organizations. Many organizations are also extending responsibility for sales and customer service to their "extended enterprises" of distributors, value-added resellers and other outsourcing partners. In addition, to more effectively manage customer relationships and to better leverage economies of scale, companies in certain industries have begun to consolidate customer support operations into high volume call centers. As a result of these trends, more individuals within an organization and its extended enterprise are responsible for interacting with customers. To better serve their customers, organizations need an efficient system to continually collect and disseminate customer information. The resulting knowledgebase of customer information enables employees and other members of the extended enterprise to understand issues critical to the organization's success, such as customer satisfaction, the potential for follow-on sales and customers' future product needs. Moreover, as organizations are discovering the competitive necessity of delivering superior support to customers who reside outside of the organization (i.e., their clients), they are also realizing that the same level of attention must be paid to the technological and business needs of their customers inside the organization (i.e., their employees). The development of distributed client/server computing has created a technological framework for the efficient collection of customer information and its dissemination among employees and other members of the extended enterprise. Client/server technology not only permits any member of an organization to effectively collect information relating to a particular customer, product or event, but also enables other members of the organization in geographically dispersed locations to have rapid access to that information. The emergence of client/server computing environments, together with the increased emphasis on customer support and satisfaction, has created a demand for a new generation of customer information management software applications. In addition, the increasing complexity of client/server computing technology has created a demand for applications that support an organization's internal help desk. In attempting to meet such demands, organizations have been faced with a choice between purchasing pre-packaged applications or building custom applications. Pre-packaged applications are often inflexible, requiring organizations to adopt an unfamiliar approach for managing customer information in order to conform to the process design of the application. Even if a pre-packaged application is initially acceptable, it may not accommodate an organization's desire to add functionality, change processes or expand operations over time. 23 On the other hand, building custom applications can be slow and costly. Today, organizations need customer information management solutions that provide "off-the-shelf" functionality yet can be readily customized to match their internal processes and can be quickly and cost-effectively reconfigured as the organizations grow and their needs evolve. THE SCOPUS SOLUTION Scopus is a leading provider of client/server software solutions designed to enable organizations to efficiently capture, manage and share customer information throughout the enterprise and the extended enterprise. The Company's applications offer intranet and internet based solutions that automate external customer support, the product design change process, sales and marketing activities and internal help desk support. The Company's products can be used individually to improve critical business operations or can be integrated with one another and with third party applications to provide comprehensive, enterprise-wide customer information management solutions. Scopus applications are designed to enable organizations to build a knowledgebase of customer information that can be accessed and used by individuals throughout the enterprise to improve customer support and satisfaction. As this knowledgebase grows, organizations can use the resulting reservoir of customer information to develop better products, market products more effectively and provide more efficient and effective customer support. The Company's products offer customers the following benefits: Application Customizability. Recognizing that every organization interacts with its customers in a unique and evolving manner, the Company has designed its technology not only to offer a pre-packaged solution but also to allow organizations to slightly tailor or extensively customize Scopus applications without time consuming and costly source code programming changes. As a result, Scopus applications can be adapted to the organization's specific processes, integrated with its existing computing environments and modified as the organization's functional and technical requirements grow or evolve. Scopus applications can be adapted as a customer's environment changes as a result of growth or because of changes in technology, thereby offering the customer long-term solutions. Scalability and Flexibility. The Company's products allow customers to take advantage of the benefits inherent in client/server computing, notably its scalability and flexibility. Scopus applications enable customers to easily add clients to new or existing servers. Organizations can also use Scopus application service modules to incorporate additional functionality into Scopus systems, such as remote access capabilities, telephony integration and multi-site database replication, without costly changes to the overall application architecture. Scopus' continued investment in open standards and open solutions further adds to the scalability and flexibility of Scopus applications. Some of those standards include OLE 2.0 for client communications and third party controls and applications, ODBC for database connectivity, and HTTP and SSI for intranet and internet access. Integration Capabilities. The modular, open architecture of Scopus applications and Scopus' published application programming interface ("API") permit customers to integrate the Company's applications with a wide variety of other computer and telephony technologies and products. As a result, Scopus applications can be integrated with many desktop software applications and browsers for Windows, UNIX and Macintosh clients, including popular e-mail applications, spreadsheets and document editors, as well as existing mainframe-based "legacy" systems, other client/server applications and telephony equipment. Each Scopus application has also been designed to operate with many industry standard relational database management systems, graphical user interfaces and network protocols. Enterprisewide Customer Care. The architecture of the Scopus system enables an organization to extend its customer care solution across the enterprise. The specific applications for sales and marketing, customer service and support and product and change management all share a common architecture, data model and workflow system so that every customer interaction can be captured, tracked and shared throughout the enterprise. 24 BUSINESS STRATEGY The Company's objective is to become the leading supplier of enterprise customer information management software solutions for the global marketplace. To achieve this objective, the Company is pursuing the following strategies: Maintain Technological Leadership Position. Scopus has established itself as a leader in the development and use of technology for customer information management software. Scopus believes that it was the first participant in this market to introduce a data-driven architecture, publish an open API, provide customers with multi-site database replication capability and integrate its applications with telephony services. The Company's applications currently support a variety of client/server computing technologies, including popular client computing platforms, industry standard relational databases and server operating systems. Scopus plans to continue to devote significant resources to maintain its technological leadership. Develop Industry Specific Applications. The Company believes the flexibility inherent in its core architecture facilitates the development of applications for targeted vertical markets. The Company believes that industry specific applications allow for shorter sales cycles, require less customization and offer simpler implementation while providing a higher level of industry- specific features and functionality. Scopus originally developed its Scopus SupportTEAM and Scopus QualityTEAM products for use in the software industry. The Company has licensed its products to organizations in a variety of other industries and is currently targeting the technology, telecommunications and financial services industries with industry specific applications. The Company intends to expand its presence in these industries and leverage that presence into other vertical markets. The Company also is working with key customers to develop such applications and believes that these relationships will provide the Company with insight into the specific needs of targeted vertical markets. Target Call Center Market. As a result of intense competition driven by factors such as deregulation and technological advances, companies are becoming increasingly focused on providing high levels of customer service to attract new customers while retaining existing customers. In particular, high- volume call centers have emerged as a strategic component of customer service in certain industries. Scopus believes that its products offer a cost- effective solution for high-volume call centers. The Company is currently targeting the call center market and intends to continue to expend significant sales and marketing efforts in this market. Expand Relationships with Third Party Consulting Organizations. Scopus has developed and continues to develop relationships with third party consulting organizations to assist customers with the successful customization and implementation of Scopus products. The Company believes that this strategy will enable its customers to achieve efficient customization and implementation of Scopus products, while enabling Scopus to focus on the development, enhancement and marketing of its products. In addition, the Company believes that, as systems integrators become increasingly familiar with Scopus products, such organizations could become a source of recommendations for the Company's products. Expand International Sales. Scopus believes there is a significant international market opportunity for its products and that it must devote resources to expand its international sales. To that end, the Company has begun to market localized versions of its products in Italy, Germany and France, and a Kanji version in Japan, and plans to release a local word language version for China. To expand its international distribution channels, Scopus has established subsidiaries in the United Kingdom, Canada and France and has established relationships with 14 distributors in various major overseas markets including Europe and Asia Pacific. The Company is exploring other distribution arrangements to broaden its domestic and international channels, and plans to continue to expand its sales force both domestically and internationally. 25 PRODUCTS The Company's products currently consist of a suite of five principal applications as well as several related application service modules and a customization tool. The Company's principal applications consist of Scopus SupportTEAM, Scopus ServiceTEAM, Scopus QualityTEAM, Scopus SalesTEAM and Scopus Voyager. The following table summarizes the Company's products and their principal functions:
PRODUCT FUNCTION ------- -------- APPLICATIONS . Scopus SupportTEAM External customer support and internal help desk; problem resolution . Scopus ServiceTEAM Sales and marketing support for service organizations . Scopus QualityTEAM Product error and modification tracking; product design change process . Scopus SalesTEAM Telemarketing and telesales process automation . Scopus Voyager Field sales automation - --------------------------------------------------------------------------------------------- APPLICATION SERVICE MODULES . WebTEAM Integration to World Wide Web . TeleTEAM Computer/telephony integration . WorldTEAM Database replication, inter-site distribution and data reconciliation - --------------------------------------------------------------------------------------------- CUSTOMIZATION TOOL . Scopus Works Workflow, business rules and customization - ---------------------------------------------------------------------------------------------
The Company's products support a variety of client/server computing technologies, including popular client computing platforms such as Microsoft Windows 3.1, Microsoft Windows 95, Microsoft Windows NT, Motif and Macintosh; industry standard relational databases from Sybase, Oracle, Informix and Microsoft; and server operating systems such as Microsoft Windows NT, Hewlett Packard HP-UX, IBM/AIX, Sun OS and Sun Solaris and Silicon Graphics. Scopus products may be integrated with each other and with a variety of third party applications. For example, Scopus SupportTEAM can be used in conjunction with Scopus QualityTEAM to integrate customer feedback with the product design change process. Scopus QualityTEAM can accept modification requests created from customer feedback through Scopus SupportTEAM, track the ensuing adjustments and communicate the results back to Scopus SupportTEAM for subsequent closure of all calls related to the modification. Additional service modules available from Scopus significantly enhance the functionality of all Scopus applications. For example, an embedded notification and workflow engine can be used to drive the workflow of the modification process by escalating calls to more senior personnel and notifying other professionals if problems remain unsolved or other issues arise. WorldTEAM may be used to automatically communicate critical information to databases in remote development centers so that personnel throughout the enterprise can access the relevant information. All Scopus applications are currently available in localized versions in Italian, German, Spanish, French and Japanese (Kanji) and plans to release a localized version in Chinese. The Company's prices for its applications and certain application service modules depend on the number of concurrent users of such products. The domestic list prices for Scopus applications range from approximately $12,000 to $120,000 per server and from approximately $3,000 to $3,500 per concurrent user. The domestic list prices for the Company's application service modules range from approximately $3,000 to $20,000 per server and from $2,000 to $4,000 per concurrent user, and the domestic list price for Scopus Works is approximately $18,000. Applications Scopus SupportTEAM. Scopus SupportTEAM is an integrated solution for external customer support and internal help desks. Scopus SupportTEAM is designed to automate and facilitate each step of the problem 26 resolution process from the gathering of problem information to problem resolution. It combines an intuitive problem-assignment procedure with server problem resolution technologies, including Query-By-Example, Relevancy Search and DataProbe, to improve the speed and productivity of customer support professionals. Using Scopus SupportTEAM, customer support professionals can enter data identifying the caller and the problem and search the knowledgebase for similar problems and their solutions. As call records accumulate, the resulting knowledgebase becomes a library of problems, resolution steps, technical application notes and solutions. If the problem cannot be resolved by the initial support professional, Scopus SupportTEAM can assign the call to other support professionals. Each step in the resolution process is captured by Scopus SupportTEAM, creating a record of resolution steps previously performed. Scopus SupportTEAM completes the resolution process through integration with standard report writing tools for analysis and reporting of performance and customer satisfaction metrics. Scopus QualityTEAM. Scopus QualityTEAM automates the product design change process and enables organizations to log, assign, coordinate and manage product modifications and enhancements and the correction of product defects and non-conformance items. Often, as in the software and hardware industries, a single defect can result in several instances of product failure and may require the resolution of multiple related sub-defects or tasks. Moreover, as the change process progresses, duplicate modifications may be introduced into the system and new modification requests may be found that are related to previously identified requests. Scopus QualityTEAM enables product developers to break down such defects or enhancement requests into tasks, manage the assignment of the tasks and control the change process. By using the Company's problem resolution tools, product developers can search the database for similar modifications or tasks and link them together to ensure the efficient completion of all modifications. Scopus ServiceTEAM. Scopus ServiceTEAM combines contract management capability with the functionality of Scopus SalesTEAM allowing sophisticated sales and support for organizations that sell services in addition to or instead of products. The information managed by Scopus ServiceTEAM can then be linked with Scopus SupportTEAM so that customer representatives can immediately know the level of support that is contractually required in any product support situation. Scopus SalesTEAM. Scopus SalesTEAM manages integrated marketing and sales cycles. With Scopus SalesTEAM, organizations can manage every phase of the sales cycle from the design and execution of marketing campaigns and the generation of qualified leads to order fulfillment and tracking of existing and potential accounts. Scopus SalesTEAM has direct marketing and telesales components, which support data-based marketing efforts and facilitate the collection of potential customer data, the qualification of leads and the tracking of such leads to sale closure. Scopus SalesTEAM allows organizations to simultaneously pursue multiple opportunities in which group selling efforts are needed, manage employee to-do lists and enforce the requirements of each step of the selling process including lead generation, prospecting, cost estimation, quote generation, order booking, fulfillment, billing and return. Scopus Voyager. Scopus Voyager, commercially introduced in the first quarter of fiscal 1996, is a sales automation solution aimed at the mobile sales professional. Voyager is a complete lead management, account management and opportunity management system and is integrated with the entire suite of Scopus customer care products. In addition, the system includes integrated time management, quote management and other marketing functions. Voyager enables a team-selling approach by enabling field sales professionals to share the latest account and opportunity information with their telesales, telemarketing and customer service organizations. For example, leads qualified in telemarketing can automatically be forwarded to the correct field sales representative for follow-up. All information associated with the lead can then be tracked throughout the entire sales cycle as leads turn into opportunities, closed opportunities become accounts, and accounts in turn generate new opportunities. Voyager allows both mobile and office-resident professionals to independently modify sales information and then automatically synchronizes the information each time the mobile professional reconnects to the central Scopus system. 27 Application Service Modules The Company has developed application service modules that can be combined with any Scopus application to enhance functionality and create integrated customer information management solutions. WebTEAM provides users with read and write access to the Scopus database over the World Wide Web. This product has allowed many of Scopus' customers to provide to their own customers access to a Scopus database in order to speed problem resolution through self-service or to enable direct requests for support. TeleTEAM permits telephony services, such as automatic call distributors (ACDs) and interactive voice response units (IVRs), to be integrated with Scopus applications to improve call center productivity. Through this integration, TeleTEAM synchronizes incoming calls with the creation of a computer screen containing information about the caller. This capability eliminates the need to query the database for caller information as the operator receives the call, facilitating rapid responses to customer inquiries. These screens can be transferred with the call to other system users when necessary. WorldTEAM is a database replication program that manages the replication, inter-site distribution and reconciliation of customer information. WorldTEAM can be configured to automatically replicate specified subsets of information at given intervals and at specific sites. WorldTEAM also incorporates mechanisms to ensure that data integrity across sites is preserved during replication. Customization Tool Scopus Works. Scopus offers a drag-and-drop configuration and customization environment that allow users to personalize all Scopus applications, including presentation logic, business rules and application servers. Scopus Works is an integrated tool set that business process experts can utilize throughout the entire lifecycle for all Scopus applications. SERVICES The Company believes that high quality customer service and support are integral components of the application solutions it offers. Accordingly, the Company offers a range of fee-based training, consulting and maintenance services to facilitate the installation and use of the Company's products. The Company uses its own products to provide many of its customer services. As of September 30, 1996, the Company employed 21 persons in its consulting services organization and 58 persons in its support organization which offers customer service, training and documentation services. Consulting Services. The Company employs its own implementation personnel and works with third party consulting organizations and systems integrators to offer on-site project design and implementation services. These consulting services include the installation and implementation of Scopus products, integration of such products with other existing and planned communications and information systems, project management and process reengineering. To meet future requirements for large scale consulting projects, the Company has established relationships with third party systems integrators and professional consulting firms to facilitate direct relationships between such firms and the Company's customers. Software Maintenance and Support. The Company's support organization offers a variety of support services to its customers. Customers have the option of purchasing the Company's standard support package or its extended support package. Through its standard support package, the Company provides its customers with 12-hour weekday hotline support, 24-hour electronic support through use of the Company's WebTEAM or CommLink Server products or Scopus' electronic news group service, and periodic product updates and maintenance releases. Annual fees for the Company's standard support package are typically 15% of the license fee for the underlying software. For an additional fee, a customer can purchase the extended support package 28 which complements the services available in the standard support package with 24-hour phone support, priority escalation and the opportunity to have a support representative assigned to the customer's account. To date, substantially all of the Company's expiring maintenance contracts have been renewed. CUSTOMERS As of September 30, 1996, the Company had licensed its products to over 250 customers. No customer accounted for 10% or more of total revenues for fiscal 1995, 1996 or the first six months of fiscal 1997. The following is a representative list of the Company's customers:
COMPUTER SOFTWARE COMPUTER/ELECTRONICS TELECOMMUNICATIONS FINANCIAL/ACCOUNTING Aspen Technology Acer America AT&T Bankers Trust Autodesk Advanced Micro Devices Alcatel Systems E*Trade Cadence Design Systems Boeing Computer Services Ascend Communications Instinet Computervision Honeywell Bay Networks Lehman Brothers FileNet Intel Bell Atlantic Nynex Mobile Lexis-Nexis Informix National Semiconductor Bell South Morgan Stanley Intuit Packard Bell Deutsche Telekom NationsBank Landmark Graphics Philips Semiconductor Lucent Technologies Principal Financial Mentor Graphics Sequent Computer Systems Nortel U.S. Bank Seagate Technology Silicon Graphics Octel Communications Visa International SunSoft Sun Microsystems PCS Primeco Wells Fargo Sybase U.S. Robotics Siemens/Rolm Synopsys VLSI Technologies US Long Distance OUTSOURCING SERVICES Viewlogic WorldCom Fujitsu WRQ INTERNET SERVICES Olivetti Worldwide Wall Data @Home OTHER Stream International Netcom Polaroid Towers Perrin Netscape Yamaha
SALES AND MARKETING The Company sells its software and services in North America primarily through a direct sales force. To support its sales force, the Company conducts marketing programs which include direct mail, trade shows, public relations, advertising and ongoing customer communication programs. While the sales cycle varies from customer to customer, it typically ranges from six to nine months. The North American sales organization is based at the Company's corporate headquarters in the San Francisco Bay Area and at ten additional field sales offices in the metropolitan areas of Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, New York, Seattle, Toronto and Washington D.C. The Company markets and sells its software and services outside North America through the direct sales force of its subsidiaries in Europe and has relationships with independent distributors located in other major geographic areas including Europe and Asia. The Company's international distributors typically provide first line technical support and services to their customers. The Company has increased its domestic and international sales force from 43 sales managers, sales representatives and applications engineers at March 31, 1996 to 78 sales managers, sales representatives and applications engineers at October 31, 1996. The Company intends to continue to expand its direct sales force and to diversify its sales channels by adding third party distributors both domestically and internationally. The Company's ability to achieve significant revenue growth in the future will depend in large part on its success in recruiting and training sufficient sales personnel and establishing relationships with distributors, resellers and systems integrators. The Company is currently investing, and plans to continue to invest, significant resources to expand its domestic and international direct sales force and develop distribution relationships with third party distributors, resellers and systems integrators. The Company's existing distribution relationships are generally non-exclusive and can be terminated by either party without cause. The Company's distributors also sell or can 29 potentially sell products offered by the Company's competitors. There can be no assurance that the Company will be able to retain or attract a sufficient number of its existing or future third party distribution partners or that such partners will recommend, or continue to recommend the Company's products. The inability to further establish or to maintain successful relationships with distributors, resellers or system integrators could have a material adverse effect on the Company's business, operating results or financial condition. In addition, there can be no assurance that the Company will be able to successfully expand its direct sales force or other distribution channels. Any failure by the Company to expand its direct sales force or other distribution channels would materially and adversely affect the Company's business, operating results and financial condition. An important element of the Company's strategy is to expand its international operations. In this regard, although the Company has established subsidiaries in the United Kingdom, Canada and France and is currently investing significant resources in its international operations, including the development of third party distributor relationships and the hiring of additional sales representative. International sales to date have been limited, and there can be no assurance that the Company will be successful in expanding its international operations. In the event the Company is able to increase international revenues as a percentage of total revenues, the Company's business, operating results or financial condition could be materially adversely affected by risks inherent in conducting business internationally, such as changes in currency exchange rates, longer payment cycles, difficulties in staffing and managing international operations, problems in collecting accounts receivable, seasonal reduction in business activity during the summer months in Europe and certain other parts of the world, increases in tariffs, duties, price controls or other restrictions on foreign currencies and trade barriers imposed by foreign nationalities. In this regard, to the extent the Company's international operations expand, the Company expects that an increasing portion of its international license revenues will be denominated in foreign currencies. In addition, the Company has only limited experience in developing localized versions of its products and marketing and distributing its products internationally. There can be no assurance that the Company will be able to successfully localize, market, sell and deliver its products internationally. The inability of the Company to successfully expand its international operations in a timely manner could materially adversely affect the Company's business, operating results or financial condition. TECHNOLOGY Each of the Company's applications is built on a common core architecture that is designed to efficiently leverage the performance and scalability of client/server computing. The core technology was developed by Scopus to facilitate the development and customization of enterprise applications for a wide variety of customers. Since all Scopus applications share this technology, they all communicate with the database server in the same manner and can be easily integrated with one another to provide custom solutions. The Company believes that its product architecture provides it with a competitive advantage by allowing it to craft tailored solutions for its customers and by simplifying and facilitating new product development. The Company's core technology has the following attributes: Distributed Processing The Company partitions its applications into multiple, independent tasks and allocates these tasks to the computing resource most suited to process such tasks in order to fully take advantage of the scalability, flexibility and performance offered by client/server environments. By reducing a typical application into a set of computing processes that function most efficiently as client processes, application services and agent services (i.e., data services, computer/telephony integration services), the Company's products enable its customers to effectively and efficiently utilize their computing resources (such as data server processing and network bandwidth). Moreover, this distribution of computing tasks enables the Company to leverage technological improvements in any area of the client/server system and to incorporate new functionality into its suite of products. Data-Driven Architecture The Company's products utilize a data-driven architecture that enables users to build and efficiently customize Scopus applications in distributed processing environments. The Company has designed its 30 applications to reference and interpret data that defines a set of application functions (metadata) and is stored in the database. These functions determine the look and feel of the graphical user interface (GUI), the workflow of the applications and the required processing. Since the metadata exists independent from the source code of the foundation and the applications, customers can extensively customize the GUI and processes of each of the applications to meet their diverse internal requirements without the need to make costly changes to product source code. These customizations can include changes to notification and escalation rules, additions of forms, buttons and fields and the development of entirely new screens. Customers make these changes either by using the Scopus design tool, ScopusWorks, by using a scripting language compliant with Microsoft's Visual Basic for Applications or by using another standard fourth generation scripting language, Tcl. The use of metadata enables the Company to efficiently customize its application logic whether that logic is executed as client processes, application services or agent services. Additionally, even customers with different client platforms only need to make changes to the metadata once at the server level. All clients will then automatically receive the changes. The management of software is therefore easier than attempting to manage software changes on a large number of different client machines. Open API Technology The Company's customers can also customize their Scopus applications through the use of the Company's published and open API, which is used to invoke the functionality of a wide array of third party applications by either the client processes, applications services or agents, thereby further distributing application processing, increasing flexibility and enhancing functionality. Since the Company's API can be used within each component of the Company's architecture, the Company can integrate with third party applications at the most efficient component. The Company's core technology also enables its applications to share a set of application service modules, which coordinate the flow of information and processes within the Scopus system. These application service modules, which can be deployed as customer needs mandate, also support an efficient distribution of computing services. Data-based programmability, efficient use of its application service modules and the API provide the Company with multiple design points to customize its applications. Common Customer Information Database In addition to sharing common core technologies and customization capabilities, Scopus applications share a common normalized table format which utilizes industry standard relational databases (Sybase, Oracle, Informix and Microsoft SQL). This database is designed to maintain information, such as customer profiles, site identifications, user preferences and permissions, cases and accumulated experience necessary to operate the applications and thereby support customer requirements. Customer profiles include basic customer information such as name and address, as well as site identification and group affiliations. An organization's common customer database contains information on the status of each case, including case origination, case work assignments and open issues. In the Scopus system, a case can be a call, a defect, or a potential sales transaction. Attachments, technical notes and tasks can be associated with each case through bi-directional cross referencing or through support for Microsoft's Object Linking and Embedding (OLE) to facilitate the problem resolution process. As cases accumulate in the database, a common knowledgebase of cases and associated information is created, which allows support representatives and sales personnel to service new cases more effectively and with greater speed. Problem Resolution Technologies Each of the Company's applications can employ a set of problem resolution technologies to search the common customer information database. These technologies include: Query-By-Example. Query-By-Example ("QBE") enables Scopus users to launch a query to the database to search for information similar to that entered into a field or a combination of fields. QBE can therefore be used to identify information specific to a given user or locate solutions with entries identical to those of the instant case. 31 Relevancy Search. Relevancy Search enables users to search for cases that are most similar to the current case by computing a numerical ranking to each solution returned by a QBE search. This ranking is based on the prevalence of certain keywords in each of the solutions. DataProbe. DataProbe is a powerful query tool that enables users to construct intelligent Boolean queries based on any field, form or topic in the common customer information database. These queries can be constructed either directly through SQL statements or indirectly through the application interface. DataProbe also permits uses to include automatically generated keywords in the search. Case-Based Reasoning Integration. An integration with CasePoint by Inference Corporation provides customers with an additional level of problem resolution capabilities. CasePoint features a question and answer methodology that helps refine user queries. Through CasePoint, users can compare the instant case to other known solutions and transfer the results back into the Scopus knowledgebase. Third Party Knowledgebase Integration. The Company's problem resolution technologies also can be combined with pre-packaged knowledgebases to offer customers a means to supplement the cases accumulated through their own experience. Full-Text Retrieval Integration. An integration with Verity's Full-text Retrieval Engine provides customers with an additional level of problem resolution capabilities. Verity features many document formats, such as Microsoft Office and HTML, for intelligent Boolean queries based on any field, in any language, including multi-byte languages. These queries can be constructed through SQL statements or directly through an API. RESEARCH AND DEVELOPMENT As of September 30, 1996, the Company's research and development staff consisted of 48 persons. The Company's research and development expenditures in fiscal 1996 and the six months ended September 30, 1996 were $5.4 million and $3.9 million, respectively, representing 19% and 16% of total revenues, respectively, during such periods. The Company has historically developed and expects to continue to develop its products in conjunction with its existing and potential customers. The Company's current development initiatives include the enhancement of the features and functionality of existing products, the development of complementary products and the development of integrated packages of its products tailored to the requirements of certain market segments. The market for the Company's products is characterized by rapid technological advances, evolving industry standards in computer hardware and software technology, changes in customer requirements and frequent new product introductions and enhancements. The Company is currently investing significant resources in product development and expects to continue to do so in the future. The Company's future success will depend on its ability to continue to enhance its current product line and to continue to develop and introduce new products that keep pace with competitive product introductions and technological developments, satisfy diverse and evolving customer requirements and otherwise achieve market acceptance. There can be no assurance that the Company will be successful in continuing to develop and market on a timely and cost-effective basis fully functional product enhancements or new products that respond to technological advances by others, or that its enhanced and new products will achieve market acceptance. In addition, the Company has in the past experienced delays in the development, introduction and marketing of new or enhanced products, and there can be no assurance that the Company will not experience similar delays in the future. Any failure by the Company to anticipate or respond adequately to changes in technology and customer preferences, or any significant delays in product development or introduction, would have a material adverse effect on the Company's business, operating results and financial condition. 32 Due to the complexity and sophistication of the Company's software products, the Company's products from time to time contain defects or "bugs" which can be difficult to correct. Furthermore, as the Company continues to develop and enhance its products, there can be no assurance that the Company will be able to identify and correct defects in such a manner as will permit the timely introduction of such products. Moreover, despite extensive testing, the Company has from time to time discovered defects only after its systems have been used by many customers. There can be no assurance that software defects will not cause delays in product introductions and shipments, result in increased costs, require design modifications, or impair customer satisfaction with the Company's products. Any such event could materially and adversely affect the Company's business, operating results and financial condition. COMPETITION The customer information management software market is relatively new, intensely competitive, highly fragmented, subject to rapid change, and highly sensitive to new product introductions and marketing efforts by industry participants. The Company competes with a variety of other companies depending on the target market for their products. These competitors include (i) a select number of companies, such as Clarify Inc. and The Vantive Corporation, targeting the enterprise-wide customer information market; (ii) a substantial number of small private companies and certain public companies, such as Remedy Corporation, Siebel Systems, Inc., Aurum Software, Inc. and Software Artistry, Inc., which offer products targeted at one or more specific markets, including the customer support market, the help desk market, the quality assurance market and the sales and marketing automation market; (iii) professional services organizations, such as Andersen Consulting, that design and develop custom systems; (iv) large information technology providers such as IBM and Computer Associates International, Inc.; and (v) the internal information technology departments of potential customers which develop proprietary customer information management applications. Among the Company's potential competitors are also a number of large hardware and software companies that may develop or acquire products that compete with the Company's products. In this regard, SAP AG and Oracle Corporation have each introduced a customer support module as part of their application suites. The Company believes that many existing competitors and new market entrants will attempt to develop fully integrated customer information management systems that will compete with the Company's products. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customer. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced operating margins, and loss of market share, any one of which could materially adversely affect the Company's business, results of operations or financial condition. Many of the Company's current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than can the Company. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not materially adversely affect the Company's business, operating results and financial condition. The Company believes that the principal competitive factors affecting its market include product features such as adaptability, scalability, ability to integrate with third party products, functionality, ease of use, product reputation, quality, performance, price, customer service and support, effectiveness of sales and marketing efforts and company reputation. Although the Company believes that it currently competes favorably with respect to such factors, there can be no assurance that the Company can maintain its competitive position against current and potential competitors, especially those with greater financial, marketing, service, support, technical, and other resources than the Company. 33 INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES The Company's success is dependent on its ability to protect its proprietary technology. The Company licenses its products in object code form only, although it has source code escrow arrangements with certain customers. The Company relies on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect its proprietary rights. The Company does not have any patents or patent applications pending, and existing copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of certain countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Accordingly, there can be no assurance that the Company will be able to protect its proprietary rights against unauthorized third party copying or use, which could materially adversely affect the Company's business, operating results or financial condition. Despite the Company's efforts to protect its proprietary rights, attempts may be made to copy or reverse engineer aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Moreover, there can be no assurance that others will not develop products that infringe the Company's proprietary rights, or that are similar or superior to those developed by the Company. Policing the unauthorized use of the Company's products is difficult. Litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results or financial condition. As is common in the software industry, the Company from time to time receives notices from third parties claiming infringement by the Company's products of third party proprietary rights. While the Company is not currently subject to any such claim, the Company expects its software products will increasingly be subject to such claims as the number of products and competitors in the Company's industry segment grows and the functionality of products overlaps. Any such claim, with or without merit, could result in significant litigation costs and require the Company to enter into royalty and licensing agreements, which could have a material adverse effect on the Company's business, operating results or financial condition. Such royalty and licensing agreements, if required, may not be available on terms acceptable by the Company or at all. The Company also relies on certain technology which it licenses from third parties, including software which is integrated with internally developed software and used in the Company's products to perform key functions. There can be no assurance that these third party technology licenses will continue to be available to the Company on commercially reasonable terms. The loss of or inability of the Company to maintain any of these technology licenses could result in delays or reductions in product shipments until equivalent technology could be identified, licensed and integrated. Any such delays or reductions in product shipments would materially adversely affect the Company's business, operating results and financial condition. EMPLOYEES As of September 30, 1996, the Company employed 214 persons, including 65 in sales and marketing, 21 in its consulting services organization, 58 in customer support, 48 in research and development and 22 in finance and administration. Of these, 16 are located in Europe and the remainder are located in North America. None of the Company's employees is represented by a labor union. The Company has experienced no work stoppages and believes its relationship with its employees is good. Competition for qualified personnel in the Company's industry is intense. The Company believes that its future success will depend in part on its continued ability to attract, hire and retain qualified personnel. 34 FACILITIES The Company's principal administrative, engineering, manufacturing, marketing and sales facilities total approximately 45,000 square feet, and are located in a single building in Emeryville, California under a lease which expires in October 1999. In addition, the Company leases offices in the metropolitan areas of Atlanta, Boston, Chicago, Dallas, Denver, London, Los Angeles, New York, Paris, Seattle, Toronto and Washington, D.C. The Company is in the process of searching for additional space to support its expanded operations. The Company intends to relocate a portion of its operations in the next six to nine months and eventually to consolidate all corporate operations in a new, larger facility. The Company expects that suitable additional space will be available on commercially reasonable terms. 35 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and certain information about them as of October 31, 1996, are as follows:
NAME AGE POSITION ---- --- -------- Ori Sasson........................ 34 Chairman of the Board, Chief Executive Officer, President and Director Michele L. Axelson................ 45 Senior Vice President and Chief Financial Officer A. Aaron Omid..................... 37 Vice President, Sales and Secretary Mark J. Barrenechea............... 31 Vice President, Product Development Jeffrey G. Bork................... 39 Vice President, Marketing Steven Jacob...................... 41 Vice President, Europe Lyle D. York...................... 55 Vice President, Customer Services J. Michael Cline(1)(2)............ 36 Director Christopher R. Gibbons(1)......... 48 Director Ronald Abelmann(1)................ 59 Director Max D. Hopper(2).................. 62 Director
- -------- (1) Member of audit committee. (2) Member of compensation committee. Ori Sasson is a co-founder of the Company and has served as the Company's Chairman of the Board since the Company's inception in March 1991. Mr. Sasson has also served as the Company's Chief Executive Officer and President since February 1994 and as Secretary from March 1991 to February 1992. From January 1990 to March 1991 and from September 1986 to January 1989, Mr. Sasson was an independent software design consultant. From January 1989 to January 1990, Mr. Sasson was a software engineer at Sybase Corporation, a client/server relational database management software company. From December 1984 to August 1986, Mr. Sasson was a support engineer at Hewlett Packard Company, a manufacturer of computers and related products. Mr. Sasson earned a B.A. degree in Computer Science and a M.S.C. degree in Engineering both from the University of California at Berkeley. Michele L. Axelson has served as the Company's Senior Vice President and Chief Financial Officer since July 1996. From 1979 until 1996, Ms. Axelson held various positions at Arthur Anderson LLP, an international public accounting firm, and was a partner of that firm from 1989 until she joined the Company in July 1996. Ms. Axelson is a Certified Public Accountant and earned a B.S. degree in Business Administration from San Jose State University. Ms. Axelson is also a director of Novadigm, Inc. A. Aaron Omid is a co-founder of the Company and has served as the Company's Vice President, Sales since March 1991, and as Secretary since February 1992. Mr. Aaron Omid also served as President of the Company from March 1991 to October 1991, and as a director of the Company from March 1991 to October 1992. From August 1990 to February 1991, Mr. Aaron Omid was Vice President, Sales of North America at Opus Systems, a computer hardware manufacturer. From May 1986 to August 1990, he held various marketing and sales positions at Sun Microsystems, a workstation manufacturer, most recently serving as Sales Manager. Mr. Aaron Omid earned a B.S. degree in Electrical Engineering from the University of London. Mark J. Barrenechea has served as the Company's Vice President, Product Development since September 1995. From December 1994 to September 1995, Mr. Barrenechea founded and served as Chief Technical Officer at New View, Inc., a company which provides managed Internet access. From October 1993 to December 1994, Mr. Barrenechea was Vice President, Tools and Technology at Tesseract Corporation, a client/server software company. From October 1991 to October 1993, he held various positions at Microway, Inc., a software development company, most recently serving as President and Managing Director of Microway (Europe) Ltd. Mr. Barrenechea earned a B.A. degree in Computer Science from Saint Michael's College and a M.S. degree in Engineering from Boston University. 36 Jeffrey G. Bork has served as the Company's Vice President, Marketing since September 1995. From December 1992 to September 1995, he was a marketing consultant and from December 1991 to December 1992, he was Vice President, Product Management at Slate Corporation, a software company. From April 1989 to June 1991, he was Vice President, Marketing at Informix Software, Inc., a client/server relational database management software company. Mr. Bork earned a B.S. degree in Electrical Engineering from the University of Michigan. Steven Jacob has served as the Company's Vice President, Europe, since April 1996. From August 1994 to April 1996 he served as the Vice President Europe, Africa, and the Middle East for Landmark Graphics Corporation, a software company. From June 1988 to July 1994 he served as the U.K. Sales Director for Ingras U.K. Ltd. Mr. Jacob earned a B.Ed. degree from the University of London. Lyle D. York has served as the Company's Vice President, Customer Services since February 1994. From June 1993 to February 1994, he was President of York and Associates, a customer support consulting firm. From January 1991 to June 1993, Mr. York served as Vice President, Software Services at Integraph Corporation, a manufacturer of interactive computer graphics systems. From January 1984 to January 1991, Mr. York held various positions at Daisy/Cadnetix, Inc., a supplier of computer aided design software and hardware systems, most recently serving as Vice President, Customer Support Division. J. Michael Cline has been a director of the Company since June 1994. Mr. Cline has been a general partner at General Atlantic Partners ("GAP"), a private investment firm, since September 1989. Mr. Cline is also a director of Digital Tools, Inc. and Management Information Technology, Inc. Mr. Cline earned a B.S. degree in Business from Cornell University and a M.B.A. degree from Harvard Business School. Christopher R. Gibbons has been a director of the Company since September 1995. Mr. Gibbons has been the Chief Information Officer at Microsoft Corporation, a packaged software developer, [since July 1993.] From December 1989 to June 1993, Mr. Gibbons was Senior Vice President and Chief Information Officer at Promus Companies, an operator of hotels, casinos and related service providers. Mr. Gibbons earned a B.A. degree in Economics from Lawrence University, and a M.S. degree in Accounting and Information Systems from the J.L. Kellogg Graduate School of Management at Northwestern University. Ronald Abelmann has been a director of the Company since October 1996. Mr. Abelmann has been the President and Chief Executive Officer of WindRiver Systems since March 1994. Prior to March 1994, he was the founding Chief Executive Officer of Vantage Analysis Systems. Prior to founding Vantage Analysis Systems, Mr. Abelmann was Group Vice President and General Manager of the Instrument Division of Varian Associates. Mr. Abelmann holds B.S. and M.S. degrees in Applied Physics from University of California at Los Angeles, and an M.B.A. from Stanford University. Max D. Hopper has been a director of the Company since April 1995. From November 1985 to January 1995, Mr. Hopper served in various positions at American Airlines, a subsidiary of AMR Corporation, an international travel provider, most recently serving as Senior Vice President, Information Systems and Chairman, The SABRE Group. Mr. Hopper is also a director of BBN Planet, Computer Language Research, Convex Corporation, Gartner Group, Inc., Gupta Corporation, USDATA Corporation and VTEL Corporation. Mr. Hopper earned a B.S. degree in Mathematics from the University of Houston. All directors hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. Officers serve at the discretion of the Board. Ori Sasson and A. Aaron Omid are brothers. There are no other family relationships among any of the executive officers or directors of the Company. BOARD COMMITTEES The Board of Directors has a Compensation Committee and an Audit Committee. The Compensation Committee makes recommendations to the Board concerning salaries and incentive compensation for the 37 Company's officers and employees and administers the Company's Option Plan and Employee Stock Purchase Plan. The Audit Committee reviews the results and scope of the audit and other accounting related services and reviews and evaluates the Company's internal audit and control functions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board of Directors consists of Messrs. Cline and Hopper, neither of whom is an officer or employee of the Company. No member of the Compensation Committee or executive officer of the Company has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity. DIRECTOR COMPENSATION Directors receive no cash remuneration for serving on the Board. Non- employee directors are entitled to participate in the Company's Director Plan. See "Management--Employee Benefit Plans--Director Option Plan." EXECUTIVE COMPENSATION The following table sets forth all compensation awarded to, earned by or paid for services rendered to the Company in all capacities during the past two fiscal years ended March 31, 1995 and March 31, 1996, respectively, to the Company's Chief Executive Officer and each of the Company's other most highly compensated executive officers whose total annual salary and bonus exceeded $100,000, and who were serving as executive officers at the end of the 1996 fiscal year, including the Company's former Chief Financial Officer (collectively, the "Named Executive Officers"). The Company does not presently have an employment agreement with any of the Named Executive Officers. SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM COMPENSATION(1) COMPENSATION ------------------ ------------ FISCAL OPTIONS NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) GRANTED --------------------------- ------ --------- -------- ------------ Ori Sasson 1996 $96,000 $40,000 150,000 Chairman, Chief Executive Officer and President 1995 96,000 5,000 -- William C. Leetham(4) 1996 115,008 15,000 50,000 Former Chief Financial Officer 1995 5,000 -- -- A. Aaron Omid 1996 96,000 60,000 -- Vice President, Sales and Secretary 1995 96,000 5,000 -- Lyle D. York 1996 96,000 23,000 15,000 Vice President, Customer Service 1995 91,696 5,000 --
- -------- (1) Excludes certain perquisites and other personal benefits, such as life insurance premiums paid by the Company. These amounts, in the aggregate, did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus for each executive officer. (2) The current annual salaries for Messrs. Sasson, Omid and York are $150,000, $150,000 and $125,000, respectively. (3) Includes bonus amounts earned in the fiscal year indicated even though such bonus amounts may be paid in a subsequent fiscal year. (4) Mr. Leetham joined the Company in March 1995 and left the Company in September 1996. 38 Option Grants and Exercises in Last Fiscal Year The following tables set forth information regarding stock options granted to and exercised by the Named Executive Officers during fiscal 1996, as well as options held by such officers as of March 31, 1996, the last day of the Company's 1996 fiscal year. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ANNUAL RATES INDIVIDUAL GRANTS(1) OF STOCK PRICE ------------------------------------------------- APPRECIATION % OF TOTAL OPTIONS FOR OPTION GRANTED TO EXERCISE OR TERM(2) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------- NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10% ---- ------- ------------------ ----------- ---------- -------- -------- Ori Sasson.............. 50,000 4.5% $ 7.48 9/13/05 $235,207 $596,060 Ori Sasson.............. 100,000 8.9 0.898 4/12/05 56,475 143,118 William C. Leetham...... 50,000 4.5 0.816 4/12/05 25,659 65,025 A. Aaron Omid........... -- -- -- -- -- -- Lyle D. York............ 15,000 1.3 4.00 8/31/05 37,734 95,625
- -------- (1) Each of these options was granted pursuant to the Company's Option Plan and is subject to the terms of such plan. (2) In accordance with the rules of the Securities and Exchange Commission (the "Commission"), shown are the hypothetical gains or "options spreads" that would exist for the respective options. These gains are based on assumed rates of annual compounded stock price appreciation of 5% and 10% from the date the option was granted over the full option term. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Commission and do not represent the Company's estimate or projection of future increases in the price of its Common Stock. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
FISCAL YEAR-END OPTION VALUE --------------------------------------------------- NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN- SHARES OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT ACQUIRED END: FISCAL YEAR END(1): ON VALUE ------------------------- ------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ----------- ------------- ----------- ------------- Ori Sasson.............. -- -- 33,333 116,667 $470,062 $1,316,138 William C. Leetham...... -- -- 12,500 37,500 177,300 531,900 A. Aaron Omid........... -- -- -- -- -- -- Lyle D. York............ 5,000 70,920 15,833 34,167 224,575 436,865
- -------- (1) The values for "in-the-money" options represent the difference between the exercise price of the respective options and the closing price of the Company's Common Stock on March 31, 1996, which was $15.00 per share. EMPLOYEE BENEFIT PLANS 1991 Stock Option Plan The Company's 1991 Stock Option Plan (the "Option Plan") was adopted by the Board of Directors and the shareholders in November 1991 and amended in October 1992, April 1995, September 1995 and May 1996. An aggregate of 3,700,000 shares of Common Stock have been reserved for issuance under the Option Plan. The Option Plan provides for the grant to employees of the Company of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant of nonstatutory stock options to employees and consultants of the Company. The Option Plan may be administered by the Board or a committee approved by the Board in a manner that complies with Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Currently, the Option Plan is administered 39 by the Compensation Committee of the Board, which determines the terms of options and rights granted, including the exercise price, number of shares subject to the option or right and the exercisability thereof. Options granted under the Option Plan are not transferable other than by will or the laws of descent or distribution, and each option is exercisable during the lifetime of the recipient only by such person. The exercise price of all incentive stock options granted under the Option Plan must be at least equal to the fair market value of the shares of Common Stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of stock of the Company, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the maximum term of the option must not exceed five years. The term of all other options granted under the Option Plan may not exceed ten years. Director Option Plan The Company's Director Option Plan (the "Director Plan") provides for the grant of nonstatutory stock options to nonemployee directors of the Company. The Director Plan was approved by the Board and the shareholders in September 1995, at which time a total of 75,000 shares of Common Stock were authorized for issuance thereunder. The Director Plan is currently administered by the Board of Directors. Under the Director Plan, on the date of each nonemployee director's annual reelection to the Board, each director who has been a nonemployee director for at least six months will automatically receive a nonstatutory option to purchase 3,750 shares of the Company's Common Stock. In addition, each new nonemployee director is automatically granted a nonstatutory option to purchase 15,000 shares of Common Stock on the date upon which such person first becomes a nonemployee director. Options granted under the Director Plan have a term of ten years unless terminated sooner upon termination of the optionee's status as a director or otherwise pursuant to the Director Plan. Such options are not transferable by the optionee other than by will, to members of the optionee's family (or a trust for the benefit of the optionee or members of the optionee's family) or in certain other limited circumstances of transfer, and each option is exercisable during the lifetime of the director only by such director or a permitted transferee. The exercise price of each option granted under the Director Plan is equal to the fair market value of the Common Stock on the date of grant. The initial 15,000 share option grant vests as to 25% of the shares on the first anniversary of the date of grant and as to an additional 1/48th of the shares subject to such option each month thereafter. The 3,750 share annual grant vests in full four years following the grant date. In August, 1996, Messrs. Cline, Gibbons and Hopper were each granted options to purchase 3,750 shares under the Director Plan at an exercise price of $18.00 per share and in October 1996, Mr. Abelmann was granted an option to purchase 15,000 shares under the Director Plan at an exercise price of $39.25 per share. In the event of merger of the Company with or into another corporation or a consolidation, acquisition of assets or other change in control transaction involving the Company, each option under the Director Plan may be assumed by the successor corporation, and in the event the successor corporation does not assume each option, the option shall become fully vested and exercisable for at least 30 days after written notice to the holder of the change in control event. Unless terminated sooner, the Director Plan will terminate in 2005. The Board has authority to amend or terminate the Director Plan, provided no such action may impair the rights of any optionee without the optionee's consent. Employee Stock Purchase Plan The Company's Employee Stock Purchase Plan was adopted by the Board and the shareholders in September 1995, and became effective in November 1995. As of September 30, 1996, a total of 42,080 shares of Common Stock have been issued under the Purchase Plan and 157,920 shares of Common Stock have been reserved for issuance under the Purchase Plan. The Purchase Plan, which is intended to qualify under Section 423 of the Code, permits multiple overlapping offering periods of up to 27 months each, each of which may consist of one or more purchase periods. The Purchase Plan was implemented with overlapping offering periods of approximately 12 months duration, with two purchase periods of approximately six months each within any 40 offering period. The Purchase Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee has the authority to change the commencement date of future offering periods. All individuals employed by the Company or its subsidiaries on the commencement date of an offering period are eligible to participate in the Purchase Plan if they are employed by the Company for at least 20 hours per week and more than five months per calendar year, provided that any individual who holds 5% or more of the Company's Common Stock (directly or upon the exercise of options) is not eligible to participate. The Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions, which may not exceed 10% of an employee's total compensation, including bonuses and sales commissions (or, if lower, $25,000 in any calendar year), at a price equal to 85% of the lower of the closing sale price for the Common Stock reported on the Nasdaq National Market at the beginning of the offering period and the end of each respective purchase period within the offering period. Employees may end their participation in the offering any time during the offering period, and participation ends automatically upon termination of employment with the Company. Unless terminated sooner, the Purchase Plan will terminate ten years from its effective date. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Bylaws provide that the Company shall indemnify its officers and directors and may indemnify its employees and other agents to the fullest extent provided by California law, including those circumstances where indemnification would otherwise be discretionary under California law. The Company believes that indemnification under its Bylaws covers at least negligence on the part of indemnified parties. The Bylaws authorize the use of indemnification agreements and the Company has entered into such agreements with each of its directors and officers. The Company plans to obtain officer and director liability insurance with respect to certain matters, including matters arising under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. At present, there is no pending litigation or proceeding involving any director or officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification. 41 CERTAIN TRANSACTIONS In June 1994, the Company sold shares of its Series B-1 Preferred Stock at $3.00 per share to the following investors: 914,033 shares to GAP 13; 85,967 shares to GAP Coinvestment; 16,667 shares to Bahram Nour-Omid and Iraj Barkohanai, as tenants in common; and 13,333 shares to the Imperial Trust, as Custodian for Iraj Barkohanai. Michael Cline, a director of the Company, is a general partner of GAP 13 and GAP Coinvestment. In June 1994, in connection with the Series B-1 Preferred Stock financing, the Company issued to the Series B-1 Preferred Stock investors warrants to purchase shares of Series B-2 Preferred Stock at an exercise price of $4.00 per share. Specifically, GAP 13, GAP Coinvestment, Bahram Nour-Omid and Iraj Barkohanai, as tenants in common, and the Imperial Trust, as Custodian for Iraj Barkohanai, received warrants to acquire up to 228,508 shares, 21,492 shares, 4,167 shares and 3,333 shares of Series B-2 Preferred Stock, respectively. The warrants were exercised in full in November 1995. Each share of Series A, Series B-1 and Series B-2 Preferred Stock converted into one share of Common Stock upon the closing of the Company's initial public offering in November 1995. Certain holders of the Common Stock issued upon conversion of the Series A, Series B-1 and Series B-2 Preferred Stock are entitled to certain rights to have their shares registered under the Securities Act. See "Description of Capital Stock--Registration Rights." The Company and Microsoft Corporation are parties to a software license agreement dated January 1, 1995. In fiscal 1996, the Company recognized approximately $465,000 of revenues from such contract. Christopher Gibbons, a director of the Company, is an officer of Microsoft Corporation. 42 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of September 30, 1996, and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by (i) each person (or group of affiliated persons) who is known by the Company to own beneficially 5% or more of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers, (iv) all directors and officers as a group and (v) each Selling Shareholder. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.
BENEFICIAL BENEFICIAL OWNERSHIP PRIOR NUMBER OWNERSHIP AFTER TO OFFERING OF OFFERING(1) 5% BENEFICIAL OWNERS, DIRECTORS ----------------- SHARES ----------------- AND NAMED EXECUTIVE OFFICERS NUMBER PERCENT OFFERED NUMBER PERCENT ------------------------------- ------ ------- ------- --------- ------- Ori Sasson(2)(3)(4)............... 1,324,582 11.0% 197,750 1,126,832 8.7% A. Aaron Omid(2)(4)(5)............ 998,000 8.4 197,750 800,250 6.2 Sharam Sasson(4)(6)(7)............ 1,035,000 8.7 197,750 837,250 6.5 Bahram Nour-Omid(4)(8)(9)......... 851,704 7.0 197,750 653,954 5.1 David C. Schwab(10)(11)........... 695,000 5.8 50,000 645,000 5.0 Lyle D. York(2)................... -- * -- -- -- General Atlantic Partners(12) 125 East 56th Street New York, NY 10022 J. Michael Cline................. 2,366,666 18.0 150,000 2,216,666 15.7 Christopher R. Gibbons............ -- * -- -- -- Ronald Abelmann................... -- * -- -- * Max D. Hopper(13)................. 10,937 * -- 10,937 * William C. Leetham................ 563 * -- 563 * All executive officers and directors as a group (11 persons)(14)................. 4,287,579 35.7 404,500 3,883,079 29.8 OTHER SELLING SHAREHOLDERS - -------------------------- Mark J. Barrenechea(15)........... 53,333 * 7,500 45,833 * Jeffrey G. Bork(16)............... 105,728 * 1,500 104,228 *
- -------- * Less than one percent. (1) Assumes no exercise of the underwriters' over-allotment option. If the over-allotment option is exercised in full, certain shareholders will sell an aggregate of 300,000 shares of Common Stock. Specifically, (i) Ori Sasson will sell 60,000 shares and beneficially own 1,066,832 shares, or 8.2% of the Company's outstanding Common Stock, after completion of the offering, (ii) A. Aaron Omid will sell 60,000 shares and beneficially own 740,250 shares, or 5.7% of the Company's outstanding Common Stock, after completion of the offering, (iii) Sharam Sasson will sell 60,000 shares and beneficially own 777,250 shares, or 6.0% of the Company's outstanding Common Stock, after completion of the offering, (iv) Bahram Nour-Omid will sell 60,000 shares and beneficially own 593,954 or 4.6% of the Company's outstanding Common Stock, (v) General Atlantic Partners ("GAP") will sell 60,000 shares and beneficially own 2,156,666 shares, or 15.2% of the Company's outstanding Common Stock, after completion of the offering. (2) The shareholder's address is c/o Scopus Technology, Inc., 1900 Powell Street, Suite 700, Emeryville, CA 94608. (3) Includes 290,000 shares subject to options held by GAP and 64,582 shares issuable upon the exercise of options held by Mr. Ori Sasson which are exercisable within 60 days of September 30, 1996. Also includes 570,000 held by Mr. Ori Sasson and Ms. Susan Sasson as trustees for their own benefit and 400,000 shares held in trust by Mr. Ori Sasson as trustee for the benefit of Mr. Sharam Sasson's minor children. Excludes 400,000 shares held in trust for the benefit of Mr. Ori Sasson's minor children. Mr. Sharam Sasson is the trustee of such trust and Mr. Ori Sasson disclaims beneficial ownership of such shares. 43 (4) Messrs. Ori Sasson, A. Aaron Omid, Sharam Sasson and Bahram Nour-Omid are brothers. (5) Includes 290,000 shares subject to options held by GAP. (6) Mr. Sharam Sasson's address is c/o At Large Software, Inc., 5801 Christie Avenue, Suite 590, Emeryville, CA 94608. (7) Includes 290,000 shares subject to options held by GAP. Also includes 345,000 shares held in trust by Mr. Sharam Sasson and Ms. Fariba Sasson as trustees for their own benefit and 400,000 shares held in trust by Mr. Sharam Sasson as trustee for the benefit of Mr. Ori Sasson's minor children. Excludes 400,000 shares held in trust for the benefit of Mr. Sharam Sasson's minor children. Mr. Ori Sasson is the trustee of such trust and Mr. Sharam Sasson disclaims beneficial ownership of such shares. (8) Dr. Bahram Nour-Omid's address is 101 Lombard Street #207W, San Francisco, CA 94596. (9) Includes 290,000 shares subject to options held by GAP and 14,583 shares issuable upon the exercise of options held by Dr. Nour-Omid which are exercisable within 60 days of September 30, 1996. Excludes 450,000 shares held in trust for the benefit of Dr. Nour-Omid's minor children. Mr. Iraj Barkohanai is the trustee of such trust and Dr. Nour-Omid disclaims beneficial ownership of such shares. (10) Mr. David C. Schwab's address is c/o Sierra Ventures, 3000 Sand Hill Road, Building 4, Suite 210, Menlo Park, CA 94025. (11) Includes 40,000 shares subject to options held by GAP. (12) Includes 1,066,371 shares held by General Atlantic Partners 13, L.P. and 100,295 shares held by GAP Coinvestment Partners, L.P. Includes 1,200,000 shares transferable to GAP upon the exercise of options held by funds affiliated with GAP. The general partner of General Atlantic Partners 13, L.P. is General Atlantic Partners, a New York general partnership. The general partners of General Atlantic Partners are Steven A. Denning, David C. Hodgson, Stephen P. Reynolds, J. Michael Cline, William O. Grabe and William E. Ford. The same individuals are the general partners of GAP Coinvestment Partners, L.P. Mr. Cline disclaims beneficial ownership of shares owned by General Atlantic Partners 13, L.P., GAP Coinvestment Partners, L.P. and the other GAP funds except to the extent of his pecuniary interest therein. (13) Includes 5,937 shares issuable upon the exercise of options held by Mr. Hopper which are exercisable within 60 days of September 30, 1996. (14) Includes 105,413 shares issuable upon the exercise of options which are exercisable within 60 days of September 30, 1996 and 1,200,000 shares transferable to GAP from shareholders of the Company who are not officers or directors upon the exercise of options held by funds affiliated with GAP. (15) Includes 8,333 shares issuable upon the exercise of options held by Mr. Barrenechea which are exercisable within 60 days of September 30, 1996. (16) Includes 18,228 shares issuable upon the exercise of options held by Mr. Bork which are exercisable within 60 days of September 30, 1996. 44 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $0.001 par value, and 2,500,000 shares of Preferred Stock, $0.01 par value. COMMON STOCK The holders of Common Stock are entitled to one vote per share on all matters to be voted on by the shareholders, and are entitled to cumulative voting with respect to the election of directors. Subject to preferences that may be applicable to outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive ratably such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non- assessable, and the shares of Common Stock to be outstanding upon completion of this offering will be fully paid and non-assessable. PREFERRED STOCK The Company is authorized to issue 2,500,000 shares of undesignated Preferred Stock. The Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock and to fix the number of shares constituting any series and the designations of such series, without any further vote or action by the shareholders. The Board of Directors, without shareholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. REGISTRATION RIGHTS Pursuant to the Amended and Restated Rights Agreement dated as of June 10, 1994 among the Company and certain holders of its securities (the "Rights Agreement"), the holders of approximately 2.2 million shares of Common Stock (the "Registrable Securities"), including certain shares which may be sold by Selling Shareholders upon exercise in full of the Underwriters' over-allotment option, are entitled to certain rights with respect to the registration of the Registrable Securities under the Securities Act. Under the Rights Agreement, if the Company proposes to register any of its securities under the Securities Act, either for its own account or the account of other shareholders, the holders of Registrable Securities are entitled to notice of such registration and are entitled to include their Registrable Securities therein. In addition, if the Company receives a request from holders of at least 25% of the Registrable Securities (or such lesser amount if the offering size would exceed $5 million), the Company is obligated to cause such shares to be registered under the Securities Act. Holders of Registrable Securities have the right to cause two such demand registrations. Further, holders of Registrable Securities may require the Company to register all or a portion of their Registrable Securities on Form S-3, provided such form is available for use by the Company, subject to certain conditions and limitations. The holders' rights with respect to all such registrations are subject to certain conditions, including the right of the underwriters to limit the number of shares included in any such registration. With respect to all registrations other than those on Form S-3, the Company has agreed to pay all expenses related thereto, except for underwriting discounts and commissions and stock transfer taxes. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Boston Equiserve. 45 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 12,926,521 shares of Common Stock (assuming no exercise of options after September 30, 1996). Of these shares, in addition to the 2,000,000 shares sold in this offering and shares currently traded or available for sale in the open market, an aggregate of approximately 5,200,000 shares will become eligible for sale 90 days after the date of this Prospectus upon the expiration of certain lock-up agreements with the Company and the Underwriters, subject in certain cases to certain volume and other resale restrictions under Rule 144. The holders of approximately 5,200,000 shares of the Company's Common Stock, including all of the Company's officers, directors and each of the Selling Shareholders, have agreed with the Company or the Representatives that, until 90 days after the Effective Date, they will not sell, offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase shares of Common Stock, or any securities convertible or exchangeable for shares of Common Stock, owned directly by such holders or with respect to which they have power of disposition. The Company has also agreed not to sell, offer to sell, contract to sell, grant any option to purchase or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or any rights to acquire Common Stock for a period of 90 days after the Effective Date without the prior written consent of Morgan Stanley & Co. Incorporated, subject to certain limited exceptions. The lock-up agreements may be released at any time as to all or any portion of the shares subject to such agreements at the sole discretion of Morgan Stanley & Co. Incorporated. 46 UNDERWRITERS Under the terms and subject to conditions contained in an Underwriting Agreement dated the date hereof, the Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Montgomery Securities, Donaldson, Lufkin & Jenrette Securities Corporation and UBS Securities LLC are serving as Representatives, have severally agreed to purchase, and the Company and the Selling Shareholders have agreed to sell to the Underwriters, severally, the respective number of shares of Common Stock set forth opposite their respective names below:
NUMBER OF NAME SHARES ---- --------- Morgan Stanley & Co. Incorporated............................... Montgomery Securities .......................................... Donaldson, Lufkin & Jenrette Securities Corporation............. UBS Securities LLC.............................................. --------- Total......................................................... 2,000,000 =========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel, and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Common Stock offered hereby directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or to certain other dealers. Certain Selling Shareholders have granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an additional 300,000 shares of Common Stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, incurred in the sale of the shares of Common Stock offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered hereby. The Company, the Selling Shareholders and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended. 47 The Company has agreed not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, for a period of 90 days after the date of this Prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated, subject to certain limited exceptions. See "Shares Eligible for Future Sale" for a description of certain arrangements by which the Selling Shareholders, officers and directors of the Company have agreed not to sell or otherwise transfer the Common Stock or convertible securities of the Company held by them for up to 90 days after the date of this Prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated, Montgomery Securities and UBS Securities LLC were the representatives of the several underwriters in the Company's initial public offering of 2,760,000 shares of Common Stock in November 1995, for which they received customary underwriting discounts and commissions. In connection with the offering, certain Underwriters and selling group members (if any) or their respective affiliates who are qualified registered market makers on the Nasdaq National Market, may engage in passive market making transactions in the Common Stock of the Company on the Nasdaq National Market in accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as amended, during the two business day period before commencement of offers or sales of the Common Stock. The passive market making transactions must comply with applicable price and volume limits and be identified as such. In general, a passive market maker may display its bid at a price not in excess of the highest independent bid for the securities. If all independent bids are lowered below the passive market maker's bid, however, such bid of the passive market maker must then be lowered when certain purchase limits are exceeded. Net purchases by a passive market maker on each day are generally limited to a specified percentage of the passive market maker's average daily trading volume in the Common Stock during a price period and must be discontinued when such limit is reached. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company and the Selling Shareholders by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Morrison & Foerster LLP, Palo Alto, California. EXPERTS The consolidated balance sheets as of March 31, 1995 and 1996 and the consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1996, included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of such firm as experts in auditing and accounting. 48 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules to the Registration Statement. For further information with respect to the Company and such Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed as a part of the Registration Statement. Statements contained in this Prospectus concerning the contents of any contract or any other document referred to are not necessarily complete, and reference is made in each instance to the copy of such contract or document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference to such exhibit. A copy of the Registration Statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the Commission. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company can be inspected and copied (at prescribed rates) at the Commission's Public Reference Section, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the New York Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048, and the Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. In addition, the Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. Quotations relating to the Company's Common Stock appear on the Nasdaq National Market and such reports, proxy statements and other information concerning the Company can also be inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006. 49 SCOPUS TECHNOLOGY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Coopers & Lybrand L.L.P., 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
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Scopus Technology, Inc.: We have audited the accompanying consolidated balance sheets of Scopus Technology, Inc. and Subsidiaries as of March 31, 1995 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Scopus Technology, Inc. and Subsidiaries as of March 31, 1995 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Oakland, California April 30, 1996 F-2 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, --------------- SEPTEMBER 30, ASSETS 1995 1996 1996 ------ ------- ------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents..................... $ 3,001 $21,792 $17,411 Investments................................... 552 7,462 10,701 Accounts receivable, net of allowance for doubtful accounts of $349, $665 and $1,300 for March 31, 1995 and 1996 and September 30, 1996, respectively............. 5,653 7,530 11,453 Prepaid expenses and other.................... 236 648 761 Deferred income taxes......................... 321 574 1,103 ------- ------- ------- Total current assets........................ 9,763 38,006 41,429 Property and equipment, net..................... 1,658 2,734 5,306 Other assets.................................... 3 841 1,607 ------- ------- ------- Total assets................................ $11,424 $41,581 $48,342 ======= ======= ======= LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY ------------------------------------------------ Current liabilities: Accounts payable.............................. $ 733 $ 1,561 $ 2,779 Accrued liabilities........................... 1,558 2,544 3,601 Income taxes payable.......................... 273 740 839 Deferred revenue.............................. 1,528 3,270 3,663 ------- ------- ------- Total current liabilities................... 4,092 8,115 10,882 Deferred tax liabilities........................ 32 11 -- ------- ------- ------- Total liabilities........................... 4,124 8,126 10,882 ------- ------- ------- Commitments Mandatorily redeemable convertible preferred stock, Series A, $0.01 par value; issued and outstanding 1,590,910 shares for March 31, 1995 and none at March 31 and September 30, 1996.... 1,400 -- -- ------- ------- ------- Shareholders' equity: Convertible preferred stock, Series B, $0.01 par value; issued and outstanding 1,263,333 shares at March 31, 1995 and none at March 31 and September 30, 1996........................ 13 -- -- Preferred stock, $0.01 par value; 2,500,000 shares authorized; none issued and outstanding................................... -- -- -- Common stock, $0.001 par value; authorized 50,000,000; issued and outstanding, 6,313,718, 11,705,557 and 11,926,521 shares at March 31, 1995 and 1996, and September 30, 1996, respectively.................................. 6 12 12 Additional paid-in capital..................... 4,096 29,944 31,509 Deferred compensation.......................... -- (271) (179) Cumulative translation adjustment.............. 1 (4) (5) Retained earnings.............................. 1,784 3,774 6,123 ------- ------- ------- Total shareholders' equity.................. 5,900 33,455 37,460 ------- ------- ------- Total liabilities, mandatorily redeemable preferred stock and shareholders' equity... $11,424 $41,581 $48,342 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, ------------------------ ---------------- 1994 1995 1996 1995 1996 ------ ------- ------- ------- ------- (UNAUDITED) Revenues: Licenses......................... $5,011 $11,097 $19,753 $ 7,704 $17,424 Services and maintenance......... 1,524 4,153 8,843 4,345 6,380 ------ ------- ------- ------- ------- Total revenues................. 6,535 15,250 28,596 12,049 23,804 ------ ------- ------- ------- ------- Cost of revenues: Licenses......................... 305 601 874 626 839 Services and maintenance......... 554 3,340 6,915 4,028 4,178 ------ ------- ------- ------- ------- Total cost of revenues......... 859 3,941 7,789 4,654 5,017 ------ ------- ------- ------- ------- Gross margin....................... 5,676 11,309 20,807 7,395 18,787 ------ ------- ------- ------- ------- Operating expenses: Sales and marketing.............. 2,754 5,937 10,565 4,051 9,703 Research and development......... 1,532 2,716 5,382 2,283 3,860 General and administrative....... 714 1,170 2,169 752 2,050 ------ ------- ------- ------- ------- Total operating expenses....... 5,000 9,823 18,116 7,086 15,613 ------ ------- ------- ------- ------- Income from operations......... 676 1,486 2,691 309 3,174 Interest expense................... (33) (16) (22) (6) -- Interest income.................... 55 139 515 63 605 Other nonoperating expense......... -- (64) (25) (6) (29) ------ ------- ------- ------- ------- Income before income taxes..... 698 1,545 3,159 360 3,750 Provision for income taxes......... 131 572 1,169 133 1,401 ------ ------- ------- ------- ------- Net income..................... $ 567 $ 973 $ 1,990 $ 227 $ 2,349 ====== ======= ======= ======= ======= Net income per share............... $ 0.07 $ 0.10 $ 0.18 $ 0.02 $ 0.18 ====== ======= ======= ======= ======= Weighted average common and common equivalent shares................. 8,476 9,683 10,965 10,786 12,757 ====== ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT NUMBERS OF SHARES AND PER SHARE DATA)
SERIES B CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL ------------------ ----------------- PAID-IN DEFERRED TRANSLATION RETAINED SHAREHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENT EARNINGS EQUITY ---------- ------ ---------- ------ ---------- ------------ ----------- -------- ------------- Balances at March 31, 1993.................. -- $ -- 5,246,743 $ 5 $ 200 $ -- $-- $ 244 $ 449 Common shares issued for cash upon exercise of options............ -- -- 1,028,999 1 109 -- -- -- 110 Net income............. -- -- -- -- -- -- -- 567 567 ---------- ---- ---------- --- ------- ----- --- ------ ------- Balances at March 31, 1994.................. -- -- 6,275,742 6 309 -- -- 811 1,126 Common shares issued for cash upon exercise of options............ -- -- 37,976 -- 31 -- -- -- 31 Preferred stock issued for cash at $3.00 per share, net of issuance costs of $21.......... 1,263,333 13 -- -- 3,756 -- -- -- 3,769 Net income............. -- -- -- -- -- -- -- 973 973 Translation adjustment. -- -- -- -- -- -- 1 -- 1 ---------- ---- ---------- --- ------- ----- --- ------ ------- Balances at March 31, 1995.................. 1,263,333 13 6,313,718 6 4,096 -- 1 1,784 5,900 Common shares issued for cash upon exercise of options............ -- -- 90,653 -- 74 -- -- -- 74 Issuance of Common Stock in public offering, net of issuance costs of $968.................. -- -- 2,225,000 2 23,861 -- -- -- 23,863 Conversion of mandatorily redeemably preferred stock, Series A.............. -- -- 1,590,910 2 1,398 -- -- -- 1,400 Conversion of Series B preferred stock....... (1,263,333) (13) 1,263,333 1 12 -- -- -- -- Common stock issued for cash on exercise of Series B-2 warrants... -- -- 34,167 -- 137 -- -- -- 137 Common stock issued on non-cash exercise of Series B-2 warrants... -- -- 187,776 1 (1) -- -- -- -- Issuance of stock options below fair value................. -- -- -- -- 367 (367) -- -- -- Amortization of deferred compensation related to stock options............... -- -- -- -- -- 96 -- -- 96 Net income............. -- -- -- -- -- -- -- 1,990 1,990 Translation adjustment. -- -- -- -- -- -- (5) -- (5) ---------- ---- ---------- --- ------- ----- --- ------ ------- Balances at March 31, 1996.................. -- -- 11,705,557 12 29,944 (271) (4) 3,774 33,455 Common shares issued for cash upon exercising of options (unaudited)........... -- -- 178,884 -- 225 -- -- -- 225 Issuance of stock under Employee Stock Purchase Plan (unaudited)........... -- -- 42,080 -- 429 -- -- -- 429 Tax benefit of disqualifying dispositions (unaudited)........... -- -- -- -- 955 -- -- -- 955 Cancellation of stock options issued below fair value (unaudited) -- -- -- -- (44) 44 -- -- -- Amortization of deferred compensation in relation to stock options (unaudited)... -- -- -- -- -- 48 -- -- 48 Net income (unaudited). -- -- -- -- -- -- -- 2,349 2,349 Translation adjustments (unaudited)........... -- -- -- -- -- -- (1) -- (1) ---------- ---- ---------- --- ------- ----- --- ------ ------- Balances at September 30, 1996 (unaudited).. -- -- 11,926,521 $12 $31,509 $(179) $(5) $6,123 $37,460 ========== ==== ========== === ======= ===== === ====== =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30 ----------------------- ----------------- 1994 1995 1996 1995 1996 ------ ------ ------- -------- -------- (UNAUDITED) ----------- Cash flows from operating activities: Net income....................... $ 567 $ 973 $ 1,990 $ 227 $ 2,349 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.... 187 519 947 399 830 Noncash charges (credits), net... (216) 193 (126) (151) 429 Changes in assets and liabilities: (Increase) decrease in receivables.................... (2,375) (2,322) (1,882) (2,438) (3,923) Decrease (increase) in prepaid expenses and other............. (261) 71 (1,167) (171) (893) Decrease (increase) in deferred income taxes................... (148) (138) (357) 24 (526) Increase in accounts payable.... 371 286 828 248 1,218 Increase in accrued liabilities. 456 875 986 153 1,057 Increase (decrease) in income taxes payable.................. 187 17 467 (207) 99 Increase in deferred revenue.... 679 686 1,742 1,043 393 ------ ------ ------- ------- -------- Net cash provided by (used in) operating activities............ (553) 1,160 3,428 (873) 1,033 ------ ------ ------- ------- -------- Cash flows used in investing activities: Purchase of investments.......... (42) -- (7,466) -- (5,944) Proceeds from sale of investments..................... 450 -- 555 555 2,700 Payments for purchase of fixed assets.......................... (492) (1,516) (1,815) (605) (2,828) Proceeds from disposal of fixed assets.......................... -- 14 15 3 4 ------ ------ ------- ------- -------- Net cash used in investing activities...................... (84) (1,502) (8,711) (47) (6,068) ------ ------ ------- ------- -------- Cash flows from financing activities: Proceeds from exercise of common stock options and purchases under employee stock plans...... 110 31 74 11 654 Proceeds from issuance of preferred stock................. 400 3,769 -- -- -- Proceeds from initial public offering, net................... -- -- 23,863 -- -- Proceeds from exercise of warrants........................ -- -- 137 -- -- (Repayments) borrowings under line of credit, net............. 350 (750) -- -- -- ------ ------ ------- ------- -------- Net cash provided by financing activities...................... 860 3,050 24,074 11 654 ------ ------ ------- ------- -------- Net increase (decrease) in cash and cash equivalents............ 223 2,708 18,791 (909) (4,381) Cash and cash equivalents at beginning of period............... 70 293 3,001 3,001 21,792 ------ ------ ------- ------- -------- Cash and cash equivalents at end of period............................ $ 293 $3,001 $21,792 $ 2,092 $ 17,411 ====== ====== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION: Scopus Technology, Inc. and its subsidiaries (the "Company") is a leading provider of client/server software solutions for the customer information management market. The Company's applications that automate external customer support, the product design change process, sales and marketing activities and internal help desk support. The Company's applications are designed to enable organizations to build a customer information knowledgebase that can be accessed and utilized by individuals throughout the enterprise to improve the effectiveness and efficiency of customer support in order to increase customer satisfaction. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements of the Company include the accounts of Scopus Technology, Inc. and its wholly-owned subsidiaries, Scopus Technology U.K. Limited, Scopus Technology Canada Inc. and Scopus Technology France SARL. All significant intercompany accounts and transactions are eliminated in consolidation. Unaudited Interim Financial Information: The consolidated financial statements as of and for the six month periods ended September 30, 1995 and 1996 are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for such periods. The results of operations for the six months ended September 30, 1996 are not necessarily indicative of results to be expected for the full fiscal year. Revenue Recognition: The Company recognizes revenue in accordance with the provisions of Statement of Position 91-1 "Software Revenue Recognition." The Company generates revenue primarily from licensing the rights to use its software products to end users and to a lesser extent from sublicense fees from resellers. The Company also generates revenues from consulting, training and post-contract support ("maintenance") services performed for customers who license its products. Revenues from perpetual software license agreements are recognized as revenue upon receipt of an executed license agreement, (or an unconditional purchase order under an existing license agreement), and shipment of the software, if there are no significant post-delivery obligations and collection of the receivables is probable. Revenues from maintenance are recognized ratably over the term of the maintenance period, which is typically one year. If maintenance services are included free of charge or discounted in a license agreement, such amounts are unbundled from the license fee at their fair market value based upon the value established by independent sales of such maintenance to customers. Consulting and training revenues are generally recognized as the services are performed. Consulting services are typically performed under separate service agreements and are usually performed on a time and materials basis. Such services primarily consist of implementation services related to the installation of the Company's products and do not include significant customization to or development of the underlying software code. F-7 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Cost of Revenues: Cost of licenses includes the cost of media, product packaging, documentation and other production costs, and third-party royalties. Cost of services consists primarily of salaries, benefits and allocated overhead costs related to consulting, training and customer support personnel, including cost of services provided by third party consultants engaged by the Company. Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company's cash and cash equivalents are maintained with a bank and a brokerage institution. Investments: At March 31 and September 30, 1996, the Company's investments consisted primarily of treasury notes and municipal notes and bonds. Remaining maturities at the time of purchase are generally less than one year. At March 31, 1995, the Company's investments consisted of shares of a mutual fund which invests in securities guaranteed by the U.S. government or its agencies with an average remaining maturity of not more than five years. Effective April 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." This statement requires that securities be classified as "held to maturity," "available for sale" or "trading," and the securities in each classification be accounted for at either amortized cost or fair market value, depending upon their classification. The Company has the intent and ability to hold all investments until maturity. Therefore, all such investments are classified as held to maturity investments and carried at amortized cost in the accompanying financial statements. At March 31, 1996, the amortized cost of the Company's investments approximated fair value. As of March 31, 1996, the Company's investments consisted of the following (in thousands):
MATURITY OF AMORTIZED SECURITIES COST WITHIN ONE BASIS YEAR --------- ----------- Municipal debt securities........................... $6,462 $6,462 U.S. Treasury debt securities....................... 1,000 1,000 ------ ------ $7,462 $7,462 ====== ======
Software Development Costs: The Company anticipates capitalizing eligible software development costs upon the establishment of technological feasibility which the Company has defined as completion of a working model. The period of time beginning with the establishment of a working model and ending when a product is offered for sale is typically very short. Accordingly, costs which were eligible for capitalization were insignificant and, thus the Company has charged all software development costs to research and development expense in the accompanying consolidated statements of operations. F-8 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Property and Equipment: Property and equipment is stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of two to three years for computer hardware and software, five years for furniture and fixtures, and over the remaining term of the principal facility lease for leasehold improvements. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. Maintenance and repairs are charged to operations as incurred. Income Taxes: Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Under SFAS No. 109, deferred income tax liabilities and assets are determined based on the difference between the financial reporting amounts and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates in effect for the years in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Foreign Currency Translations and Transactions: The accounts of the Company's U.K., Canadian and French subsidiaries are translated into U.S. dollars at period end rates of exchange. Revenues and expenses are translated at average rates for the period. The resultant translation adjustments are shown as a separate component of shareholders' equity. Gains and losses from foreign currency transactions are included in the determination of net income and are not material. Computation of Earnings Per Share: Net income per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Fully diluted and primary earnings per common share are the same amounts for each of the periods presented. Dilutive common equivalent shares consist of stock options and warrants (using the treasury stock method) and convertible preferred stock. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common shares issued by the Company during the twelve months immediately preceding an offering date, plus the number of common equivalent shares which became issuable during the same period pursuant to the grant of stock options (using the treasury stock method and the proposed public offering price), have been included in the calculation of common and common equivalent shares as if they were outstanding for all periods presented. Convertible preferred stock issued and outstanding is treated as if converted to common stock on their respective dates of original issuance. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Accounting for Stock-Based Compensation: In October 1995, Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," (FAS 123) was issued and is effective for the Company's 1997 fiscal year. The Company intends to continue to account for employee stock options in accordance with APB Opinion No. 25 and will make the pro forma disclosures required by FAS 123 in fiscal 1997. F-9 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company has investment policies that limit the amount of credit exposure to any one issuer and restrict placement of these investments to issuers evaluated as credit worthy. The Company's customer base consists primarily of large, well established companies. Five customers accounted for approximately 40%, 41% and 36% of net accounts receivable as of March 31, 1995 and 1996 and September 30, 1996, respectively. The Company provides reserves for credit losses which have not been significant to date. In fiscal 1994, one customer accounted for 12% of total revenues. In fiscal 1995 and 1996 and for the six month periods ended September 30, 1995 and 1996, there were no customers that accounted for greater than 10% of revenues. 4. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consist of the following:
MARCH 31, SEPTEMBER 30, --------------- 1996 1995 1996 (UNAUDITED) ------ ------- ------------- (IN THOUSANDS) Computer equipment and software....... $1,742 $ 3,484 $ 6,363 Furniture and fixtures................ 493 740 1,095 Leasehold improvements................ 43 70 236 ------ ------- ------- 2,278 4,294 7,694 Less accumulated depreciation and amortization......................... (620) (1,560) (2,388) ------ ------- ------- Total property and equipment, net... $1,658 $ 2,734 $ 5,306 ====== ======= =======
5. INCOME TAXES: The components of the provision for income taxes are as follows:
YEAR ENDED MARCH 31, -------------------- 1994 1995 1996 ----- ----- ------ (IN THOUSANDS) Federal: Current........................................... $ 240 $ 565 $1,200 Deferred.......................................... (120) (130) (335) ----- ----- ------ 120 435 865 ----- ----- ------ State: Current........................................... 39 129 283 Deferred.......................................... (28) (8) (22) ----- ----- ------ 11 121 261 ----- ----- ------ Foreign--current.................................... -- 16 43 ----- ----- ------ Provision for income taxes........................ $ 131 $ 572 $1,169 ===== ===== ======
F-10 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The effective income tax rate differs from the statutory federal income tax rate for the following reasons:
YEAR ENDED MARCH 31, ----------------- 1994 1995 1996 ----- ---- ---- Statutory federal income tax rate...................... 34.0% 34.0% 34.0% States taxes, net of federal income tax benefit........ 6.1 6.1 6.1 Utilization of research and development credits........ (18.0) (7.6) (4.1) Other.................................................. (3.3) 4.5 1.0 ----- ---- ---- 18.8% 37.0% 37.0% ===== ==== ====
Significant components of the Company's deferred tax balances are as follows:
MARCH 31, ------------ 1995 1996 ----- ----- (IN THOUSANDS) Deferred tax assets: Current: Accrued employee benefits............................... $ 81 $ 161 Allowance for doubtful accounts......................... 140 267 Deferred rent........................................... 52 30 States taxes............................................ 48 94 Capital loss carryforward............................... -- 22 Noncurrent--prepaid royalties............................. -- 83 ----- ----- Total deferred tax assets............................. 321 657 ----- ----- Deferred tax liabilities: Noncurrent--property and equipment...................... (32) (11) ----- ----- Total deferred tax liabilities........................ (32) (11) ----- ----- Net deferred tax assets............................... $ 289 $ 646 ===== =====
6. ACCRUED LIABILITIES: Accrued liabilities consist of the following:
MARCH 31, SEPTEMBER 30, ------------- 1996 1995 1996 (UNAUDITED) ------ ------ ------------- (IN THOUSANDS) Employee compensation......................... $ 389 $ 994 $1,278 Commissions................................... 423 842 1,392 Sales and use tax............................. 105 98 340 Consulting.................................... 303 -- -- Royalties..................................... -- 134 211 Other......................................... 338 476 380 ------ ------ ------ Total....................................... $1,558 $2,544 $3,601 ====== ====== ======
F-11 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. LINE OF CREDIT: As of March 31, 1996, the Company had a $4,000,000 line of credit agreement with a bank under which there were no amounts outstanding. Advances under the line accrued interest at the bank's prime rate plus 1.0% per annum and were collateralized by substantially all of the Company's assets. The line of credit agreement contained restrictive covenants, including minimum profitability levels and maintenance of specified levels of tangible net worth and certain financial ratios. The line of credit agreement also prohibited the payment of cash dividends without the consent of the bank. The line expired in September 1996 and the Company has not renewed it. 8. COMMITMENTS: Leases: The Company leases administrative and sales offices under noncancellable operating leases and subleases expiring through March 2001. Total rent expense for the years ended March 31, 1994, 1995 and 1996 and the six month periods ended September 30, 1995 and 1996 (unaudited) aggregated $217,000, $648,000, $859,000, $356,000 and $693,000, respectively. Minimum future rental payments under these operating leases as of March 31, 1996, are as follows (in thousands): Fiscal years ending March 31: 1997............................................................ $ 910 1998............................................................ 789 1999............................................................ 788 2000............................................................ 460 2001............................................................ 79 ------ $3,026 ======
9. PREFERRED STOCK: At March 31, 1996, the Company was authorized to issue 2,500,000 shares of preferred stock. No preferred stock was issued or outstanding as of September 30, 1996. In November 1992, the Company had issued 1,590,910 shares of Series A preferred stock for gross proceeds of $1,400,000. In June 1994, 1,263,333 shares of Series B-1 preferred stock were issued at a price of $3.00 per share for proceeds of $3,768,684, net of issuance costs of $21,315. In conjunction with this issuance, the purchasers received warrants to purchase up to 315,833 shares of Series B-2 preferred stock. The warrants were exercisable, at an exercise price of $4.00 per share. In connection with the initial public offering of the Company's common stock, warrants to purchase 34,167 shares of Series B-2 preferred stock were exercised for cash and 187,776 shares of Series B-2 preferred stock were issued upon the cashless exercise of the remaining 281,666 warrants. All outstanding shares of Series A preferred stock and Series B preferred stock were automatically converted into common stock upon the initial public offering. 10. STOCK OPTIONS: In December 1991, the Company adopted the 1991 Stock Option Plan (the "Plan") under which eligible employees, directors, and consultants can receive options to purchase shares of the Company's common stock at a price generally not less than 100% and 85% of the fair value of the common stock on the date of the grant of F-12 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) incentive stock options and nonstatutory stock options, respectively. Stock purchase rights may also be granted under the Plan. The Plan, as amended in July 1996, allows for the issuance of a maximum of 3,700,000 shares of the Company's common stock. This number of shares of common stock has been reserved for issuance under the Plan. The options granted under the Plan are exercisable over a maximum term of ten years from the date of grant and generally vest in various installments over a four-year period. Shares sold under the Plan are subject to various restrictions as to resale and right of repurchase by the Company. A summary of the activity under the Plan is set forth below:
OPTIONS OUTSTANDING SHARES ------------------------ AVAILABLE NUMBER OF EXERCISE FOR GRANT SHARES PRICE ---------- ---------- ------------ Balance at March 31, 1993................. 1,273,281 855,000 $0.008-0.816 Granted................................. (834,000) 834,000 0.816 Exercised............................... -- (1,028,999) 0.008-0.816 Forfeited............................... 398,250 (398,250) 0.570-0.816 ---------- ---------- ------------ Balance at March 31, 1994................. 837,531 261,751 0.816 Granted................................. (351,750) 351,570 0.816 Exercised............................... -- (37,976) 0.816 Forfeited............................... 106,381 (106,381) 0.816 ---------- ---------- ------------ Balance at March 31, 1995................. 592,162 469,144 0.816 Authorized.............................. 1,063,907 -- -- Granted................................. (1,119,675) 1,119,675 0.816-14.50 Exercised............................... -- (90,653) 0.816 Forfeited............................... 147,473 (147,473) 0.816-12.00 ---------- ---------- ------------ Balance at March 31, 1996................. 683,867 1,350,693 $0.816-14.50 Authorized (unaudited).................. 500,000 -- -- Granted (unaudited)..................... (270,550) 270,550 13.00-18.00 Exercised (unaudited)................... -- (178,884) 0.816-6.80 Forfeited (unaudited)................... 119,753 (119,753) 0.816-16.25 ---------- ---------- ------------ Balance at September 30, 1996 (unaudited). 1,033,070 1,322,606 $0.816-18.00 ========== ========== ============ Exercisable at September 30, 1996 (unaudited).............................. 308,307 $0.816-14.75 ========== ============
In compliance with the terms of the Plan, the Company entered into a restricted stock purchase agreement in March 1994 with one of its executives. The executive had previously been granted options to purchase an aggregate of 850,000 shares of common stock of the Company. Pursuant to the March agreement, the executive exercised all the options, subject to the original vesting schedule. At September 30, 1996, all of such shares were vested. The Company has recorded deferred compensation of $367,000 for options granted during the year ended March 31, 1996. This deferred compensation is amortized ratably over the vesting period of the related options. In September 1995, the Company adopted a stock option plan for non-employee members of its Board of Directors pursuant to which 75,000 shares of the Company's common stock have been reserved for issuance. As of September 30, 1996, 15,000 options were granted and outstanding under the plan. F-13 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 200,000 shares of the Company's common stock has been reserved for issuance under the Purchase Plan. The Purchase Plan enables eligible employees to purchase common stock at 85% of the lesser of the fair market value of the Company's common stock on (i) the date of the participant's entry into a one-year offering period, or (ii) the end of the applicable six-month purchase segment within such offering period. As of September 30, 1996, 42,080 shares were issued under this plan. 11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: In conjunction with the initial public offering, all shares of Series A and B preferred stock were automatically converted into common stock. Additionally, 281,666 Series B-2 warrants were exercised on a net exercise basis of 187,776 shares of common stock. Other supplemental cash flow information is as follows:
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, -------------------- ------------- 1994 1995 1996 1995 1996 ---- ---- ---- ------ ------ (UNAUDITED) Cash paid during the year for: Interest................................ $32 $ 16 $ 22 $ 1 $ -- === ==== ====== ====== ====== Income taxes............................ $92 $702 $1,071 $ 321 $ 874 === ==== ====== ====== ======
12. 401(K) SAVINGS PLAN: The Company adopted a 401(k) plan for employees on April 1, 1994. All employees who meet certain service requirements are eligible to participate. Matching contributions are at the discretion of the Company. As of September 30, 1996, the Company had not elected to make any discretionary contributions. F-14 LOGO PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of the Common Stock being registered hereby. All amounts are estimates except the SEC registration fee and the NASD filing fee.
AMOUNT TO BE PAID BY REGISTRANT ------------ SEC Registration Fee....................................... $ 26,010 NASD Filing Fee............................................ 9,082 Nasdaq National Market Fee For Additional Shares........... 17,500 Printing................................................... 85,000 Legal Fees and Expenses.................................... 150,000 Accounting Fees and Expenses............................... 60,000 Blue Sky Fees and Expenses................................. 10,000 Custodial Fees............................................. 2,000 Transfer Agent and Registrar Fees.......................... 1,000 Miscellaneous.............................................. 39,408 -------- Total.................................................. $400,000 ========
- -------- The Registrant intends to pay all expenses of registration, issuance and distribution, excluding underwriter's discounts, commissions and stock transfer taxes with respect to shares being sold by the Selling Shareholders. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 317 of the California Corporations Code authorizes a court to award, or a corporation's Board of Directors to grant, indemnity 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 of 1933, as amended (the "Securities Act"). Article IV of the Registrant's Restated Articles of Incorporation (Exhibit 3.1 hereto) and Article VI of the Registrant's Bylaws (Exhibit 3.2 hereto) provide for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the California Corporations Code. In addition, the Registrant has entered into Indemnification Agreements (Exhibit 10.1 hereto) with its officers and directors. Reference is also made to Section 9 of the Underwriting Agreement contained in Exhibit 1.1 hereto, which provides for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities and Section 11 of the Amended and Restated Rights Agreement (Exhibit 10.5 hereto), which provides for the cross indemnification of certain of the Company shareholders and the Company, its officers and directors against certain liabilities under the Securities Act or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In the three years prior to the effective date of this Registration Statement, the Registrant has issued and sold the following unregistered securities: (1) Between November 1, 1993 and November 17, 1995, the Registrant issued and sold an aggregate of 1,095,086 shares of Common Stock to an aggregate of 27 employees and non-employee consultants pursuant to the exercise of stock options under its 1991 Stock Option Plan for an aggregate cash consideration of approximately $1,028,210. (2) In June 1994, the Registrant issued and sold an aggregate of 1,263,333 shares of Series B-1 Preferred Stock to five venture capital funds, a trust and two individuals, as tenants in common, for aggregate cash consideration of $3,789,999. II-1 (3) In June 1994, the Registrant issued and sold warrants exercisable for an aggregate of 315,833 shares of Series B-2 Preferred Stock to five venture capital funds, a trust and two individuals, as tenants in common, at an exercise price per share of $4.00. There were no underwriters involved in connection with the transactions set forth above. The issuances of the securities set forth in this Item 15 were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under the Securities Act or pursuant to Section 4(2) of the Securities Act. ITEM 16. EXHIBITS (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 1.1 Form of Underwriting Agreement. 3.1(1) Restated Articles of Incorporation of Registrant. 3.2(2) Bylaws of Registrant. 4.1(2) Specimen Common Stock Certificate of Registrant. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1(2) Form of Indemnification Agreement. 10.2 1991 Stock Option Plan and Form of Stock Option Agreement, as amended. 10.3(2) Employee Stock Purchase Plan and Form of Subscription Agreement, as amended. 10.4(2) Director Stock Option Plan. 10.5(2) Amended and Restated Rights Agreement dated as of June 10, 1994 by and among the Registrant and certain investors. 10.6(2) Watergate Office Lease between Watergate Tower Associates and the Registrant dated as of August 22, 1994, as amended by Amendment thereto dated April 1995. 10.7(2) Business Loan Agreement between the Registrant and Silicon Valley Bank dated as of August 7, 1992, as amended by Loan Modification Agreement dated as of September 19, 1995. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Coopers & Lybrand L.L.P., Independent Auditors. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule.
(b) Financial Statement Schedule (see page S-2). - -------- (1) Incorporated by reference to the Company's annual report on Form 10-K for the fiscal year ended March 31, 1996 (Commission File No. 0-26948). (2) Incorporated by reference to the Company's Registration Statement on Form SB-2 (No. 33-97674-LA), declared effective on November 16, 1995. II-2 ITEM 17. UNDERTAKINGS 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 referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of 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 this prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purposes 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 therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF EMERYVILLE, STATE OF CALIFORNIA, ON NOVEMBER 5, 1996. Scopus Technology, Inc. /s/ Michele L. Axelson By: _________________________________ Michele L. Axelson Senior Vice President and Chief Financial Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Ori Sasson and Michele L. Axelson, and each of them, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney- in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Ori Sasson Chairman, Chief Executive November 5, 1996 - ------------------------------------ Officer (Principal Ori Sasson Executive Officer) and Director /s/ Michele L. Axelson Senior Vice President and November 5, 1996 - ------------------------------------ Chief Financial Officer Michele L. Axelson (Principal Financial and Accounting Officer) /s/ J. Michael Cline - ------------------------------------ Director November 5, 1996 J. Michael Cline /s/ Christopher R. Gibbons - ------------------------------------ Director November 5, 1996 Christopher R. Gibbons /s/ Ronald Abelmann - ------------------------------------ Director November 5, 1996 Ronald Abelmann /s/ Max D. Hopper - ------------------------------------ Director November 5, 1996 Max D. Hopper
II-4 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of Scopus Technology, Inc.: In connection with our audits of the consolidated financial statements of Scopus Technology, Inc. and Subsidiaries as of March 31, 1995 and 1996, and for each of the three years in the period ended March 31, 1996, which financial statements are included in the Prospectus, we have also audited the financial statement schedule listed in Item 16(b) herein. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Oakland, California April 30, 1996 S-1 SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Allowance for Doubtful Accounts (in thousands):
ADDITIONS ----------------- BALANCE CHARGED AT TO COSTS CHARGED BALANCE AT BEGINNING AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- -------- -------- ---------- ---------- Year Ended March 31, 1994..... -- $196 -- $(46) $150 Year Ended March 31, 1995..... $150 551 -- (352) 349 Year Ended March 31, 1996..... 349 1,072 -- (756) 665
S-2 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE ------- ----------------------- ------------ 1.1 Form of Underwriting Agreement 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.2 1991 Stock Option Plan and Form of Stock Option Agreement, as amended. 21.1 Subsidiaries of the Registrant 23.1 Consent of Coopers & Lybrand L.L.P., Independent Auditors. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1) 24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule
EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 2,000,000 SHARES SCOPUS TECHNOLOGY, INC. COMMON STOCK, $0.001 PAR VALUE PER SHARE November ___, 1996 November ___, 1996 Morgan Stanley & Co. Incorporated Montgomery Securities UBS Securities Inc., Donaldson Lufkin & Jenrette Securities Corporation as Representatives of the several Underwriters named in Schedule II hereto c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Sirs and Mesdames: Scopus Technology, Inc., a California corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule II hereto (the "Underwriters"), and certain shareholders of the Company (the "Selling Shareholders") named in Schedule I hereto severally propose to sell to the several Underwriters, an aggregate of 2,000,000 shares of the Common Stock, $0.001 par value per share, of the Company (the "Firm Shares"), of which 1,200,000 shares are to be issued and sold by the Company and 800,000 shares are to be sold by the Selling Shareholders, each Selling Shareholder selling the amount set forth opposite such Selling Shareholder's name in Schedule I hereto. The Selling Shareholders also propose to sell to the several Underwriters not more than an aggregate of 300,000 additional shares of Common Stock, $0.001 par value per share, of the Company (the "Additional Shares") if and to the extent that you, as Managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of Common Stock granted to the Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The shares of Common Stock, $0.001 par value per share, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock." The Company and the Selling Shareholders are hereinafter sometimes collectively referred to as the "Sellers." The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter referred to as the "Registration Statement"; the prospectus in the form first used to confirm sales of the Shares is hereinafter referred to as the "Prospectus." If the Company files a 1 registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act for such registration statement to become effective upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to the "Registration Statement" shall be deemed to refer to both the registration statement referred to above (Commission File Number 333-___________) and such Rule 462 Registration Statement. 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents --------------------------------------------- and warrants to and agrees with each of the Underwriters that: (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) The Company has filed in a timely manner each document or report required to be filed by it pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder within the twelve (12) month period preceding the date hereof, (ii) each such document complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations thereunder, (iii) each part of the Registration Statement, when such part became effective, did not contain and each such part, as amended or supplemented, if applicable, will not contain any 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, (iv) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph 1(b) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of California, has the corporate power and authority to own and lease its property and to conduct its business as described in the Prospectus and is duly qualified to transact business as a foreign corporation under the laws of, and is in good standing as such, in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and the Subsidiary (as defined below), taken as a whole. (d) Scopus Technology UK Ltd., an English corporation ("Subsidiary"), has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own and lease its property and to conduct its business as described in the Prospectus and is duly qualified to 2 transact business as a foreign corporation under the laws of, and is in good standing as such, in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and the Subsidiary, taken as a whole. All of the issued and outstanding shares of capital stock of the Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and owned directly by the Company, free and clear of all liens, encumbrances, equities or claims. Except for the Subsidiary, the Company does not own, directly or indirectly, an interest in any corporation, partnership, business, trust or other entity required to be set forth in Exhibit 21 to the Registration Statement. (e) This Agreement has been duly authorized, executed and delivered by the Company. (f) The authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus. (g) The shares of Common Stock (including the Shares to be sold by the Selling Shareholders) outstanding prior to the issuance of the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable. All outstanding shares of capital stock, options and other rights to acquire capital stock of the Company were not issued in contradiction of any preemptive rights, rights of first refusal or similar rights. (h) The Shares to be sold by the Company have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive rights, rights of first refusal or similar rights. (i) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the Articles of Incorporation or Bylaws of the Company or any agreement or other instrument binding upon the Company or the Subsidiary that is material to the Company and the Subsidiary, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or the Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (j) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). 3 (k) There are no legal or governmental proceedings pending or, to the Company's best knowledge, threatened to which the Company or the Subsidiary is a party or to which any of the properties of the Company or the Subsidiary is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (l) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 or Rule 462 promulgated under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. (m) The Company is not, and after giving effect to the issuance and sale of the Shares by the Company will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. (n) The Company and the Subsidiary (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and the Subsidiary, taken as a whole. (o) Except as set forth in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or, except with respect to rights granted thereunder that have been satisfied or validly waived, to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (p) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. (q) Each of the Company and the Subsidiary has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, 4 except to the extent that the failure to obtain or file such, would not have a material adverse effect on the Company and the Subsidiary, taken as a whole. (r) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (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. (s) Each of the Company and the Subsidiary owns or possesses all trademarks, trade names, service marks, service names, copyrights, license rights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other intellectual property rights, and all patent and patent rights, necessary to carry on its business in all material respects as described in the Prospectus and, neither the Company nor the Subsidiary has received any notice of infringement of or conflict with asserted, unresolved rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of any unfavorable decision, ruling or finding, would result in any material adverse change in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole. (t) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) the Company and the Subsidiary have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business, (ii) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than pursuant to the Company's stock option plan upon termination of employment of the optionee in accordance with the terms of such plan and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company or the Subsidiary, except in each case as described in or contemplated by the Prospectus. (u) The Company and the Subsidiary have good and marketable title in fee simple to all real property (if applicable) and good and marketable title to all personal property owned by them which is material to the business of the Company and the Subsidiary, 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 and do not interfere with the use made and proposed to be made of such property by the Company and the Subsidiary. Any real property and buildings held under lease by the Company and the Subsidiary 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 the Subsidiary. 5 (v) No material labor dispute with the employees of the Company or the Subsidiary exists or is imminent and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could result in any material adverse change in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole. (w) Each of the Company and the Subsidiary is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the business in which it is engaged. Neither the Company nor the Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor 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, or the earnings, business or operations of the Company and the Subsidiary, taken as a whole. (x) Neither the Company nor the Subsidiary is in material violation of any federal or state law or regulation relating to occupational safety and health. The Company and the Subsidiary have received all permits, licenses or other approvals required of them under applicable federal and state occupational safety and health laws and regulations to conduct their respective businesses, and the Company and the Subsidiary are in compliance with all terms and conditions of any such permit, license or approval, except any such violation of law or regulation, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals which would not, singly or in the aggregate, result in a material adverse change in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole. 2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each of ---------------------------------------------------------- the Selling Shareholders, severally and not jointly, represents and warrants to and agrees with each of the Underwriters, except with respect to Section 2(g) below as to which only ____________ represents and warrants to and agrees with each of the Underwriters, that: (a) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder. (b) The execution and delivery by such Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement and the Custody Agreement and Power of Attorney signed by such Selling Shareholder and The First National Bank of Boston, as Custodian, relating to the deposit of the Shares to be sold by such Selling Shareholder and the appointment of certain individuals as such Selling Shareholder's attorneys-in- fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the "Custody Agreement and Power of Attorney") will not contravene any provision of applicable law, or the certificate of incorporation or by-laws of such Selling Shareholder (if such Selling Shareholder is a corporation), or any agreement or 6 other instrument binding upon such Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement or the Custody Agreement and Power of Attorney of such Selling Shareholder, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (c) Such Selling Shareholder has, and on the Closing Date (as defined below) and the Option Closing Date (as defined below), as the case may be, will have, valid title to the Shares to be sold by such Selling Shareholder and has the legal right and power, and all authorization and approval required by law, to enter into this Agreement and the Custody Agreement and Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder. (d) The Custody Agreement and Power of Attorney has been duly authorized, executed and delivered by such Selling Shareholder and is the valid and binding agreement of such Selling Shareholder. (e) Delivery of the Shares to be sold by such Selling Shareholder pursuant to this Agreement will pass title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. (f) All information furnished in writing by on or behalf of such Selling Shareholder and relating to such Selling Shareholder for use in the Registration Statement and Prospectus is, and on the Closing Date and the Option Closing Date, as the case may be, will be, true, correct and complete, and does not, and on the Closing Date and the Option Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. (g) To the best of ____________ knowledge, (i) each part of the Registration Statement, when such part became effective, did not contain and each such part, as amended or supplemented, if applicable, will not contain any 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, and (ii) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(g) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon (x) information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein or (y) information relating to any other Selling Shareholder furnished by or on behalf of such Selling Shareholder expressly for use therein. 3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not ------------------------------- jointly, hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the 7 representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from such Seller at $_______ a share (the "Purchase Price") the number of Firm Shares (subject to adjustment to eliminate fractional shares as you may determine) that bears the same proportion to the number of Firm Shares to be sold by such Seller as the number of Firm Shares set forth in Schedule II hereto opposite the name of such Underwriter bears to the total number of Firm Shares. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions each Selling Shareholder agrees to sell to the several Underwriters, and the Underwriters shall have a one-time right to purchase, severally and not jointly, at the Purchase Price up to the number of Additional Shares as to which such right has been exercised (subject to adjustment to eliminate fractional shares as you may determine) that bears the same proportion to the number of Additional Shares to be sold by such Selling Shareholder as the number of Additional Shares set forth in Schedule II hereto opposite the name of such underwriter bears to the total number of Additional Shares. If you, on behalf of the Underwriters, elect to exercise such option, you shall so notify the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Such date may be the same as the Closing Date but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 5 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth in Schedule II hereto opposite the name of such Underwriter bears to the total number of Firm Shares. Each Seller hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 90 days after the date of the Prospectus, directly or indirectly, (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock (whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise), otherwise than (x) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by the restrictions contained in this paragraph or (y) as a distribution to limited partners or stockholders of such Seller, provided that the distributees thereof agree in writing to be bound by the restrictions contained in this paragraph. The foregoing sentence shall not apply to (i) the Shares to be sold hereunder or (ii) the issuance by the Company or sale by a Selling Shareholder of any shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof as described in the Prospectus. 8 The Company has furnished or will furnish to you "lock-up" letters in form and substance satisfactory to you signed by each of its current executive officers and directors and each other Selling Shareholder. 4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the ------------------------ Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Sellers are further advised by you that the Shares are to be offered to the public initially at $______ a share (the "Public Offering Price") and to certain dealers selected by you at a price that represents a concession not in excess of $_____ a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $0.10 a share, to any Underwriter or to certain other dealers. 5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by each -------------------- Seller shall be made by certified or official bank check or checks payable to the order of such Seller in New York Clearing House funds at the office of Wilson, Sonsini, Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California, 94304-1050, at 7:00 A.M., local time, on November ___, 1996 or at such other time on the same or such other date, not later than November ___, 1996 as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "Closing Date." Payment for any Additional Shares shall be made by certified or official bank check or checks payable to the order of such Seller in New York Clearing House funds at the office of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, 94304-1050, at 7:00 A.M., local time, on the date specified in the notice described in Section 3 or on such other date, in any event not later than December ___, 1996 as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "Option Closing Date." Certificates for the Firm Shares and Additional Shares shall be in definitive form and registered in such names and in such denominations as you shall request in writing not later than two full business days prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor. 6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the ------------------------------------------- Sellers to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than the date hereof. The several obligations of the Underwriters are subject to the following further conditions: 9 (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in clause (a)(i) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his knowledge as to proceedings threatened. (c) The Underwriters shall have received on the Closing Date an opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for the Company, dated the Closing Date, to the effect that: (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of California, has the corporate power and authority to own and lease its property and to conduct its business as described in the Prospectus and is duly qualified to transact business as a foreign corporation under the corporation laws of, and is in good standing as such, in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and the Subsidiary, taken as a whole; (ii) to such counsel's knowledge, the Company does not have any significant subsidiaries as defined in Rule 1-02(v) of Regulation S-X; (iii) the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus; 10 (iv) the shares of Common Stock (including the Shares to be sold by the Selling Shareholders) outstanding prior to the issuance of the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable; (v) the Shares to be sold by the Company have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive right, or to such counsel's knowledge, rights of first refusal or similar rights; (vi) all outstanding shares of capital stock, options and other rights to acquire capital stock of the Company were not issued in contradiction of any preemptive rights, or, to such counsel's knowledge, rights of first refusal or similar rights; (vii) no shares of Common Stock are required pursuant to any agreement or other right to be registered under the Registration Statement, nor does any person or entity have any right to cause any shares of Common Stock to be registered under the Registration Statement, which rights have not been satisfied or validly waived; (viii) this Agreement has been duly authorized, executed and delivered by the Company; (ix) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the Articles of Incorporation or Bylaws of the Company or, to such counsel's knowledge, any agreement or other instrument binding upon the Company or the Subsidiary that is filed as an exhibit to the Registration Statement or any document incorporated by reference therein, to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or the Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as have been obtained or as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares; (x) the statements (A) in the Prospectus under the captions "Risk Factors--Shares Eligible for Future Sale," "--Effect of Antitakeover Provisions," "Management--Limitation of Liability and Indemnification Matters," "Shares Eligible for Future Sale," "Description of Capital Stock" and "Underwriters" and (B) in the Registration Statement in Items 24 and 26, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (xi) such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or the Subsidiary is a party or to which any of the properties of the Company or the Subsidiary is subject that are required to be 11 described in the Registration Statement or the Prospectus and are not so described or of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (xii) the Company is not, and after giving effect to the issuance and sale of the Shares by the Company will not be, an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended; (xiii) each document, if any, filed pursuant to the Exchange Act and incorporated by reference in the Registration Statement and the Prospectus (except for financial statements and schedules and other financial data derived therefrom included therein as to which such counsel need not express any opinion) complied when so filed as to form in all material respects with the Exchange Act, and the applicable rules and regulations of the Commission thereunder; (xiv) the Registration Statement and Prospectus (except for financial statements and schedules and other financial and statistical data derived therefrom and stated therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. In addition to the matters set forth above, counsel rendering the foregoing opinion shall also include a statement to the effect that nothing has come to the attention of such counsel that leads them to believe that the Registration Statement (except as to the financial statements and schedules and other financial and statistical data derived therefrom and stated therein, as to which such counsel need not express any opinion or belief), at the effective date of the Registration Statement, contained any untrue statement of a material fact required to be stated therein or necessary to make a statement therein not misleading, or that the Prospectus (except as to the financial statements and schedules and other financial and statistical data derived therefrom and stated therein, as to which such counsel need not express any opinion or belief), as of its date or at the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The Underwriters shall have received on the Closing Date an opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for the Selling Shareholders, dated the Closing Date, to the effect that: (i) this Agreement has been duly authorized, executed and delivered by or on behalf of each of the Selling Shareholders; (ii) the execution and delivery by each Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement and the Custody Agreement and Power of Attorney of such Selling Shareholder will not contravene any 12 provision of applicable law, or the certificates of incorporation or by-laws of such Selling Shareholder (if such Selling Shareholder is a corporation), or, to such counsel's knowledge, any agreement or other instrument binding upon such Selling Shareholder or, to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement and the Custody Agreement and Power of Attorney of such Selling Shareholder, except such as have been obtained or as may be required by the securities or Blue Sky laws of the various states in connection with offer and sale of the Shares; (iii) each Selling Shareholder has the legal right and power, and all authorization and approval required by law, to enter into this Agreement and the Custody Agreement and Power of Attorney of such Selling Shareholder and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder hereunder; (iv) the Custody Agreement and Power of Attorney of each Selling Shareholder has been duly authorized, executed and delivered by such Selling Shareholder and is the valid and binding agreement of such Selling Shareholder; and (v) upon delivery of and payment for the Shares to be sold by the Selling Shareholders as provided in this Agreement, the Underwriters will have marketable title to such Shares, free and clear of any security interests, claims, liens, equities and other encumbrances, assuming for the purposes of this opinion that the Underwriters are purchasing such Shares in good faith and without notice of any adverse claim or defect in the title of any such Selling Shareholder to the Shares being purchased from such Selling Shareholder. (e) The Underwriters shall have received on the Closing Date an opinion of Morrison & Foerster LLP, counsel for the Underwriters, dated the Closing Date, covering the matters referred to in subparagraphs (v), (viii), (x) (but only as to the statements in the Prospectus under "Description of Capital Stock" and "Underwriters") and (xiv) of paragraph (c) above and the last subparagraph of paragraph (c) above. With respect to the last subparagraph of paragraph (c) above, Wilson, Sonsini, Goodrich & Rosati, P.C., may, and with respect to the opinion of counsel for the Underwriters pursuant to paragraph (e) above as it relates to the last subparagraph of paragraph (c) above, Morrison & Foerster LLP may, state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto (other than documents incorporated by reference) and review and discussion of the contents thereof, but are without independent check or verification, except as specified. With respect to paragraph (d) above, Wilson, Sonsini, Goodrich & Rosati, P.C., may rely upon an opinion or opinions of counsel for any Selling Shareholders and, to the extent such counsel deems appropriate, as to factual matters, upon the representations of each Selling Shareholder contained herein and in the Custody Agreement, the Lock-up Agreement, and Power of Attorney of such Selling Shareholder and in other documents and instruments; provided that 13 (A) each such counsel for the Selling Shareholders is reasonably satisfactory to your counsel, (B) a copy of each opinion so relied upon is delivered to you and is in form and substance reasonably satisfactory to your counsel, (C) copies of such Custody Agreements and Powers of Attorney and of any such other documents and instruments shall be delivered to you and shall be in form and substance reasonably satisfactory to your counsel and (D) Wilson, Sonsini, Goodrich & Rosati, P.C., shall state in their opinion that they have no reason to believe that you are not justified in relying on each such other opinion, Custody Agreement and Power of Attorney or other document or instrument. The opinions of Wilson, Sonsini, Goodrich & Rosati described in paragraphs (c) and (d) above (and any opinions of counsel for any Selling Shareholder referred to in the immediately preceding paragraph) shall be rendered to the Underwriters at the request of the Company or one or more of the Selling Shareholders, as the case may be, and shall so state therein. (f) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from Coopers & Lybrand LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in, or incorporated by reference into, the Registration Statement and the Prospectus; provided, that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (g) The lock-up agreements, each substantially in the form of Exhibit A hereto, between you and the current executive officers and directors of the Company and each other Selling Shareholder relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. (h) The Company shall have complied with Section 7(a) hereof with respect to the furnishing of Prospectuses on the business day next succeeding the date of this Agreement. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares, other matters related to the issuance of the Additional Shares and opinions of counsel in form and substance satisfactory to counsel for the Underwriters. 7. COVENANTS OF THE COMPANY. In further consideration of the agreements ------------------------ of the Underwriters herein contained, the Company covenants with each Underwriter as follows: (a) To furnish you, without charge, four (4) signed copies of the Registration Statement (including exhibits thereto and documents incorporated by reference therein) and to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto but including documents incorporated by reference therein) and, during the period 14 mentioned in paragraph (c) below, as many copies of the Prospectus and documents incorporated by reference therein, and any supplements and amendments thereto or to the Registration Statement as you may reasonably request. The terms "supplement" and "amendment" or "amend" as used in this Agreement shall include all documents subsequently filed by the Company with the Commission pursuant to the Exchange Act, that are deemed to be incorporated by reference in the Prospectus. In the case of the Prospectus, to furnish copies of the Prospectus in New York City, prior to 5:00 p.m., on the business day following the date of this Agreement, in such quantities as you reasonably request. (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule. (c) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided, however, that the Company shall not be required to register or qualify as a foreign corporation or to take any action which would subject it to the service of process in any jurisdiction where it is not now so subject. (e) To make generally available to the Company's security holders and to you as soon as practicable an earning statement covering the twelve-month period ending December 31, 1997 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. (f) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in 15 connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 7(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering by the National Association of Securities Dealers, Inc., (v) all costs and expenses incident to listing the Shares on the Nasdaq National Market, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depository, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expense of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 9 and the last paragraph of Section 11, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 8. EXPENSES OF SELLING SHAREHOLDERS. Each Selling Shareholder, severally -------------------------------- and not jointly, agrees to pay or cause to be paid (i) all taxes, if any, on the transfer and sale of the Shares being sold by such Selling Shareholder and (ii) such Selling Shareholder's pro rata share (determined by dividing the number of Shares sold by such Selling Shareholder by the total number of Shares sold by all Sellers) of all costs and expenses incident to the performance of the obligations of the Selling Shareholders and the Company under this Agreement, including, but not limited to, all expenses incident to the delivery of the Shares, the fees and expenses of counsel and accountants for the Selling Shareholders and the Company, the costs and expenses incident to the preparation, printing and filing of the Registration Statement (including all exhibits thereto) and the Prospectus and any amendments or supplements thereto, the expenses of qualifying the Shares under the securities or Blue Sky laws of various jurisdictions, all fees payable in connection with any review of the offering of the Shares by the National Association of Securities Dealers, Inc., and the cost of furnishing to the Underwriters the required copies of the Registration Statement and Prospectus and any amendments or supplements thereto. 16 9. INDEMNITY AND CONTRIBUTION. -------------------------- (a) The Company and, severally and not jointly, each Selling Shareholder, agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any Underwriter or any such controlling person in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (but, with respect to each Selling Shareholder other than ___________, only with reference to information relating to such Selling Shareholder furnished in writing by or on behalf of such Selling Shareholder expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto), except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter, or any person controlling such Underwriter, from whom the person asserting any such losses, claims, damages, or liabilities purchased Shares which are the subject thereof, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplement) would have cured the defect given rise to such loss, claim, damage or liability, unless the failure to send or give the Prospectus to such person is the result of noncompliance by the Company with Section 7(a) or 7(c). Notwithstanding the foregoing provisions of this Section 9(a), each Underwriter agrees with ___________ that any claim for indemnity pursuant to this Section 9(a) and arising out of information other than that relating to ___________ that is furnished in writing by or on behalf of _________ expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto, shall first be satisfied by the Company and shall only then be satisfied by __________ if, and to the extent that, such claim for indemnity has not been satisfied in full by the Company. The foregoing limitation shall not prohibit the Underwriters from proceeding concurrently against the Company and ______________ but shall only prohibit the Underwriters from recovering from _____________ until the Underwriters have requested indemnification in writing from the Company and the Company shall have failed for a period of thirty (30) days after such written request to provide such indemnification. (b) Each Selling Shareholder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement 17 and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Selling Shareholder furnished in writing by or on behalf of such Selling Shareholder expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the Selling Shareholders, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company or any Selling Shareholder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (d) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Section 9, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same 18 jurisdiction, be liable for (i) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section and (iii) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Selling Shareholders and all persons, if any, who control any Selling Shareholder within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters and such control persons of Underwriters, such firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In the case of any such separate firm for the Selling Shareholders and such controlling persons of Selling Shareholders, such firm shall be designated in writing by the persons named as attorneys-in- fact for the Selling Shareholders under the Powers of Attorney referenced in Section 2(b) hereof. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (e) To the extent the indemnification provided for in paragraph (a), (b) or (c) of this Section is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as 19 well as any other relevant equitable considerations. The relative benefits received by the Sellers on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by each Seller and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Sellers on the one hand and the Underwriters on the other hand 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 Sellers or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters respective obligations to contribute pursuant to this Section 9 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. (f) The Sellers and the Underwriters agree that it would not be just or equitable if contribution pursuant to Section 9(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (e) of this Section. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in paragraph (e) of this Section 9 shall be deemed to include, subject to the limitations set forth above, 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 Section, 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 that 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 Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (g) The indemnity and contribution provisions contained in this Section 9 and the representations, warranties and other statements of the Company and the Selling Shareholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, any Selling Shareholder or any person controlling any Selling Shareholder, or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. (h) The liability of each Selling Shareholder under such Selling Shareholder's representations and warranties contained in Section 2 hereof and under the 20 provisions of this Section 9 shall be limited to an amount equal to the Purchase Price of the Shares to be sold by such Selling Shareholder to the Underwriters hereunder. 10. TERMINATION. This Agreement shall be subject to termination by notice ----------- given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become -------------------------------------- effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule II bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to you, the Company and the Selling Shareholders for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholders. In any such case either you or the relevant Sellers shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. If, on the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such 21 default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of any Seller to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason any Seller shall be unable to perform its obligations under this Agreement, the Sellers will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out of pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 12. COUNTERPARTS. This Agreement may be signed in two or more ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 13. APPLICABLE LAW. This Agreement shall be governed by and construed in -------------- accordance with the internal laws of the State of New York. 22 14. HEADINGS. The headings of the sections of this Agreement have been -------- inserted for convenience of reference only and shall not be deemed a part of this Agreement. Very truly yours, SCOPUS TECHNOLOGY, INC. By -------------------------------- Name: Title: The Selling Shareholders named in Schedule I hereto, acting severally By ------------------------------- Attorney-in-Fact Accepted as of the date hereof Morgan Stanley & Co. Incorporated Montgomery Securities UBS Securities Inc. Donaldson Lufkin & Jenrette Securities Corporation Acting severally on behalf of themselves and the several Underwriters named herein. By Morgan Stanley & Co. Incorporated By ------------------------- Name: Title: 23 SCHEDULE I
Number of Number of Firm Shares Additional Selling Shareholder to Be Sold Shares to Be Sold - ------------------- ---------- ----------------- ----------- ---------- Total --------------- =========== ==========
24 SCHEDULE II
Number of Firm Shares Underwriter To Be Purchased - ----------- --------------- Morgan Stanley & Co. Incorporated Montgomery Securities UBS Securities Inc. Donaldson Lufkin & Jenrette Securities Corporation __________ Total ==========
25 EXHIBIT A --------- [FORM OF LOCK-UP AGREEMENT] --------------------------- _________________, 1996 Morgan Stanley & Co. Incorporated Montgomery Securities UBS Securities, Inc. Donaldson Lufkin & Jenrette Securities Corporation As Representatives of the several Underwriters c/o Morgan Stanley & Co. Incorporated 1251 Avenue of the Americas New York, NY 10020 Dear Sirs: The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an Underwriting Agreement with Scopus Technology, Inc., a California corporation (the "Company") providing for the public offering (the "Public Offering") by the several Underwriters, including yourselves, of shares (the "Shares") of the Common Stock, no par value, of the Company (the "Common Stock"). In consideration of the Underwriters' agreement to purchase and make the Public Offering of the Shares, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 90 days after the date of the Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are now owned by the undersigned or are hereafter acquired), or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the Shares to be sold pursuant to the Public Offering. In addition, the undersigned agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 90 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. 26 The undersigned confirms that the agreements of the undersigned are irrevocable and shall be binding upon the undersigned's legal representatives, successors and assigns. The undersigned agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of securities of the Company held by the undersigned except in compliance with the terms and conditions of this Agreement. Very truly yours, --------------------------------------------- (Name) --------------------------------------------- (Address) Accepted as of the date first set forth above: Morgan Stanley & Co. Incorporated Montgomery Securities UBS Securities Inc. Donaldson Lufkin & Jenrette Securities Corporation As Representatives of the several Underwriters By: Morgan Stanley & Co. Incorporated By: ---------------------------------- 27 EX-5.1 3 OPINION OF WILSON SONSINI GOODRICH & ROSATI EXHIBIT 5.1 [LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI] November 4, 1996 Scopus Technology, Inc. 1900 Powell Street, Suite 900 Emeryville, CA 94608 Re: Registration Statement on Form S-1 ---------------------------------- Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 to be filed by you with the Securities and Exchange Commission (the "Commission") on or about November 5, 1996 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of 2,300,000 shares of Common Stock, par value $0.001 per share, of Scopus Technology, Inc., a California corporation (the "Shares"), 1,200,000 shares of which are authorized but heretofore unissued and up to 1,100,000 shares of which will be sold by certain selling shareholders (including 300,000 shares subject to an over-allotment option to be granted to the underwriters). The Shares are to be sold to the underwriters for resale to the public as described in the Registration Statement and pursuant to the Underwriting Agreement filed as an exhibit thereto. As your counsel, we have examined the proceedings proposed to be taken in connection with said sale of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the sale of the Shares, the Shares, when issued and/or sold in the manner described in the Registration Statement and the Underwriting Agreement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto. Very truly yours, /s/ WILSON, SONSINI, GOODRICH & ROSATI Professional Corporation EX-10.2 4 1991 STOCK OPTION PLAN & FORM OF STOCK OPTION EXHIBIT 10.2 SCOPUS TECHNOLOGY, INC. 1991 STOCK OPTION PLAN (AS AMENDED MAY 1996) 1. Purposes of the Plan. The purposes of this 1991 Stock Option Plan are -------------------- to attract and retain qualified personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries, and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees appointed ------------- pursuant to Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. ----- (c) "Code" means the Internal Revenue Code of 1986, as amended. ---- (d) "Committee" means the Committee appointed by the Board of Directors --------- in accordance with paragraph (a) of Section 4 of the Plan. (e) "Common Stock" means the Common Stock of the Company. ------------ (f) "Company" means Scopus Technology, Inc., a California corporation. ------- (g) "Consultant" means any person, including an advisor, who is engaged ---------- by the Company or any Parent or Subsidiary to render services and is compensated for such services. The term Consultant shall not include directors who are not compensated for their services or are paid only a director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means the absence ---------------------------------------------- of any interruption or termination of the Optionee's relationship as an Employee or Consultant with the Company or any Subsidiary. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) sick leave taken by an Employee; (ii) military leave taken by an Employee (iii) any other leave of absence approved by the Administrator; provided in any such -------- case that such leave is for a period of not more than ninety (90) days unless (A) in the case of termination of employment, reemployment upon the expiration of such leave is guaranteed by contract or statute, or (B) otherwise provided pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or its successor. (i) "Employee" means any person, including officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (j) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (k) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sale price for such stock (or the closing bid, if no sales were reported, as quoted on such system or exchange for the last market trading day prior to the time of determination) as reported in The Wall Street Journal or such other source as ----------------------- the Administrator deems reliable; (ii) If the Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer, but selling prices are not reported, its Fair Market Value shall be the mean between the closing bid and asked prices for the Common Stock as reported in The Wall Street Journal or such other source as the Administrator ----------------------- deems reliable, or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (l) "Incentive Stock Option" means an Option not intended to qualify as ---------------------- an Incentive Stock Option. (m) "Nonstatutory Stock Option" means an Option not intended to qualify ------------------------- as a Incentive Stock Option. (n) "Option" means a stock option granted pursuant to the Plan. ------ (o) "Optioned Stock" means the Common Stock subject to an Option. -------------- (p) "Optionee" means an Employee or Consultant who receives an Option. -------- (q) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. -2- (r) "Plan" means this Scopus Technology, Inc. 1991 Stock Option Plan. ---- (s) "Restricted Stock" means Shares acquired pursuant to a grant of ---------------- Stock Purchase Rights under Section II of the Plan. (t) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 12 of the Plan. (u) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of ------------------------- the Plan, the maximum aggregate number of Shares which may be placed under option and sold under the Plan is 3,700,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided , however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Multiple Administrative Bodies. If permitted by Rule 16b-3, ------------------------------ the Plan may be administered by different bodies with respect to directors, officers who are not directors, and Employees who are neither directors nor officers. (ii) Administration With Respect to Directors and Officers Subject ------------------------------------------------------------- to Section 16(b). With respect to Option or Stock Purchase Right grants made to - ---------------- Employees who are also officers or directors subject to Section 16(b) of the Exchange Act, the Plan shall be administered by (A) the Board, if the Board may administer the Plan in a manner complying with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a committee designated by the Board to administer the Plan, which committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue -3- to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (iii) Administration With Respect to Other Persons. With respect to Option or Stock Purchase Right grants made to Employees or Consultants who are neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted to satisfy Applicable Laws. Once appointed, such committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan --------------------------- and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan; (ii) to select the officers, Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof, are granted hereunder; (iv) to determine the number of Shares to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan, (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, the price per Share and any restriction or limitation regarding any Option or other award and the Shares relating thereto, based in each case on such factors as the Administrator shall determine, in Its sole discretion), -4- (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock; (viii) to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount, if any, of any deemed earnings on any deferred amount during any deferral period); (ix) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; and (x) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights. (c) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options and Stock Purchase Rights. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. No option shall be void or voidable solely for the reason that the Option is not expressly designated in the written option agreement as an Incentive Stock Option or Nonstatutory Stock Option. (c) For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (d) The following limitations shall apply to grants of Options and Stock Purchase Rights to Employees: -5- (i) No Employee shall be granted, in any fiscal year of the Company, Options and Stock Purchase Rights to purchase more than 250,000 Shares. (ii) In connection with his or her initial employment, an Employee may be granted Options and Stock Purchase Rights to purchase up to an additional 250,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. (iv) If an Option or Stock Purchase Right is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the cancelled Option or Stock Purchase Right will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option or Stock Purchase Right is reduced, the transaction will be treated as a cancellation of the Option or Stock Purchase Right and the grant of a new Option or Stock Purchase Right. (e) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his right or the Company's right to terminate his employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the shareholders of the Company as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that in the case of an Incentive Stock Option, the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option -6- (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in Section 8(a)(i)(A), the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator at the time of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (6) any combination of the foregoing methods of payment or (7) such other consideration and method of payment for the issuance of Shares as may be permitted under applicable laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise: Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder -7- shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Upon ---------------------------------------------------- termination of an Optionee's Continuous Status as an Employee or Consultant, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. In the case of an Incentive Stock Option, such period of time for exercise shall not exceed three (3) months from the date of termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. With respect to the above, in the event of an Optionee's change in status from Consultant to Employee or Employee to Consultant, the Optionee's Continuous Status as an Employee or Consultant shall not be deemed to have terminated solely as a result of such change in status. However, in the event of an Optionee's change in status from Employee to Consultant, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three months and one day following such change of status. (c) Disability of Optionee. Notwithstanding the provisions of Section - ---------------------- 9(b) above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his disability, Optionee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the -8- Option by bequest or inheritance, but only to the extent the Optionee was entitled to exercise the Option at the date of death. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified, the Option shall terminate. (e) Rule 16b-3. Options granted to persons subject to Section 16(b) of ---------- the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (f) Buyout Provisions. The Administrator may at any time offer to buy out ----------------- for a payment in cash or Shares an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options. The Option may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, ------------------ in addition to, or in tandem with other awards granted under the Plan or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed sixty (60) days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the ----------------- Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Committee may determine. (c) Other Provisions. The restricted stock purchase agreements used in ---------------- connection with the Plan need not be the same as one another, and all such agreements shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. -9- (d) Rights as a Shareholder. Once a Stock Purchase Right is exercised, ----------------------- the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset ------------------------------------------------------------------------ Sale. - ---- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution -------------------------- or liquidation of the Company, to the extent that an Option or Stock Purchase Right has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any Option or Stock Purchase Right shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option or Stock Purchase Right as to all or any part of the Optioned Stock, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. (c) Merger or Asset Sale. In the event of a merger of the Company with or -------------------- into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or stock purchase right, the Optionee shall have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be -10- exercisable. If an Option or Stock Purchase Right is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Time of Granting Options or Stock Purchase Rights. The date of grant of an ------------------------------------------------- Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant . 14. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, alter, ------------------------- suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made without his consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or termination ---------------------------------- of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. -11- 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to ---------------------------------- the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, the requirements of any stock exchange upon which the Shares may then be listed and any rule under Part 207 of Title 124 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. Reservation of Shares. The Company, during the term of this Plan, will at --------------------- all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options and Stock Purchase Rights shall be evidenced by ---------- written agreements in such form as the Administrator shall approve from time to time. 18. Shareholder Approval. Continuance of the Plan shall be subject to approval -------------------- by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. -12- SCOPUS TECHNOLOGY, INC. STOCK OPTION AGREEMENT TERMS AND CONDITIONS 1. Grant of Option. Scopus Technology, Inc., a California corporation (the --------------- "Company"), has granted to the Optionee (the "Optionee") named in the Notice portion of this Stock Option Agreement (the "Notice of Grant"), an option (the "Option") to purchase a total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the Scopus Technology, Inc. 1991 Stock Option Plan (the "Plan"), which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated as an Incentive Stock Option in the Notice of Grant, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. 2. Exercise of Option. This Option shall be exercisable during its term in ------------------ accordance with the Exercise Schedule set out in the Notice of Grant and with the provisions of Section 9 of the Plan as follows: (i) Right to Exercise. ----------------- (a) This Option may not be exercised for a fraction of a share. (b) In the event of Optionee's death, disability or other termination of Optionee's consulting relationship or Continuous Status as an Employee, the exercisability of the Option is governed by Section 9 of the Plan, subject to the limitation contained in subsection 2(i)(c). (c) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant. (ii) Method of Exercise. This Option shall be exercisable by delivery of ------------------ an Exercise Notice and Stock Purchase Agreement (the "Purchase Agreement") in the form attached as Exhibit A, which shall state the number of Shares in --------- respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such Purchase Agreement shall be signed by the Optionee and, if the Optionee is married, the Optionee's spouse, and shall be delivered in person or by certified mail to the Secretary of the Company. The Purchase Agreement shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Purchase Agreement accompanied by the Exercise Price. 1 No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Method of Payment. Payment of the Exercise Price shall be by cash, check ----------------- or a combination thereof. 4. Tax Consequences. Set forth below is a brief summary as of the date of ---------------- this Option of some of the federal and state tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercise of Incentive Stock Option. If this Option qualifies as an ---------------------------------- Incentive Stock Option ("ISO"), there will be no regular federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (ii) Exercise of Nonqualified Stock Option ("NSO"). If this Option does --------------------------------------------- not qualify as an ISO, there may be a regular federal income tax liability and a state income tax liability upon the exercise of the Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (iii) Disposition of Shares. In the case of an NSO, if Shares are held --------------------- for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and state income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and state income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. 2 (iv) Notice of Disqualifying Disposition of ISO Shares. If the Option ------------------------------------------ granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after transfer of such Shares to the Optionee upon exercise of the ISO, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee from the early disposition by payment in cash or out of the current earnings paid to the Optionee. BY ACCEPTING THIS OPTION GRANT, OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1991 STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. 3 EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT 1. Scopus Technology, UK Ltd. Company Incorporated under the laws of England. 2. Scopus Technology Canada, Inc. Company Incorporated under the laws of Canada. 3. Scopus Technology France S.A.R.L. Company Incorporated under the laws of France. EX-23.1 6 CONSENT OF COOPERS & LYBRAND L.L.P. EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report dated April 30, 1996, on our audits of the financial statements of Scopus Technology, Inc. and subsidiaries and of our report dated April 30, 1996, on our audit of the financial statement schedule of the Company. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. San Francisco, California November 4, 1996 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 17,411 10,701 12,753 1,300 0 41,429 7,694 830 48,342 10,882 0 0 0 12 37,448 48,342 23,804 23,804 5,017 20,630 576 456 0 3,750 1,401 2,349 0 0 0 2,349 0.18 0.18
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