-----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, G3E3Z0mw6VxnAFoNRj3Pw0gPvP9EbwvJQfmOTK9d9zcVqOHWMMTXcGZdRYIOQUcJ f/E6Y7Hxx2gRVk4+v44xEg== 0000891618-99-004686.txt : 19991025 0000891618-99-004686.hdr.sgml : 19991025 ACCESSION NUMBER: 0000891618-99-004686 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19991022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROADVISION INC CENTRAL INDEX KEY: 0000920448 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943184303 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-86557 FILM NUMBER: 99732333 BUSINESS ADDRESS: STREET 1: 333 DISTEL CIRCLE CITY: LOS ALTOS STATE: CA ZIP: 94022 BUSINESS PHONE: 4159433600 MAIL ADDRESS: STREET 1: 333 DISTEL CIRCLE CITY: LAS ALTOS STATE: CA ZIP: 94022 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999 REGISTRATION NO. 333-86557 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BROADVISION, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-3184303 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
585 BROADWAY REDWOOD CITY, CALIFORNIA 94063 (650) 261-5100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) PEHONG CHEN PRESIDENT AND CHIEF EXECUTIVE OFFICER BROADVISION, INC. 585 BROADWAY, REDWOOD CITY, CALIFORNIA 94063 (650) 261-5100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: KENNETH L. GUERNSEY NORA L. GIBSON JAMIE E. CHUNG DAVID A. MAKARECHIAN VIRGINIA C. EDWARDS VAHE H. SARRAFIAN COOLEY GODWARD LLP KIMBERLEY E. HENNINGSEN ONE MARITIME PLAZA, 20TH FLOOR BROBECK, PHLEGER & HARRISON LLP SAN FRANCISCO, CA 94111 TWO EMBARCADERO PLACE (415) 693-2000 2200 GENG ROAD PALO ALTO, CA 94303 (650) 424-0160
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED OCTOBER 22, 1999. 2,250,000 Shares LOGO BROADVISION, INC. Common Stock ---------------------- This is an offering of shares of common stock of BroadVision, Inc. This prospectus relates to an offering of 1,125,000 shares in the United States. In addition, 1,125,000 shares are being offered outside the United States in an international offering. All of the 2,250,000 shares of common stock are being sold by BroadVision. The common stock is quoted on the Nasdaq National Market under the symbol "BVSN." The last reported sale price of the common stock on October 20, 1999 on the Nasdaq National Market was $60.58 per share. Application has been made to list the common stock on the Neuer Markt segment of the Frankfurt Stock Exchange. See "Risk Factors" beginning on page 6 to read about factors you should consider before buying shares of the common stock. ---------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------
Per Share Total --------- ----- Initial price to public..................................... $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to BroadVision................... $ $
To the extent that the underwriters sell more than 2,250,000 shares of common stock, the underwriters have the option to purchase up to an additional 337,500 shares from BroadVision at the initial price to public less the underwriting discount. ---------------------- The underwriters expect to deliver the shares against payment in New York, New York and Frankfurt, Germany on , 1999. Joint Lead Managers GOLDMAN, SACHS & CO. ROBERTSON STEPHENS ---------------------- ABN AMRO ROTHSCHILD A DIVISION OF ABN AMRO INCORPORATED BANC OF AMERICA SECURITIES LLC COMMERZBANK CAPITAL MARKETS CORP. FRIEDMAN BILLINGS RAMSEY ---------------------- Prospectus dated , 1999. 3 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in the common stock. You should read the entire prospectus carefully, especially the risks of investing in the common stock discussed under the Risk Factors. BROADVISION We develop, market and support application software solutions for one-to-one relationship management across the extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, offer online customer self-service and support, deliver targeted information and provide online financial services. Each of these capabilities can be provided to all constituents of the extended enterprise, including: customers, suppliers, partners, distributors and employees. The BroadVision One-To-One product suite allows businesses to tailor their Web site content to the needs and interests of individual users by personalizing each visit on a real-time basis. Our applications interactively capture Web site visitor profile information, organize the enterprise's content, target that content to each visitor based on easily constructed business rules, and execute transactions. We believe the benefits of these applications include enhanced customer satisfaction and loyalty, increased business volume, greater brand awareness, reduced costs to execute transactions and to service customers, and enhanced employee productivity. The emergence of the Internet as a globally accessible, interactive and individually addressable communications and computing platform has provided businesses with the opportunity to implement one-to-one relationship management on a mass basis. We believe that to capitalize fully on this opportunity, businesses require flexible, robust and scalable packaged software solutions that are easier to develop, implement, and maintain, integrate more easily with existing business systems, and offer faster time to market and richer functionality than solutions built from low-level development tools. Accordingly, we are focusing exclusively on developing packaged applications and related services to enable effective one-to-one relationship management throughout the extended enterprise. We currently offer our core product, BroadVision One-To-One Enterprise, and four related application products -- BroadVision One-To-One Retail Commerce, BroadVision One-To-One Business Commerce, BroadVision One-To-One Financial and BroadVision One-To-One Knowledge -- together with easy-to-use tools enabling our customers to develop and manage their applications. As of September 30, 1999, we have licensed our products to over 335 end-user customers and 100 partners worldwide. These customers and partners have used our products to implement a variety of applications, including product merchandising, financial services and corporate knowledge management. Our customers have commercially deployed over 180 Web sites using our products. We target Global 2000 organizations, and our current customers include American Airlines, Banco Santander, Electronic Arts, Hewlett-Packard, The Home Depot, Macromedia, Nortel Networks, Solectron, TELUS, Virgin, Wal-Mart and Xerox USA. In addition, we target pure-play Internet companies, including chipshot.com, e-STEEL, Mercata, Outpost.com and Pets.com. We maintain operations worldwide to sell and support our products through a direct sales force and reseller partners. To accelerate the acceptance of our applications solutions, we are enhancing our products and broadening our professional services capabilities. We have also developed key strategic business alliances with over 100 systems integration, design, consulting and other services organizations throughout the world, such as Andersen Consulting, ASE/Broadiant, Cambridge Technology Partners, Ernst & Young, GranVia Internet, Hewlett-Packard, Itochu, NTT Data, Security First and Sema. 3 4 CORPORATE INFORMATION We were incorporated in Delaware in May 1993 and our fiscal year is on a calendar year basis. Our principal executive offices are located at 585 Broadway, Redwood City, California 94063, and our telephone number in the United States is (650) 261-5100. Our Web site is located at http://www.broadvision.com. Information contained in our Web site shall not be deemed to be a part of this prospectus. Our corporate purpose, as set forth in our Restated Certificate, is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. BroadVision(R) and BroadVision One-To-One(R) are our registered trademarks. Trade names and trademarks of other companies appearing in this prospectus are the property of their respective holders. THE OFFERINGS Common Stock: U.S. offering................. 1,125,000 shares International offering........ 1,125,000 shares Total...................... 2,250,000 shares Shares to be outstanding after the offering.................... 79,719,312 shares Use of Proceeds................. For general corporate purposes, principally working capital and capital expenditures. Nasdaq National Market symbol... "BVSN" We have applied to list the common stock on the Neuer Markt segment of the Frankfurt Stock Exchange under the symbol "BDN". Shares to be outstanding after the offering is based on common stock outstanding on October 22, 1999, and excludes as of October 22, 1999: - 17,372,697 shares subject to outstanding options at a weighted average exercise price of approximately $11.21 per share; and - 55,101 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $2.83 per share. 4 5 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------------------------ ----------------- 1994 1995 1996 1997 1998 1998 1999 ------- ------- -------- ------- ------- ------- ------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Software licenses............................. $ -- $ -- $ 7,464 $18,973 $36,067 $15,297 $28,267 Services...................................... -- 540 3,418 8,132 14,844 6,167 13,673 ------- ------- -------- ------- ------- ------- ------- Total revenues.......................... -- 540 10,882 27,105 50,911 21,464 41,940 Total cost of revenues.......................... -- 249 2,494 5,948 9,705 4,111 9,729 ------- ------- -------- ------- ------- ------- ------- Gross profit.................................... -- 291 8,388 21,157 41,206 17,353 32,211 Total operating expenses........................ 1,771 4,769 19,085 28,795 39,282 17,772 26,735 ------- ------- -------- ------- ------- ------- ------- Operating income (loss)......................... (1,771) (4,478) (10,697) (7,638) 1,924 (419) 5,476 Other........................................... 101 160 552 265 2,115 613 776 ------- ------- -------- ------- ------- ------- ------- Net income (loss)............................... $(1,670) $(4,318) $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252 ======= ======= ======== ======= ======= ======= ======= Basic earnings (loss) per share................. $ (0.12) $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08 ======= ======== ======= ======= ======= ======= Shares used in computation -- basic earnings (loss) per share.............................. 35,928 56,445 60,624 70,038 66,732 74,658 ======= ======== ======= ======= ======= ======= Diluted earnings (loss) per share............... $ (0.12) $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07 ======= ======== ======= ======= ======= ======= Shares used in computation -- diluted earnings (loss) per share.............................. 35,928 56,445 60,624 76,959 74,457 83,838 ======= ======== ======= ======= ======= =======
AS OF JUNE 30, 1999 ------------------------ ACTUAL AS ADJUSTED --------- ----------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 53,735 $179,950 Working capital............................................. 72,651 198,866 Total assets................................................ 137,198 263,413 Debt and capital lease obligations, less current portion.... 2,616 2,616 Accumulated deficit......................................... (13,351) (13,351) Total stockholders' equity.................................. 108,812 235,027
Consolidated balance sheet data is presented on an actual basis and as adjusted to give effect to the sale of the 2,250,000 shares of common stock we are offering hereby, at an assumed public offering price of $60.58 per share, after deducting the estimated underwriting discounts and estimated offering expenses. Unless otherwise indicated, all information in this prospectus (i) assumes the underwriters' option to purchase additional shares in the offering will not be exercised and (ii) reflects a three for one stock split in the form of a two for one stock dividend, which will be completed on October 25, 1999. References in this prospectus to "BroadVision", "we", "our", "us" and the "company" refer to BroadVision, Inc. 5 6 RISK FACTORS You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. In that event, the trading price of our common stock could decline, and you may lose all or part of your investment. RISKS RELATED TO OUR BUSINESS FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO DECLINE Our quarterly operating results have in the past and may in the future fluctuate significantly as a result of a variety of factors, many of which are outside our control. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of our common stock would almost certainly decline. Factors that may affect our quarterly operating results include the following: - the timing of introductions or enhancements of products and services by us or our competitors; - market acceptance of new products; - the mix of our products sold; - changes in pricing policies by us or our competitors; - changes in our sales incentive plans; - the budgeting cycles of our customers; - customer order deferrals in anticipation of new products or enhancements by us or our competitors; - nonrenewal of service agreements (which generally automatically renew for one-year terms unless earlier terminated by either party upon 90-days notice); - product life cycles; - changes in strategy; - seasonal trends; - the mix of distribution channels through which our products are sold; - the mix of international and domestic sales; - the rate at which new sales people become productive; and - changes in the level of operating expenses to support projected growth. In addition, we anticipate that a significant portion of our revenues will be derived from a limited number of orders. We expect that the timing of receipt and fulfillment of any of these orders will cause our quarterly operating results to fluctuate. We anticipate that we will make the major portion of each quarter's product deliveries near the end of each quarter. As a result, short delays in product deliveries at the end of a quarter could harm operating results for that quarter. Due to these and other factors, our quarterly revenues and operating results are difficult to forecast accurately. We believe that period-to-period comparisons of our operating results may not be meaningful and you should not rely upon them as any indication of future performance. 6 7 OUR REPUTATION AND REVENUES WOULD BE HARMED IF WE EXPERIENCE ANY ISSUES WITH OUR BROADVISION ONE-TO-ONE ENTERPRISE PRODUCT SUITE AND RELATED SERVICES To date, substantially all of our revenues have been attributable to license sales of the BroadVision One-To-One Enterprise product and related packaged application products and associated services. We currently expect these products and services to account for most of our future revenues. If any of our customers are unable to successfully develop and deploy an online marketplace using our BroadVision One-To-One application products, our reputation could be damaged, which could harm our business. In addition, factors negatively affecting the pricing of or demand for the BroadVision One-To-One application products, such as increased competition or rapid technological change, could cause our revenues to decline. OUR FUTURE FINANCIAL PERFORMANCE IS LARGELY DEPENDENT ON THE SUCCESSFUL UPGRADING OF OUR CURRENT PRODUCTS AND INTRODUCING NEW PRODUCTS Our future financial performance will depend, in significant part, on our successful development and sale of new and enhanced versions of the BroadVision One-To-One application products and other new products. We may be unable to upgrade and continue to market the BroadVision One-To-One application products. We may not be able to successfully develop new products and new products may not achieve market acceptance. OUR LENGTHY SALES AND PRODUCT IMPLEMENTATION CYCLES COULD CAUSE DELAYS IN REVENUE RECOGNITION AND MAKE IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS Our sales and product implementation cycles are subject to delays over which we have little or no control. These delays can affect the timing of revenue recognition and make it difficult to predict our quarterly results. Licensing our BroadVision One-to-One application products is often an enterprise-wide decision by prospective customers. The importance of this decision requires us to engage in a lengthy sales cycle with prospective customers. During the sales process, we provide a significant level of education regarding the uses and benefits of our products. Once the decision has been made to implement our products, our customers or our Worldwide Professional Services Organization consultants must then commit significant resources over an extended period of time. In many cases, we expect to recognize a substantial portion of the revenue related to the sale of our products upon the customer's deployment or production of the products licensed from us. Delays in license transactions due to unusually lengthy sales cycles, delays in customer production or delays in deploying our products could harm our business and can be expected to cause our operating results to vary significantly from quarter to quarter. THE MARKET FOR OUR PRODUCTS AND SERVICES IS IN ITS EARLY STAGES OF DEVELOPMENT AND MAY FAIL TO MATURE INTO A SUSTAINABLE MARKET Our products and services facilitate online commerce and communication over public and private networks. The market for these products and services is in its early stages of development and is rapidly evolving, and a viable market may fail to emerge or be sustainable. We cannot predict the level of demand and market acceptance for our products and services, especially because acquisition of our products and services requires a large capital or other significant resource commitment. If the market for our products and services does not continue to mature, our business will be harmed. Adoption of electronic commerce and knowledge management, particularly by those individuals and companies that have historically relied upon traditional means of commerce and communication, will require a broad acceptance of new and different methods of conducting business and exchanging information. Our future revenues and profits will substantially depend on the Internet being accepted and widely used for commerce and communication. If Internet 7 8 commerce does not continue to grow or grows more slowly than expected, our business will be harmed. In the emerging marketplace of Internet commerce, our products and services involve a new approach to the conduct of online business. As a result, intensive marketing and sales efforts may be necessary to educate prospective customers regarding the uses and benefits of our products and services, thereby generating demand. Companies that have already invested substantial resources in other methods of conducting business may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems. Similarly, purchasers with established patterns of commerce may be reluctant to alter those patterns or may otherwise resist providing the personal data necessary to support our consumer profiling capability. In addition, the security and privacy concerns of existing and potential online purchasers may inhibit the growth of online business generally and the market's acceptance of our products and services in particular. Accordingly, a viable market for our products and services may not emerge or be sustainable. A BREACH OF THE ENCRYPTION TECHNOLOGY THAT WE USE COULD EXPOSE US TO LIABILITY, HARM OUR REPUTATION OR OTHERWISE HARM OUR BUSINESS If any breach of our security were to occur, we would be exposed to liability, and our reputation and business could be harmed. A significant barrier to online commerce and communication is the secure exchange of value and confidential information over public networks. We rely on encryption and authentication technology, including public key cryptography technology licensed from RSA, to provide the security and authentication necessary to effect the secure exchange of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could cause a breach of the RSA or other algorithms that we use to protect customer transaction data. OUR PRODUCTS ARE ESPECIALLY SUSCEPTIBLE TO PRODUCT DEFECTS BECAUSE THEY ARE COMPLEX Sophisticated software products, like ours, may contain undetected errors that will not become apparent until after the products are introduced or when the volume of provided services increases. It is possible that, despite testing by us and prospective customers, errors will be found in our products. Product defects could result in all or any of the following consequences to our business: - loss of revenues; - delay in market acceptance; - diversion of development resources; - damage to our reputation; or - increased service and warranty costs. WE ARE CONTINUING TO SUBSTANTIALLY EXPAND OUR BUSINESS AND OPERATIONS, AND WE MUST EFFECTIVELY MANAGE AND SUPPORT THIS EXPANSION We have substantially expanded our business and operations since our inception in 1993. We expect to continue to experience periods of rapid change. If we are unable to support this growth effectively, we will have to divert additional resources away from expanding our business and toward internal administration. Our past expansion has placed, and any future expansion would place, significant demands on our administrative, operational, financial and other resources. We expect operating expenses and staffing levels to increase substantially in the future. In particular, we intend to continue hiring a significant number of additional personnel this year and in later years. We also expect to expend resources on expanding accounting and internal management systems and implementing a variety of new systems and procedures. If our revenues do not increase in proportion to our operating expenses, our management systems do 8 9 not expand to meet increasing demands or our management otherwise fails to support our expansion effectively, our business will harmed. WE ARE DEPENDENT ON DIRECT SALES PERSONNEL AND THIRD-PARTY DISTRIBUTION CHANNELS TO ACHIEVE REVENUE GROWTH To date, we have sold our products primarily through our direct sales force. Our ability to achieve significant revenue growth in the future will largely depend on our success in recruiting and training sufficient direct sales personnel and establishing and maintaining relationships with distributors, resellers and systems integrators. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. New hires require training and take time to achieve full productivity. Our recent hires may not become as productive as necessary, and we may be unable to hire sufficient numbers of qualified individuals in the future. We have entered into strategic alliance agreements with certain partners, including Hewlett-Packard, Sema and Security First, under which these partners have agreed to resell and support our current BroadVision One-to-One product suite. These contracts are generally terminable by either party upon 30 days notice of an uncured material breach. Termination of the Hewlett-Packard, Sema, Security First or other similar alliances could harm our business. We cannot be certain that we will successfully expand our other distribution channels or that any expansion will result in revenue increases. If we fail to expand our direct sales force or other distribution channels, our revenues may not grow or they may decline. OUR CUSTOMERS MAY RELY ON THIRD-PARTY SYSTEMS INTEGRATORS FOR THE SUCCESS OF ONLINE MARKETPLACES Our prospective customers may rely on third-party systems integrators to develop, deploy and manage online marketplaces. If we are unable to adequately train a sufficient number of systems integrators or if, for any reason, a large number of these integrators adopt a different product or technology instead of the BroadVision One-To-One application products, our business could be harmed. WE ARE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS Our international activities expose us to numerous additional risks. In the year ended December 31, 1998 approximately 42% and in the six months ended June 30, 1999 approximately 29% of our total revenues were derived from sales outside of North America. We currently have nine offices in Europe and Asia. A key component of our business strategy is to expand our international activities. Reflecting our commitment to a significant international presence, we have applied to list our shares of common stock on the Neuer Markt segment of the Frankfurt Stock Exchange. As we continue to expand internationally, we are increasingly subject to risks of doing business internationally, including the following: - unexpected changes in regulatory requirements; - export controls relating to encryption technology and other export restrictions; - tariffs and other trade barriers; - difficulties in staffing and managing foreign operations; - political and economic instability; - fluctuations in currency exchange rates; - reduced protection for intellectual property rights in some countries; - cultural barriers; 9 10 - seasonal reductions in business activity during the summer months in Europe and certain other parts of the world; and - potentially adverse tax consequences. Our international sales growth will be limited if we are unable to establish additional foreign operations, expand international sales channel management and support, hire additional personnel, customize products for local markets and develop relationships with international service providers, distributors and system integrators. Even if we are able to successfully expand international operations, we cannot be certain that we will succeed in maintaining or expanding international market demand for our products. OUR SUCCESS AND COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY It is essential to the success of our business that we adequately protect our proprietary technology. Although we hold a U.S. patent, issued in January 1998, on elements of our BroadVision One-To-One Enterprise product, we cannot be certain that this patent will provide an adequate level of intellectual property protection. For example, we filed a lawsuit against Art Technology Group, or ATG, on December 11, 1998, claiming infringement of U.S. Patent No. 5,710,887 and seeking injunctive relief and unspecified damages. On February 3, 1999, ATG filed an answer and counterclaimed against us seeking judgment for non-infringement and invalidity of the patent. Our patent claim may not succeed or our patent may be invalidated. Trial is set for October 16, 2000. We have also relied on copyright, trade secret and trademark law to protect our technology. We have registered "BroadVision" and "BroadVision One-To-One" as trademarks in the United States. It is possible that our competitors or other companies will adopt product names similar to "One-To-One," thereby impeding our ability to build brand identity and possibly confusing customers. We provide our products to end users generally under nonexclusive, nontransferable licenses during the term of the relevant agreement, which is usually in perpetuity. We make the source code available for some portions of our products. We protect the source code for our proprietary software both as a trade secret and as a copyrighted work. However, disclosing the source code may increase the likelihood of third-party misappropriation. As a matter of company policy, we enter into confidentiality and assignment agreements with our employees, consultants and vendors. We also control access to and distribution of our software, documents and other proprietary information. Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or otherwise obtain and use our software or other proprietary information or to develop similar software independently. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property. The steps we have taken to prevent misappropriation of our technology, including entering into agreements for that purpose, may be insufficient. In addition, litigation like the lawsuit against ATG may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Litigation like this, whether successful or unsuccessful, could result in substantial costs and diversions of our management resources, either of which could harm our business. 10 11 WE ARE SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT, WHICH COULD DIVERT MANAGEMENT RESOURCES AND HARM OUR REPUTATION Third parties may claim that we have infringed their patent, trademark, copyright or other proprietary rights. It is also possible that claims will be made for indemnification resulting from allegations of infringement. Claims like these could divert management attention, affect our reputation and otherwise harm our business. In addition, intellectual property claims may be asserted against us as a result of the use by us, our customers or other third parties of our products for the transmission, dissemination or display of information on the Internet. Any claims, with or without merit, could be time consuming, costly, cause product shipment delays or require that we enter into royalty or licensing agreements. These licenses might not be available on reasonable terms, or at all. As a result, any claim like this could harm our business. THE LOSS OR MALFUNCTION OF TECHNOLOGY LICENSED FROM THIRD PARTIES COULD DELAY OUR PRODUCT SHIPMENTS We rely in part on technology that we license from third parties, including relational database management systems from Oracle and Sybase, object request broker software from IONA Technologies, database access technology from Rogue Wave and other software. We integrate this technology with internally developed software to perform key functions. For example, our products and services incorporate data encryption and authentication technology licensed from RSA. These third-party technology licenses might not continue to be available to us on commercially reasonable terms, or at all. This technology may contain defects that we cannot control. The loss of any of these technology licenses could cause delays in introducing our products or services until equivalent technology, if available, is identified, licensed and integrated. Delays in introducing our products and services could harm our business. OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES ARE CRITICAL TO OUR BUSINESS, AND THEY MAY NOT REMAIN WITH US IN THE FUTURE Our performance substantially depends on the performance of our executive officers and key employees. We rely on our ability to retain and motivate highly qualified personnel, especially our management and highly skilled development teams. The loss of the services of any of our executive officers or key employees, particularly our founder and Chief Executive Officer, Dr. Pehong Chen, could cause us to incur increased operating expenses and divert senior management resources in searching for replacements. The loss of their services could also harm our reputation if our customers were to become concerned about our future operations. We do not have "key person" life insurance policies on any of our employees. Our future success also depends on our continuing ability to identify, hire, train and retain other highly qualified technical and managerial personnel. Competition for these personnel is intense, especially in the Internet industry. We have in the past experienced, and we expect to continue to experience, difficulty in hiring and retaining sufficient numbers of highly skilled employees as a result of our substantial growth and expansion. OUR BUSINESS COULD BE HARMED BY YEAR 2000 COMPLIANCE ISSUES Many currently installed computer systems and software products are not capable of distinguishing 21st century dates from 20th century dates. As a result, in less than a year, computer systems and software products with embedded technology used by many companies may need to be upgraded to comply with these "Year 2000" requirements. This type of Year 2000 error could potentially cause system failures or miscalculations that could disrupt operations, including among other things a temporary inability to process transactions, issue invoices or engage in similar normal business activities. The most likely worst-case scenarios could include hardware failure and the failure of infrastructure services provided by government 11 12 agencies and other third parties, such as electricity, telephone service, water transport and Internet services. Undetected Year 2000 errors or defects could result in delay or loss of revenue, diversion of development resources, damage to our reputation and increased service and warranty costs. We believe that the purchasing patterns of customers could potentially be affected by Year 2000 issues as companies expend significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products like ours. Other systems or software used by our customers may not be Year 2000 compliant. The failure of noncompliant third-party software or systems could affect the perceived performance of our products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Compliance". RISKS RELATED TO THE INTERNET INDUSTRY LIMITATIONS ON THE ONLINE COLLECTION OF PROFILE INFORMATION COULD IMPAIR THE EFFECTIVENESS OF OUR PRODUCTS Online users' resistance to providing personal data and laws and regulations prohibiting use of personal data gathered online without express consent or requiring businesses to notify their Web site visitors of the possible dissemination of their personal data could limit the effectiveness of our products. One of the principal features of the BroadVision One-To-One application products is the ability to develop and maintain profiles of online users to assist business managers in determining the nature of the content to be provided to these online users. Typically, profile information is captured when consumers, business customers and employees visit a Web site and volunteer information in response to survey questions concerning their backgrounds, interests and preferences. Profiles are augmented over time through the subsequent collection of usage data. Although BroadVision One-To-One products are designed to enable the development of applications that permit Web site visitors to prevent the distribution of any of their personal data beyond that specific Web site, privacy concerns may nevertheless cause visitors to resist providing the personal data necessary to support this profiling capability. The mere perception by prospective customers that substantial security and privacy concerns exist among online users, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, new laws and regulations could heighten privacy concerns by requiring businesses to notify Web site users that the data captured from them while online may be used by marketing entities to direct product messages to them. While we are not aware of any laws or regulations like this currently in effect or in development in the United States, other countries and political entities, including the European Union and its member states, have adopted legal requirements imposing restrictions on the collection, use and processing of personal data. It is possible that similar legal requirements could be adopted in the United States. If the privacy concerns of consumers are not adequately addressed, the effectiveness of our BroadVision One-to-One application products could be impaired. IF WE ARE UNABLE TO MEET THE RAPID TECHNOLOGICAL CHANGES IN ONLINE COMMERCE AND COMMUNICATION, OUR EXISTING PRODUCTS AND SERVICES COULD BECOME OBSOLETE Our products and services may fail to be competitive if we do not maintain or exceed the pace of technological developments in Internet commerce and communication. The information services, software and communications industries are characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements, and evolving industry standards and practices. The introduction of products and services embodying new technologies and the emergence of new industry standards and 12 13 practices can render existing products and services obsolete. Our future success will depend, in part, on our ability to do the following: - develop leading technologies; - enhance our existing products and services; - develop new products and services that address the increasingly sophisticated and varied needs of our prospective customers; and - respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. Internet commerce technology is complex and new products and enhancements can require long development periods. If we are unable to develop and introduce new products and services or enhancements in a timely manner in response to changing market conditions or customer requirements, or if new products and services do not achieve market acceptance, our business will suffer. CURRENT AND POTENTIAL COMPETITORS COULD MAKE IT DIFFICULT FOR US TO ACQUIRE AND RETAIN CUSTOMERS NOW AND IN THE FUTURE If we fail to compete successfully with current or future competitors, we may lose market share. The market for online interactive one-to-one applications is rapidly evolving and intensely competitive. Our customers' requirements and the technology available to satisfy those requirements continually change. We expect competition in this market to persist and increase in the future. Our primary competition includes the following: - in-house development efforts by prospective customers or partners; - other vendors of application software or application development platforms and tools directed at interactive commerce and financial services, such as ATG, InterWorld, Open Market and Vignette; - Web content developers that develop custom software or integrate other application software into custom solutions; - International Business Machines; and - Microsoft. Compared to us, many of these and other competitors have longer operating histories and significantly greater financial, technical, marketing and other resources. As a result, they may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many of these companies can also use their greater name recognition and more extensive customer base to gain market share at our expense. Competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers than we can. Some of our current and potential competitors, such as IBM and Microsoft, may bundle their products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us to acquire and retain customers, and it may require us to reduce the price of our products. We may be unable to compete successfully with current or new competitors. 13 14 NEW AND EXISTING LAWS COULD EITHER DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY AFFECT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET COMMERCE The adoption of any laws or regulations that restrict our methods of doing business or limit the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Today, there are relatively few laws specifically directed towards online services. However, due to the increasing popularity of the Internet generally and Internet commerce specifically, we expect that federal, state or foreign agencies will enact laws and regulations with respect to the Internet. These new laws and regulations would be likely to address issues like online user privacy, pricing, content and quality of products and services. If enacted, these laws and regulations could limit the market for our products and services, which could harm our business. For example, because our products involve the solicitation of personal data regarding individual consumers, our business could be limited by laws regulating the solicitation, collection or processing of this data. The Telecommunications Act of 1996, enacted in January 1996, prohibits the transmission of some types of information and content over the Internet. The prohibition's scope and the liability associated with a Telecommunications Act violation are currently unsettled. Legislation imposing potential liability upon us for information carried on or disseminated through our products would likely cause us to implement costly measures to reduce our exposure to this liability or to discontinue certain services. Our business could be harmed by the expense involved in reacting to actual or potential liability associated with the Telecommunications Act or other Internet-related laws and regulations. In addition, the increased attention focused upon liability issues as a result of the Telecommunications Act could limit the growth of Internet commerce, which could decrease demand for our products. The United States government regulates the export of encryption technology, which our products incorporate. Export regulations, either in their current form or as may be subsequently enacted, may limit our ability to distribute our software outside the United States. Any revocation or modification of our export authority or adoption of new laws or regulations relating to the export of software and encryption technology could limit our international operations. The unlawful export of our software could also harm our business. Although we take precautions against unlawful export of our software, the global nature of the Internet makes it difficult to effectively control the distribution of software. THE IMPOSITION OF SALES AND OTHER TAXES ON PRODUCTS SOLD BY OUR CUSTOMERS OVER THE INTERNET COULD HAVE A NEGATIVE EFFECT ON ONLINE COMMERCE AND, AS A RESULT, ON DEMAND FOR OUR PRODUCTS The imposition of new sales or other taxes could limit the growth of Internet commerce generally and, as a result, the demand for our products. Recent federal legislation limits the imposition of state and local taxes on Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act, which places a three-year moratorium on state and local taxes on: - Internet access, unless the tax was already imposed prior to October 1, 1998; and - discriminatory taxes on electronic commerce. There is a possibility that Congress may not renew this legislation in 2001. If Congress chooses not to renew this legislation, state and local governments would be free to impose taxes on electronically purchased goods. We believe that, in accordance with current industry practice, most companies that sell products over the Internet do not currently collect sales or other taxes on shipments of their products into states or foreign countries where they are not physically present. However, one or more states or foreign countries may seek to impose sales or other tax collection obligation on out-of-jurisdiction companies that engage in electronic commerce. A successful assertion by one or more states or foreign countries that companies engaged in electronic commerce should collect sales or other taxes on the sale of their products over the Internet, even though not 14 15 physically present in the state or foreign country, could indirectly reduce demand for our products. RISKS RELATED TO THIS OFFERING OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE The trading price of our common stock has been and is likely to continue to be highly volatile. Our stock price is subject to wide fluctuations in response to a variety of factors, including: - quarterly variations in operating results; - announcements of technological innovations; - announcements of new software or services by us or our competitors; - changes in financial estimates by securities analysts; or - other events or factors that are beyond our control. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many high technology companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. Any negative change in the public's perception of the prospects of Internet or electronic commerce companies could depress our stock price regardless of our results. Other broad market fluctuations may decrease the trading price of our common stock. In the past, following declines in the market price of a company's securities, securities class action litigation has often been instituted against that company. Litigation could result in substantial costs and a diversion of management's attention and resources. WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS We expect that the net proceeds from this offering, our available cash resources, cash generated from operations, and amounts available under our commercial credit facilities will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional funds to support more rapid expansion, develop new or enhanced services, respond to competitive pressures, acquire complementary businesses or technologies or respond to unanticipated requirements. If additional funds are raised through the issuance of equity securities, our stockholders' percentage ownership will be reduced, they may experience additional dilution, or these newly issued equity securities may have rights, preferences, or privileges senior to those of our current stockholders. Additional financing may not be available when needed on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could harm our business. BECAUSE WE ARE CURRENTLY UNABLE TO IDENTIFY THE SPECIFIC USES TO WHICH THE NET PROCEEDS FROM THIS OFFERING WILL BE APPLIED, YOU WILL BE RELYING ON THE JUDGMENT OF OUR MANAGEMENT REGARDING THE APPLICATION OF THE PROCEEDS We have not designated any specific use for the net proceeds from our sale of common stock described in this prospectus. Rather, we expect to use the net proceeds for general corporate purposes, including working capital. Consequently, our management will have significant flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management regarding the application of the proceeds. Our management will have the ability to change the application of the proceeds of this offering without stockholder approval. 15 16 BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE OF OUR COMMON STOCK, THEY WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER US Upon completion of this offering, our present directors and executive officers and their affiliates will beneficially own approximately 27% of the outstanding common stock. As a result, if these stockholders act together, they will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions like mergers and other business combinations. This concentration of ownership may also have the effect of delaying or preventing a change in control over us unless it is supported by our directors and executive officers. SOME ANTI-TAKEOVER PROVISIONS MAY AFFECT THE PRICE OF OUR COMMON STOCK Our Restated Certificate authorizes the board of directors to issue up to 10,000,000 shares of preferred stock. The board also has the authority to determine the price, rights, preferences and privileges, including voting rights, of those shares without any further vote or action by the stockholders. The rights of our stockholders will be subject to, and may be impaired by, the rights of the holders of any preferred stock that may be issued in the future. The Restated Certificate and Restated Bylaws require that stockholder actions occur at duly called meetings of the stockholders, do not permit cumulative voting in the election of directors and require advance notice of stockholder proposals and director nominations. These and other provisions contained in our charter documents and applicable provisions of Delaware law could serve to depress our stock price or discourage a hostile bid in which stockholders could receive a premium for their shares. In addition, these provisions could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock or otherwise effect a change of control. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus, including the sections entitled "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business", contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", "continue" or the negative of these terms or other comparable terminology. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. 16 17 USE OF PROCEEDS We estimate that the net proceeds from the sale of 2,250,000 shares of common stock that we are selling in this offering will be approximately $126.2 million, based on an assumed offering price of $60.58 per share and after deducting the estimated underwriting discount (approximately $6.8 million) and offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in the offering, we estimate the net proceeds will be approximately $145.6 million. We will receive the net proceeds from the shares being offered outside the United States in an international offering in euros. We anticipate using the net proceeds from this offering for working capital and general corporate purposes. We may also use a portion of the net proceeds, currently intended for general corporate purposes, to license, acquire or invest in new products, technologies or businesses that are complementary to our business. We have no present plans or commitments and we are not currently engaged in any negotiations with respect to transactions that are material. Our board of directors and management will have significant flexibility in applying the net proceeds of this offering. Pending these uses, we intend to invest the net proceeds of this offering in short-term, investment grade, interest-bearing securities. PRICE RANGE OF COMMON STOCK Our common stock is quoted on the Nasdaq National Market under the symbol "BVSN." The following table shows high and low sale prices per share of the common stock as reported on the Nasdaq National Market for the periods indicated:
HIGH LOW ------ ------- FISCAL YEAR 1997 First Quarter............................................... $ 3.46 $ 2.50 Second Quarter.............................................. 3.04 1.46 Third Quarter............................................... 2.46 1.67 Fourth Quarter.............................................. 2.90 1.96 FISCAL YEAR 1998 First Quarter............................................... $ 6.33 $ 2.00 Second Quarter.............................................. 8.38 4.92 Third Quarter............................................... 9.83 3.35 Fourth Quarter.............................................. 14.75 3.08 FISCAL YEAR 1999 First Quarter............................................... $24.46 $ 9.04 Second Quarter.............................................. 24.58 13.04 Third Quarter............................................... 46.63 20.46 Fourth Quarter (through October 20, 1999)................... 60.94 46.33
------------------------- On October 20, 1999, the last sale price reported on the Nasdaq National Market was $60.58 per share. As of October 19, 1999, there were approximately 256 holders of record of our common stock. 17 18 DIVIDEND POLICY We have not declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the growth and development of our business, and we do not intend to pay any cash dividends in the foreseeable future. Future dividends, if any, will be determined by our board of directors. Any shares outstanding as of the record date for a dividend and from the date of issuance of these shares shall be entitled to receive, as all other shares of outstanding common stock, the full dividend when and if a dividend is declared by our board of directors. 18 19 CAPITALIZATION The following table shows our capitalization as of June 30, 1999 on an actual basis and on an as adjusted basis. The as adjusted column gives effect to our receipt of the estimated net proceeds from the sale of 2,250,000 shares of common stock we are offering at an assumed price to public of $60.58 per share. The outstanding share information in the table below excludes: - 15,457,311 shares subject to outstanding options at a weighted average exercise price of approximately $6.77 per share; and - 180,000 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $2.83 per share.
AS OF JUNE 30, 1999 ------------------------- ACTUAL AS ADJUSTED --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Debt and capital lease obligations, less current portion.... $ 2,616 $ 2,616 -------- -------- Stockholders' equity: Convertible Preferred Stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued or outstanding, actual and as adjusted................................. -- -- Common Stock, $0.0001 par value; 500,000,000 shares authorized; 76,525,173 shares issued and outstanding, actual; 78,775,173 shares issued and outstanding, as adjusted............................................... 8 8 Additional paid-in capital.................................. 109,301 235,516 Deferred compensation related to grant of stock options..... (389) (389) Accumulated other comprehensive income...................... 13,243 13,243 Accumulated deficit......................................... (13,351) (13,351) -------- -------- Total stockholders' equity............................. 108,812 235,027 -------- -------- Total capitalization.............................. $111,428 $237,643 ======== ========
19 20 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and Notes thereto, and other financial information included elsewhere in this prospectus. The selected consolidated financial data below as of December 31, 1996, 1997 and 1998, and for the years ended December 31, 1996, 1997 and 1998, are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 1994 and 1995 and balance sheet data as of December 31, 1994 and 1995 are derived from our audited consolidated financial statements that are not included in this prospectus. The selected consolidated statement of operations data for the six months ended June 30, 1998 and 1999 and the consolidated balance sheet data as of June 30, 1999 are derived from unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim results for the six months ended June 30, 1999 are not necessarily indicative of results to be expected for the year ending December 31, 1999. Historical results are not necessarily indicative of the results to be expected in the future. See Note 1 of Notes to Consolidated Financial Statements for a description of the method used to compute basic and diluted net income (loss) per share.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- ------------------ 1994 1995 1996 1997 1998 1998 1999 ------- ------- -------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Software licenses............................. $ -- $ -- $ 7,464 $18,973 $36,067 $15,297 $28,267 Services...................................... -- 540 3,418 8,132 14,844 6,167 13,673 ------- ------- -------- ------- ------- ------- ------- Total revenues.......................... -- 540 10,882 27,105 50,911 21,464 41,940 Cost of revenues: Cost of software licenses..................... -- -- 330 1,664 1,001 400 1,784 Cost of services.............................. -- 249 2,164 4,284 8,704 3,711 7,945 ------- ------- -------- ------- ------- ------- ------- Total cost of revenues.................. -- 249 2,494 5,948 9,705 4,111 9,729 ------- ------- -------- ------- ------- ------- ------- Gross profit.................................... -- 291 8,388 21,157 41,206 17,353 32,211 Operating expenses: Research and development...................... 748 2,575 4,985 7,392 9,227 4,083 6,169 Sales and marketing........................... 512 1,348 12,066 18,413 26,269 12,104 17,684 General and administrative.................... 511 846 2,034 2,990 3,786 1,585 2,882 ------- ------- -------- ------- ------- ------- ------- Total operating expenses................ 1,771 4,769 19,085 28,795 39,282 17,772 26,735 ------- ------- -------- ------- ------- ------- ------- Operating income (loss)....................... (1,771) (4,478) (10,697) (7,638) 1,924 (419) 5,476 Other......................................... 101 160 552 265 2,115 613 776 ------- ------- -------- ------- ------- ------- ------- Net income (loss)............................. $(1,670) $(4,318) $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252 ======= ======= ======== ======= ======= ======= ======= Net income (loss) per share: Basic earnings (loss) per share............... $ (0.12) $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08 ======= ======== ======= ======= ======= ======= Shares used in computation -- basic earnings (loss) per share............................ 35,928 56,445 60,624 70,038 66,732 74,658 ======= ======== ======= ======= ======= ======= Diluted earnings (loss) per share............. $ (0.12) $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07 ======= ======== ======= ======= ======= ======= Shares used in computation -- diluted earnings (loss) per share............................ 35,928 56,445 60,624 76,959 74,457 83,838 ======= ======== ======= ======= ======= =======
AS OF DECEMBER 31, --------------------------------------------------- AS OF JUNE 30, 1994 1995 1996 1997 1998 1999 ------- ------ ------- -------- ------- -------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................. $ 808 $4,311 $17,608 $ 8,277 $61,878 $53,735 Working capital....................................... 2,208 3,916 18,258 11,485 64,320 72,651 Total assets.......................................... 2,640 5,857 26,714 26,539 101,562 137,198 Debt and capital leases, less current portion......... -- 516 495 3,005 3,194 2,616 Accumulated deficit................................... (1,806) (6,124) (16,269) (23,642) (19,603) (13,351) Total stockholders' equity............................ 2,526 4,254 21,016 15,121 81,809 108,812
20 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained or incorporated by reference in this section, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those discussed below. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the "Risk Factors" section and elsewhere in this prospectus. Any forward-looking statements speak only as of the date such statements are made. OVERVIEW We develop, market and support application software solutions for one-to-one relationship management across the extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, offer online customer self-service and support, deliver targeted information and provide online financial services. Each of these capabilities can be provided to all constituents of the extended enterprise, including: customers, suppliers, partners, distributors and employees. The BroadVision One-To-One product suite allows businesses to tailor their Web site content to the needs and interests of individual users by personalizing each visit on a real-time basis. Our applications interactively capture Web site visitor profile information, organize the enterprise's content, target that content to each visitor based on easily constructed business rules, and execute transactions. We believe the benefits of these applications include enhanced customer satisfaction and loyalty, increased business volume, greater brand awareness, reduced costs to service customers and to execute transactions, and enhanced employee productivity. We sell our products and services worldwide through a direct sales force, independent distributors, resellers and system integrators. We also have a global network of strategic business relationships with key industry platform and Web developer partners. We also engage in strategic business alliances to assist us in marketing, selling and developing customer applications. We also place a strategic emphasis on developing technology alliances in order to ensure that our products are based on industry standards and that we are positioned to take advantage of current and emerging technologies. The benefits of this approach include enabling us to focus on our core competencies while reducing time to market and simplifying the task of designing and developing applications for us and our customers. Our revenues are derived from software license fees and fees charged for our services. We recognize software license revenues when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. Software license revenues, in general, are recognized upon consummation of the sale. Our professional services include our Strategic Services Group, Interactive Services Group, Content and Creative Services Group, Education Services Group and Technical Support Group. Maintenance fees relating to technical support and upgrades are recognized ratably over the contracted period. Consulting-related services revenues are typically recognized as services are performed. Cost of license revenues includes royalties payable to third parties for software that is either embedded in, or bundled and sold with, our products; commissioned agent fees paid to distributors; and the costs of product media, duplication, packaging and other associated manufacturing costs. Cost of services consists primarily of employee-related costs, third-party 21 22 consultant fees incurred on consulting projects, post-contract customer support and instructional training services. Research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Costs incurred for the research and development of new software products are expensed as incurred until the time that technological feasibility, in the form of a working model, is established, at which point these costs are capitalized subject to recoverability. The costs we have incurred subsequent to the establishment of a working model but prior to general release have not been significant. To date, we have not capitalized any software development costs. Sales and marketing expenses consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment and marketing-related expenditures such as collateral materials, trade shows, public relations and creative services. General and administrative expenses consist primarily of salaries, employee-related benefit costs and professional service fees. RESULTS OF OPERATIONS The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenues for the periods indicated.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------- ------------ 1996 1997 1998 1998 1999 ------ ------ ------ ---- ---- Revenues: Software licenses................................ 69% 70% 71% 71% 67% Services......................................... 31 30 29 29 33 ---- ---- ---- ---- ---- Total revenues........................... 100 100 100 100 100 ---- ---- ---- ---- ---- Cost of revenues: Cost of license revenues......................... 3 6 2 2 4 Cost of services revenues........................ 20 16 17 17 19 ---- ---- ---- ---- ---- Total cost of revenues........................ 23 22 19 19 23 ---- ---- ---- ---- ---- Gross profit............................. 77 78 81 81 77 ---- ---- ---- ---- ---- Operating expenses: Research and development......................... 45 27 18 19 15 Sales and marketing.............................. 111 68 52 57 42 General and administrative....................... 19 11 7 7 7 ---- ---- ---- ---- ---- Total operating expenses...................... 175 106 77 83 64 ---- ---- ---- ---- ---- Operating income (loss).................. (98) (28) 4 (2) 13 Other......................................... 5 1 4 3 3 ---- ---- ---- ---- ---- Income (loss) before income taxes........ (93) (27) 8 1 16 Income tax benefit (expense).................. -- -- -- -- (1) ---- ---- ---- ---- ---- Net income (loss)........................ (93)% (27)% 8% 1% 15% ==== ==== ==== ==== ====
22 23 SIX MONTHS ENDED JUNE 30, 1998 AND 1999 REVENUES For the six months ended June 30, 1999, total revenues increased 95% to $41.9 million as compared to $21.5 million for the six months ended June 30, 1998. A summary of our software and services revenues by geographic region is as follows:
SOFTWARE % SERVICES % TOTAL % -------- --- -------- --- ------- --- (DOLLARS IN THOUSANDS) Six Months Ended June 30, 1998 Americas............................ $ 7,501 49% $ 4,314 70% $11,815 55% Europe.............................. 5,731 37 1,073 17 6,804 32 Asia/Pacific........................ 2,065 14 780 13 2,845 13 ------- --- ------- --- ------- --- Total............................... $15,297 100% $ 6,167 100% $21,464 100% ======= === ======= === ======= === Six Months Ended June 30, 1999 Americas............................ $19,619 69% $10,127 74% $29,746 71% Europe.............................. 4,830 17 2,807 21 7,637 18 Asia/Pacific........................ 3,818 14 739 5 4,557 11 ------- --- ------- --- ------- --- Total............................... $28,267 100% $13,673 100% $41,940 100% ======= === ======= === ======= ===
For the six months ended June 30, 1999, software license revenues increased 85% to $28.3 million as compared to $15.3 million for the six months ended June 30, 1998. The increase in software license revenues is attributable to continued strong market acceptance for our core competencies and technology; our strategic focus of leveraging our partner relationships; our expanding range of products and product functionality; and, to a lesser extent, product pricing increases that were effective October 1, 1998. As a result, we are attracting new customers and our existing customer base is generating additional revenues through increased use of already-developed Web sites and the introduction of new Web sites within the same organization. During the six months ended June 30, 1999, we licensed approximately 82 new end-user customers and 24 new partners, which compares with approximately 45 new end-user customers and 11 new partners during the six months ended June 30, 1998. As of June 30, 1999, we had licensed over 280 end-user customers and 95 partners, which compares with over 195 end-user customers and 75 partners as of December 31, 1998 and 150 end-user customers and 55 partners as of June 30, 1998. For the six months ended June 30, 1999, total services revenues increased 122% to $13.7 million as compared to $6.2 million for the six months ended June 30, 1998. The increase in professional services revenue is a result of our increased business volumes and a higher level of customer support revenues derived from a larger installed customer base. We continue to add internal headcount within our professional services organizations to support the higher business volumes and have increased our emphasis on leveraging our integrator partner relationships. Increasingly sophisticated and customer-specific use of our products has recently caused accelerated demand for our professional services. However, our strategy of developing business alliances with system integrators and other third-party professional services organizations to support our products may in the future result in a decline in professional services revenues as a percentage of total revenues. Maintenance revenues continue to increase and were $4.6 million for the six months ended June 30, 1999 as compared to $1.9 million for the six months ended June 30, 1998. COST OF REVENUES In the table below, the percentage of cost of license revenues is calculated based on total software license revenues, the percentage of cost of services revenues is calculated based on 23 24 total services revenues and the percentage of total cost of revenues is calculated based on total revenues.
SIX MONTHS ENDED JUNE 30, --------------------------------- 1998 % 1999 % ------ --- ------ --- (DOLLARS IN THOUSANDS) Cost of license revenues.............................. $ 400 3% $1,784 6% Cost of services revenues............................. 3,711 60 7,945 58 ------ ------ Total cost of revenues................................ $4,111 19% $9,729 23% ====== ======
Cost of software licenses increased 346% during the six months ended June 30, 1999 to $1.8 million as compared to $400,000 for the six months ended June 30, 1998. The increase in cost of software licenses, in both absolute dollar and relative percentage terms, is principally a result of royalties paid to third-party vendors for software used in conjunction with and sold with our products. The higher third-party software sales add incremental revenues to our own product sales but carry a higher cost of license factor in relation to our own product sales. Royalty costs for third-party software embedded in our product decreased in relative percentage terms as a result of our renegotiating a previously existing percentage based royalty arrangement into a prepaid fixed fee royalty for the period through 2001. Cost of services increased 114% during the six months ended June 30, 1999 to $7.9 million as compared to $3.7 million for the six months ended June 30, 1998. The increase in cost of services in absolute dollar terms is a result of expanded business volumes as evidenced by increased services revenues. Overall costs increased as a result of additions to our professional services staff and the employment of outside consultants to meet short-term consulting demands. OPERATING EXPENSES A summary of our operating expenses is set forth in the following table. The percentage of expenses is calculated based on total revenues.
SIX MONTHS ENDED JUNE 30, -------------------------------- 1998 % 1999 % ------- --- ------- --- (DOLLARS IN THOUSANDS) Research and development.............................. $ 4,083 19% $ 6,169 15% Sales and marketing................................... 12,104 57 17,684 42 General and administrative............................ 1,585 7 2,882 7 ------- --- ------- --- Total operating expenses.............................. $17,772 83% $26,735 64% ======= === ======= ===
Research and development expenses increased 51% during the six months ended June 30, 1999 to $6.2 million as compared to $4.1 million for the comparable period the six months ended June 30, 1998. The increase in research and development expenses in absolute dollar terms is primarily attributable to personnel costs for added headcount within those operations involved in the enhancement of existing applications and the development of our next generation of products. Research and development expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. Sales and marketing expenses increased 46% during the six months ended June 30, 1999 to $17.7 million as compared to $12.1 million for the six months ended June 30, 1998. The increases in sales and marketing expenses in absolute dollar terms reflect the cost of hiring additional sales and marketing personnel, increased commission payments resulting from higher revenues, developing and expanding sales distribution channels, and expanding promotional activities and marketing-related programs. Sales and marketing expenses, as a percentage of 24 25 total revenues, decreased because revenues have increased at a higher rate relative to expenses. General and administrative expenses increased 82% during the six months ended June 30, 1999 to $2.9 million as compared to $1.6 million for the six months ended June 30, 1998. The increase in general and administrative expenses in absolute dollar terms is attributable to additional administrative and management personnel, higher professional services fees and additional infrastructure to support the expansion of our operations. General and administrative expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. INCOME TAXES During the six month period ended June 30, 1999, we recognized tax expense of $334,000 at an effective tax rate of approximately 5%. Due to our continuing trend of positive earnings, we reversed a portion of our valuation allowance against the previously deferred tax assets for which realization is considered more likely than not. YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 REVENUES A summary of our software and services revenues by geographic region is as follows:
SOFTWARE % SERVICES % TOTAL % -------- --- -------- --- ------- --- (DOLLARS IN THOUSANDS) Year Ended December 31, 1996 Americas....................... $ 3,071 41% $ 1,335 39% $ 4,406 41% Europe......................... 2,257 30 1,023 30 3,280 30 Asia/Pacific................... 2,136 29 1,060 31 3,196 29 ------- --- ------- --- ------- --- Total.......................... $ 7,464 100% $ 3,418 100% $10,882 100% ======= === ======= === ======= === Year Ended December 31, 1997 Americas....................... $ 8,584 45% $ 4,288 53% $12,872 48% Europe......................... 8,835 47 2,015 25 10,850 40 Asia/Pacific................... 1,554 8 1,829 22 3,383 12 ------- --- ------- --- ------- --- Total.......................... $18,973 100% $ 8,132 100% $27,105 100% ======= === ======= === ======= === Year Ended December 31, 1998 Americas....................... $19,301 54% $10,029 67% $29,330 58% Europe......................... 13,879 38 3,065 21 16,944 33 Asia/Pacific................... 2,887 8 1,750 12 4,637 9 ------- --- ------- --- ------- --- Total.......................... $36,067 100% $14,844 100% $50,911 100% ======= === ======= === ======= ===
1997 VERSUS 1998 For the year ended December 31, 1998, total revenues increased $23.8 million or 88% on a year-over-year basis, which consisted of software license revenue increases of $17.1 million or 90% and professional services revenue increases of $6.7 million or 83%. The increase in software license revenues is attributable to continued strong market acceptance of our core BroadVision One-To-One Enterprise product, expanding sales volumes of three complementary packaged application products, higher deployment license revenues and to a lesser extent, product pricing increases that were effective October 1, 1998. Application license-related revenues for our three complementary products increased to $10.2 million in 1998 as compared to $2.4 million in 1997, which represents a 325% increase year over year. 25 26 Deployment-related license revenues increased to $14.8 million in 1998 as compared to $8.1 million in 1997, which represents a 83% increase year over year and is a result of repeat business and an increasing number of live site customers. During the year ended December 31, 1998, we continued to expand our strategic alliances with key industry partners to develop additional highly specialized applications. The increase in professional services revenue results from a higher level of consulting related services associated with increased business volumes and a higher level of customer support revenues derived from a larger installed customer base. Maintenance revenues were $5.1 million in 1998 as compared to $2.2 million in 1997. During the year ended December 31, 1998, we licensed approximately 94 new end-user customers and 27 new partners, which compares with approximately 70 new end-user customers and 34 new partners during the year ended December 31, 1997. As of December 31, 1998, we had a total installed license base of over 195 end-user customers and 75 partners, which compares with approximately 105 end-user customers and 48 partners as of December 31, 1997. In June 1998, we re-negotiated an existing royalty arrangement with one of our software vendors. As a result of the renegotiation, we paid the vendor a fixed fee of $1.25 million for royalties through 2001 and certain internal development rights through 1999. Previously, we had an existing arrangement with this vendor whereby we made quarterly royalty payments based on a percentage of product revenues. Concurrent with the renegotiation, we sold this vendor an end-user software license totaling $1.25 million, inclusive of maintenance and support. The sale to this vendor resulted in software license revenues of approximately $1.0 million during the quarter ended June 30, 1998. In July 1998, we finalized a strategic alliance with Security First, an Internet financial services company. Accordingly, we sold Security First software licenses including certain reseller rights in exchange for 181,610 shares of restricted Security First common stock that had a fair value of approximately $4.0 million. As part of the agreement, the companies also agreed to jointly develop and market a suite of Internet-based products based on Security First's Internet banking products and our BroadVision One-to-One Financial product. As a result of the transaction, we recognized license revenues of approximately $1.9 million and deferred revenues of approximately $2.1 million during the quarter ended September 30, 1998. The $2.1 million of deferred revenues consisted of approximately $1.0 million of deferred software license fees and joint development services, $949,000 for three years of maintenance and support and $175,000 of specified training services. The deferred software license fees and joint development services revenue will be recognized as revenue as the joint development services are performed. The deferred maintenance will be recognized as revenue ratably over the maintenance term, and the deferred training services will be recognized as the training is performed. In addition, we entered into a $3.5 million license and maintenance agreement with Sema in December 1998. As part of the agreement, Sema purchased licenses to resell our existing software products and received expanded territorial rights. The licensing agreement with this reseller resulted in software license revenues of approximately $2.75 million during the quarter ended December 31, 1998. 1996 VERSUS 1997 Our total annual revenues were $27.1 million in 1997 as compared to $10.9 million in 1996, which represents an increase of 149% year-over-year. Annual software license revenues were $19.0 million in 1997 as compared to $7.5 million in 1996, which represents an increase of 154% year-over-year. Annual professional services revenues were $8.1 million in 1997 as compared to $3.4 million in 1996, which represents an increase of 138% year-over-year. 26 27 The increase in license revenues is a result of strong market acceptance of our core BroadVision One-to-One Enterprise product, which was augmented by the introduction in 1997 of three complementary packaged application products. The increase in professional services revenue is a result of higher business volumes, greater use of our professional consultants and an expanding installed customer base under maintenance contracts. Maintenance revenues were $2.2 million in 1997 as compared to $599,000 in 1996. COST OF REVENUES In the table below, the percentage of cost of license revenues is calculated based on total software license revenues, the percentage of cost of services revenues is calculated based on total services revenues and the percentage of total cost of revenues is based on total revenues.
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1996 % 1997 % 1998 % ------ --- ------ --- ------ --- (DOLLARS IN THOUSANDS) Cost of license revenues.................... $ 330 4% $1,664 9% $1,001 3% Cost of services revenues................... 2,164 63 4,284 53 8,704 59 ------ ------ ------ Total cost of revenues...................... $2,494 23% $5,948 22% $9,705 19% ====== ====== ======
1997 VERSUS 1998 For the year ended December 31, 1998, cost of license revenues decreased $663,000 or 40% on a year-over-year basis. Cost of software licenses as a percent of license revenues was 3% in 1998 as compared to 9% in 1997. Cost of services revenues during 1998 increased $4.4 million or 103% on a year-over-year basis. Cost of services as a percent of services revenues was 59% in 1998 as compared to 53% in 1997. The decrease in cost of license revenues, in both absolute dollar and relative percentage terms, was principally a result of lower commissioned agent fees and third party royalty rates. We continued to expand our in-house sales force capabilities and during 1998 direct sales that we generated were higher and commissioned agent sales were lower relative to 1997. In addition, royalty costs relative to total license revenues decreased as a result of our re- negotiating a previously existing percentage based royalty arrangement into a prepaid fixed fee royalty for a period through 2001. The increase in cost of services revenues in absolute dollar terms during 1998 as compared to 1997 is a result of expanded business volumes as evidenced by increased services revenues. Overall costs increased as a result of additions to our professional services staff and the employment of outside consultants to meet short-term consulting demands. The increase in cost of services as a percentage of services revenues is a result of higher use of outside consultants in relation to the extent previously used during the prior year period. 1996 VERSUS 1997 Cost of license revenues on an annual basis was $1.7 million or 9% of related software license revenues in 1997 as compared to $330,000 or 4% of related software license revenues in 1996. Cost of license revenues increased in both absolute dollar and relative percentage terms during 1997 as compared to 1996 due to expanded sales volumes and higher commissioned agent fees as a result of increased distributor sales volume. Commissioned agent fees were $703,000 in 1997 as compared to $80,000 in 1996. To a lesser extent, an increased number of third-party products sold with or embedded in our products also contributed to the increases. Cost of services revenues on an annual basis was $4.3 million or 53% of related services revenues in 1997 as compared to $2.2 million or 63% of related services revenue in 1996. Cost 27 28 of services revenues increased 98% in absolute dollar terms during 1997 as compared to 1996 due to expanded business volumes, as represented by the 138% increase in total services revenues. The higher level of costs in absolute dollar terms are attributable to additions to our consulting staff, the employment of outside consultants to meet short-term consulting demands, an increasing number of licenses with support or maintenance components and a higher level of fixed costs resulting from the expansion of our services organization to meet higher business volumes. The decrease in cost of services revenues as a percentage of total services revenues during 1997 as compared to 1996 is principally a result of increased use of professional staff. OPERATING EXPENSES A summary of our operating expenses is set forth in the following table. The percentage of expenses is calculated based on total revenues.
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 1996 % 1997 % 1998 % ------- --- ------- --- ------- --- (DOLLARS IN THOUSANDS) Research and development........... $ 4,985 46% $ 7,392 27% $ 9,227 18% Sales and marketing................ 12,066 111 18,413 68 26,269 52 General and administrative......... 2,034 19 2,990 11 3,786 7 ------- --- ------- --- ------- -- Total operating expenses........... $19,085 176% $28,795 106% $39,282 77% ======= === ======= === ======= == Other income, net.................. $ 552 5% $ 265 1% $ 2,036 4% ======= === ======= === ======= ==
1997 VERSUS 1998 Research and development expenses for the year were $9.2 million in 1998 as compared to $7.4 million in 1997 which represents an increase of 25% year-over-year. Sales and marketing expenses for the year were $26.3 million in 1998 as compared to $18.4 million in 1997 which represents an increase of 43% year-over-year. General and administrative expenses for the year were $3.8 million in 1998 as compared to $3.0 million in 1997 which represents an increase of 27% year-over-year. Net other income for the year was $2.0 million in 1998 as compared to $265,000 in 1997, which represents an increase of 668% year-over-year. The increase in research and development expenses in absolute dollar terms is primarily attributable to personnel costs for added headcount within those operations involved in the enhancement of existing applications and the development of our next generation of products. Research and development expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. The increases in sales and marketing expenses in absolute dollar terms reflects the cost of hiring additional sales and marketing personnel, the continued development of sales distribution channels and the expansion of promotional activities and marketing-related programs. In addition, commission rates were higher during 1998 as result of sales people exceeding their sales quotas. Sales and marketing expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. The increase in general and administrative expenses in absolute dollar terms is attributable to additional administrative and management personnel, higher professional fees and additional infrastructure to support the expansion of our operations. General and administrative expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. 28 29 The increase in net other income is attributable to a higher level of investment income during the year as a result of earnings on proceeds received from a follow-on public stock offering in March 1998. 1996 VERSUS 1997 Research and development expenses for the year were $7.4 million in 1997 as compared to $5.0 million in 1996, which represents an increase of 48% year-over-year. Sales and marketing expenses for the year were $18.4 million in 1997 as compared to $12.1 million in 1996, which represents an increase of 53% year-over-year. General and administrative expenses for the year were $3.0 million in 1997 as compared to $2.0 million in 1996, which represents an increase of 47% year-over-year. Net other income for the year was $265,000 in 1997 as compared to $552,000 in 1996, which represents a decrease of 52% year-over-year. The increase in research and development expenses is primarily attributable to costs associated with additional personnel within those operations for the enhancement of existing products and the development of new products. The overall increases in sales and marketing expenditures reflect the cost of hiring additional sales and marketing personnel, developing and expanding sales distribution channels, introducing new products and expanding promotional activities. The increases in general and administrative expenses are attributable to the hiring of additional administrative and management personnel, increased professional fees, additional provision for doubtful accounts and additional infrastructure to support the expansion of our operations. INCOME TAXES For the year ended December 31, 1998, we recorded a net income tax benefit of $79,000, comprised of a deferred tax benefit of $700,000 and current tax expense of $621,000. We recorded a deferred tax benefit during 1998 due to the reversal of a portion of the valuation allowance previously provided against our deferred tax assets after evaluation of all available evidence about the realizability of the deferred tax assets. In determining that it is more likely than not that the net deferred tax assets as of December 31, 1998 will be realized, we assumed a limited amount of future taxable income considering all available evidence and our profitability during 1998. We assumed only a limited amount of future taxable income after considering factors like a history of operating losses prior to the second quarter of 1998, the nature of our deferred tax assets, the lack of significant firm sales backlog and the length of the sales cycle, the competitive market in which we operate and the lack of carryback capacity to realize the deferred tax assets. We recorded current tax expense during 1998 primarily related to foreign withholding and alternative minimum taxes. During 1996 and 1997, we generated pre-tax losses of $10.1 million and $7.4 million, respectively. Due to the uncertainty about the realizability of the deferred tax assets, we recorded a full valuation allowance to reduce the net deferred tax assets to zero as of both December 31, 1996 and 1997. As of December 31, 1998, we had federal net operating loss carryforwards of approximately $13.0 million and state net operating loss carryforwards of approximately $5.5 million available to offset future regular and alternative minimum taxable income. In addition, we had federal research and development credit carryforwards of approximately $790,000 and state research and development credit carryforwards of approximately $666,000 available to offset future tax liabilities. Our federal net operating loss and tax credit carryforwards expire in the years 2010 through 2012, if not used. The state net operating loss carryforwards expire in the years 2000 through 2002. 29 30 The state research and development credits can be carried forward indefinitely. As of December 31, 1998, our foreign subsidiaries had net operating loss carryforwards in foreign jurisdictions of approximately $5.4 million that can be used to offset future foreign income. Of these losses, approximately $1.6 million expire in the years 2001 through 2003. Approximately $3.8 million of these losses can be carried forward indefinitely. Federal and state tax laws limit the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. We believe an ownership change like this, as defined, may have occurred and, accordingly, some of our federal and state net operating loss carryforwards may be limited in their annual usage. For further information regarding income taxes, see Note 5 of Notes to Consolidated Financial Statements. 30 31 QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain unaudited consolidated statement of operations data for the eight quarters ended June 30, 1999, as well as that data expressed as a percentage of our total revenues for the period indicated. This data has been derived from unaudited consolidated financial statements that, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto. The unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this prospectus. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.
THREE MONTHS ENDED ------------------------------------------------------------------------------------- SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, 1997 1997 1998 1998 1998 1998 1999 1999 -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues: Software licenses.................. $ 5,513 $ 6,213 $7,279 $8,018 $9,158 $11,612 $12,783 $15,484 Services........................... 1,641 2,420 2,800 3,367 4,273 4,404 5,681 7,992 ------- ------- ------ ------ ------ ------- ------- ------- Total revenues............... 7,154 8,633 10,079 11,385 13,431 16,016 18,464 23,476 Cost of revenues: Cost of software licenses.......... 460 566 187 213 237 364 747 1,037 Cost of services................... 1,010 1,130 1,620 2,092 2,553 2,439 3,321 4,624 ------- ------- ------ ------ ------ ------- ------- ------- Total cost of revenues....... 1,470 1,696 1,807 2,305 2,790 2,803 4,068 5,661 Gross profit......................... 5,684 6,937 8,272 9,080 10,641 13,213 14,396 17,815 Operating expenses: Research and development........... 2,113 1,797 2,033 2,049 2,394 2,751 2,901 3,268 Sales and marketing................ 4,630 5,323 5,861 6,243 6,285 7,880 7,665 10,019 General and administrative......... 763 780 824 760 977 1,225 1,271 1,611 ------- ------- ------ ------ ------ ------- ------- ------- Total operating expenses..... 7,506 7,900 8,718 9,052 9,656 11,856 11,837 14,898 ------- ------- ------ ------ ------ ------- ------- ------- Operating income (loss).............. (1,822) (963) (446) 28 985 1,357 2,559 2,917 Other................................ 131 (123) (53) 665 769 734 378 398 ------- ------- ------ ------ ------ ------- ------- ------- Net income (loss).................... $(1,691) $(1,086) $ (499) $ 693 $1,754 $ 2,091 $ 2,937 $ 3,315 ======= ======= ====== ====== ====== ======= ======= ======= AS A PERCENTAGE OF REVENUES: Revenues: Software licenses.................. 77% 72% 72% 70% 68% 73% 69% 66% Services........................... 23 28 28 30 32 27 31 34 ------- ------- ------ ------ ------ ------- ------- ------- Total revenues............... 100 100 100 100 100 100 100 100 Cost of revenues: Cost of software licenses.......... 6 7 2 2 2 2 4 4 Cost of services................... 14 13 16 18 19 16 18 20 ------- ------- ------ ------ ------ ------- ------- ------- Total cost of revenues....... 20 20 18 20 21 18 22 24 Gross profit......................... 80 80 82 80 79 82 78 76 Operating expenses: Research and development........... 30 21 20 18 18 17 16 14 Sales and marketing................ 65 61 58 55 47 49 41 43 General and administrative......... 11 9 8 7 7 8 7 7 ------- ------- ------ ------ ------ ------- ------- ------- Total operating expenses..... 106 91 86 80 72 74 64 64 ------- ------- ------ ------ ------ ------- ------- ------- Operating income (loss).............. (26) (11) (4) -- 7 8 14 12 Other, net........................... 2 (2) (1) 6 6 5 2 2 ------- ------- ------ ------ ------ ------- ------- ------- Net income (loss).................... (24)% (13)% (5)% 6% 13% 13% 16% 14% ======= ======= ====== ====== ====== ======= ======= =======
We expect to experience significant fluctuations in future quarterly operating results that may be caused by many factors including, among others, the timing of introductions or enhancements of products and services by us or our competitors, the length of our sales cycle, market acceptance of new products, the pace of development of the market for online commerce, the mix of our products sold, the size and timing of significant orders and the timing of customer production or deployment, demand for our products, changes in pricing policies by us or our 31 32 competitors, changes in our sales incentive plans, budgeting cycles of our customers, customer order deferrals in anticipation of new products or enhancements by us or our competitors, cancellation of orders prior to customer deployment or during the warranty period, nonrenewal of service agreements, product life cycles, software defects and other product quality problems, changes in strategy, changes in key personnel, the extent of international expansion, seasonal trends, the mix of distribution channels through which our products are sold, the mix of international and domestic sales, changes in the level of operating expenses to support projected growth, and general economic conditions. We anticipate that a significant portion of our revenues will be derived from a limited number of orders. We expect that the timing of receipt and fulfillment of any of these orders will cause our quarterly operating results to fluctuate. We anticipate that we will make the major portion of each quarter's product deliveries near the end of each quarter. As a result, short delays in product deliveries at the end of a quarter could harm operating results for that quarter. In addition, we intend, in the near term, to increase significantly our personnel, including our domestic and international direct sales force. The timing of this expansion and the rate at which new sales people become productive could also cause our quarterly operating results to fluctuate. Due to these and other factors, our quarterly revenues and operating results are difficult to forecast accurately. We believe that period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as any indication of future performance. It is likely that the our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of our common stock would almost certainly decline. LIQUIDITY AND CAPITAL RESOURCES Our liquidity along with selected ratios are set forth below:
DECEMBER 31, ----------------------------- 1996 1997 1998 JUNE 30, 1999 ------- ------- ------- ---------------- (DOLLARS IN THOUSANDS) Cash, cash equivalents and short-term investments........................... $19,720 $10,473 $61,878 $72,558 Working capital......................... $18,258 $11,485 $64,320 $72,651 Current assets: current liabilities..... 4.6:1 2.4:1 4.9:1 3.9:1
At June 30, 1999, we had $72.6 million of cash, cash equivalents and liquid short-term investments, which represents an increase of $10.7 million as compared to December 31, 1998. We currently have no significant capital commitments other than obligations under equipment and operating leases and $3.1 million of outstanding term debt under our existing credit facility with our commercial bank. We have funded our operations by cash generated from operations, the private placement of common and preferred stock and public offerings of our common stock. Through May 1996, private placements provided net proceeds totaling $15.5 million and a public stock offering during June 1996 netted for us proceeds of $20.7 million and during March 1998 netted for us proceeds of $53.7 million. At June 30, 1999, we had $109.3 million of additional paid-in capital, consisting primarily of cash raised in our previous equity offerings and cash received from stock purchases under our equity incentive plans. This amount reflects an increase of $10.5 million as compared to December 31, 1998, which is attributed to cash received from stock purchases under our equity incentive plans. Cash provided by operating activities was $1.4 million in the year ended December 31, 1998 and $11.0 million for the six months ended June 30, 1999. Cash used for operating activities was $8.4 million in the year ended December 31, 1996 and $8.7 million in the year ended December 31, 1997. Cash used for investing activities was $4.4 million in the year ended December 31, 1996, $3.6 million in the year ended December 31, 1997, $6.6 million in the year 32 33 ended December 31, 1998 and $22.8 million for the six months ended June 30, 1999. This cash was primarily directed at capital expenditures and the acquisition of long-term strategic investments in the United States. Cash provided by financing activities was $26.1 million in the year ended December 31, 1996, $2.9 million in the year ended December 31, 1997, $58.8 million in the year ended December 31, 1998 and $3.6 million for the six months ended June 30, 1999, and consists primarily of proceeds from the issuance of stock and, to a lesser extent, proceeds from borrowings. We have invested approximately $2.9 million in the year ended December 31, 1996, $6.0 million in the year ended December 31, 1997, $4.5 million in the year ended December 31, 1998 and $3.9 million during the six months ended June 30, 1999, in U.S. property and equipment, consisting of computer and software, leasehold improvements and furniture and fixtures. We currently expect that total investments in property and equipment for 1999 will be approximately $9.0 million. We did not purchase any long-term investments in 1996, 1997 or in the six months ended June 30, 1999. In the year ended December 31, 1998 we invested $6.8 million in U.S. and $1.5 million in Asian long-term investments, consisting of nonmarketable and marketable equity securities. We have funded these investments by cash generated from operations and the sale of our equity. RECENT DEVELOPMENTS AND OUTLOOK On October 19, 1999, we announced our results for the three and nine months ended September 30, 1999. In the three months ended September 30, 1999, our revenues increased 122% to $29.8 million from $13.4 million in the three months ended September 30, 1998. In the nine months ended September 30, 1999, our revenues increased 106% to $71.8 million from $34.9 million in the nine months ended September 30, 1998. Our revenues increased primarily due to the accelerating demand for e-business solutions, and, more specifically, the strong market acceptance of our products and services. Net income in the three months ended September 30, 1999 increased 156% to $4.5 million from $1.8 million in the three months ended September 30, 1998. Net income in the nine months ended September 30, 1999 increased 452% to $10.7 million from $1.9 million in the nine months ended September 30, 1998. Our net income increased primarily due to our increased revenues but also because our operating margin in the three months ended September 30, 1999 improved to 13% from 7% in the three months ended September 30, 1998. In the nine months ended September 30, 1999, our operating margin improved to 13% from 2% in the nine months ended September 30, 1998. In the three months ended September 30, 1999, our earnings per diluted share increased 137% to $0.05 per diluted share from $0.02 per diluted share in the three months ended September 30, 1998. In the nine months ended September 30, 1999, our earnings per diluted share increased 392% to $0.13 per diluted share from $0.03 per diluted share in the nine months ended September 30, 1998. In the three months ended September 30, 1999, we licensed approximately 56 new end-user customers and 16 partners, which compares with approximately 19 new end-user customers and 10 partners in the three months ended September 30, 1998. In the nine months ended September 30, 1999, we licensed approximately 138 new end-user customers and 40 partners, as compared to approximately 64 new end-user customers and 21 partners in the nine months ended September 30, 1998. As of September 30, 1999, we have licensed over 335 end-user customers and 100 partners, as compared to approximately 169 end-user customers and 69 partners as of September 30, 1998. In the three months ended September 30, 1999, our customers commercially deployed 31 Web sites using our products, which compares with 23 commercially deployed Web sites in the three months ended September 30, 1998. In the nine months ended September 30, 1999, our customers commercially deployed 72 Web sites using our products, which compares with 33 34 59 commercially deployed Web sites in the nine months ended September 30, 1998. As of September 30, 1999, our customers have commercially deployed over 180 Web sites using our products, which compares with 90 commercially deployed Web sites as of September 30, 1998. To date, we have achieved good market acceptance for our products and have experienced continued revenue growth. We anticipate that international revenues will continue to account for a significant amount of total revenues, and we expect to continue to commit significant time and financial resources to the maintenance and ongoing development of direct and indirect international sales and support channels. Our Asia/Pacific operations have experienced reduced growth rates over recent years as a result of the generally weak economic conditions of that region. As a result we expect that any significant growth in international revenues will most likely come from European operations. We cannot assure you that we will be able to maintain or increase international or domestic market acceptance for our suite of products. We expect that research and development, sales and marketing, and general and administrative expenses will continue to increase in absolute dollar terms as we continue to expand our business. We expect that the net proceeds from this offering, our available cash resources, cash generated from operations, and amounts available under our commercial credit facilities will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional funds to support more rapid expansion, develop new or enhanced services, respond to competitive pressures, acquire complementary businesses or technologies or respond to unanticipated requirements. If additional funds are raised through the issuance of equity securities, our stockholders' percentage ownership will be reduced, they may experience additional dilution, or these newly issued equity securities may have rights, preferences, or privileges senior to those of our current stockholders. Additional financing may not be available when needed on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could harm our business. YEAR 2000 COMPLIANCE BACKGROUND AND RISKS -- Many currently installed computer systems and software and devices with imbedded technology are coded to two digits for time sensitive dating purposes. Beginning with the year 2000, these date code fields will need to be coded to four digits in order to distinguish between 21st century dates and 20th century dates. For example, computer programs that have date-sensitive software may incorrectly recognize a date using "00" as the year 1900 rather than the year 2000. As a result, computer systems, software products and devices with embedded technology used by many companies may need to be upgraded to comply with these "Year 2000" requirements. This type of Year 2000 error could potentially cause system failures or miscalculations that could disrupt operations, including a temporary inability to process transactions, issue invoices or engage in similar normal business activities. Although we believe that our products are Year 2000 compliant, undetected Year 2000 errors or defects could result in delay or loss or revenue, diversion of development resources, damage to our reputation and increased service and warranty costs. We believe that the purchasing patterns of customers could potentially be affected by Year 2000 issues as companies expend significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products like ours. Other systems or software used by our customers may not be Year 2000 compliant. The failure of noncompliant third-party software or systems could affect the perceived performance of our products. STATE OF READINESS -- We use various financial and managerial information systems within our operations in the United States, Europe and Asia, which we believe to be or will be Year 34 35 2000 compliant by the end of 1999. As part of our normal course of business, we analyze our information system requirements in relation to our business operating goals and strategic objectives, and we are implementing new systems during 1999 that will be Year 2000 compliant. We have also analyzed our other systems and our material suppliers and vendors for Year 2000 issues and we believe they are or will be Year 2000 compliant by the end of 1999. These other systems include non-information technology systems and services used by us in our business operations, such as power, telecommunications, security and general facilities. COSTS FOR YEAR 2000 COMPLIANCE -- Costs that we may incur pertaining to Year 2000 compliance issues include identification, assessment, remediation and testing efforts, as well as potential costs to be incurred by us with respect to Year 2000 issues of third parties. To date, the costs we have incurred related to Year 2000 issues have been minimal, even in cases where non-compliant information technology systems were redeployed or replaced. CONTINGENCY PLANS -- We have a contingency plan for handling Year 2000 problems that are not detected and corrected prior to their occurrence, and we are continuing to assess our Year 2000 exposure areas in order to determine what additional steps, beyond those identified by our internal review to date, are advisable. Our contingency plan includes adequate internal resources that would be available to analyze, assess and direct remediation efforts to address potential issues, back-up systems that do not rely on computers, and alternative sources of supply. We presently believe that the Year 2000 issue will not pose significant operational problems for us. However, any failure of ours to adequately address any unforeseen Year 2000 issue could harm our business. In addition, if all of the Year 2000 issues are not properly identified, or adequate assessment, remediation and testing are not timely effected with respect to Year 2000 problems that are identified, we cannot assure you that the Year 2000 issue would not harm our results of operations or our relationships with customers, vendors, partners or others. Additionally, we cannot assure you that the Year 2000 issues of other entities will not harm our systems or results of operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly, we will adopt SFAS No. 133, as amended, beginning on January 1, 2001. SFAS No. 133 establishes standards for the accounting and reporting of derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts. Under SFAS No. 133, entities are required to carry all derivative instruments at fair value on their balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging activity and the underlying purpose for it. We do not believe that the adoption of SFAS No. 133 will have a significant impact on our consolidated financial statements or related disclosures. In December 1998, the Accounting Standards Executive Committee of the AICPA issued SOP 98-9 Software Revenue Recognition, With Respect to Certain Transactions, which requires recognition of revenue using the "residual method" in a multiple-element arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the "residual method", the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. We do not expect a material change to our revenue accounting as a result of the provisions of SOP 98-9. 35 36 BUSINESS OVERVIEW We develop, market and support application software solutions for one-to-one relationship management across the extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, offer online customer self-service and support, deliver targeted information and provide online financial services. Each of these capabilities can be provided to all constituents of the extended enterprise, including: customers, suppliers, partners, distributors and employees. The BroadVision One-To-One product suite allows businesses to tailor their Web site content to the needs and interests of individual users by personalizing each visit on a real-time basis. Our applications interactively capture Web site visitor profile information, organize the enterprise's content, target that content to each visitor based on easily constructed business rules, and execute transactions. We believe the benefits of these applications include enhanced customer satisfaction and loyalty, increased business volume, greater brand awareness, reduced costs to service customers and to execute transactions, and enhanced employee productivity. INDUSTRY BACKGROUND ONE-TO-ONE RELATIONSHIP MANAGEMENT ON THE INTERNET The Internet has changed the nature of business operations and competition by creating more efficient marketplaces. Information is much more readily available than ever before. Companies, their customers, suppliers, partners, distributors, employees and others now have the means to instantaneously share information, automate business processes and conduct business on a global scale. Since business customers and consumers have the ability to change vendors at the click of a button, the need for differentiation and thus the need to personalize business interactions has greatly increased. In the past, personalization of products or services was expensive and inefficient for business customers. Companies had to rely on mass market channels or expensive face-to-face interactions. Moving from a mass market channel down to the level of one-to-one is now possible with the advent of the Internet and the ability to react to customers', partners' and employees' information and self-service needs in real time. More specifically, with the Internet, business managers have the ability to capture visitor profile information, observations and feedback interactively, and to dynamically target useful information to visitors based on this data. One-to-one relationship management allows a company to use its knowledge of its customers, suppliers, partners, distributors and employees to provide personalized interactions and thus strengthen relationships and loyalty and create and sustain competitive advantage. One-to-one relationship management provides the foundation for delivering individually tailored products, services, information, incentives and transactions. Whether an Internet application is designed primarily for conducting commerce or providing customer self-service, it offers businesses an opportunity to extend front-office services or deliver knowledge in a personalized and cost-effective way to all constituents of the extended enterprise. In particular, business managers can use advanced Internet technologies to engage in personalized dialogues with millions of customers. THE TECHNOLOGY GAP ON THE INTERNET Managing personalized customer relationships and a high volume of online transactions and defining business rules are highly complex processes for business managers. In addition, Web sites are generally cumbersome for business managers to operate. Business rules and content, such as product and pricing data, financial policies, promotions and advertising campaigns, are often "hard-coded" into programs and virtually impossible for non-technical managers to change 36 37 dynamically. Many of today's Web development tool kits that assist in Web site development do not offer capabilities for easily maintaining site content and page generation logic. Most applications are not scalable and require ongoing tuning and re-engineering to keep up with visitor growth and changes in Internet technology. Generally, with currently available applications, business managers do not have the capability to react to market conditions with real-time control and management of Web sites, but instead are often constrained by slow "change request" processes that take technical specialists days or even weeks to implement. Developing and maintaining custom applications reduces the resources available for core business initiatives. PACKAGED APPLICATIONS FOR ONE-TO-ONE RELATIONSHIP MANAGEMENT The inefficiencies of using in-house development and support for one-to-one relationship management have fueled the need for sophisticated packaged application solutions. These packaged applications provide an attractive alternative to in-house or third-party custom application development, enabling companies to get to market more quickly with a solution that can be more readily maintained and extended as the business evolves. Packaged applications can be a particularly attractive alternative to in-house or third-party custom applications development if they can be easily integrated into a company's existing infrastructure and tailored to the vertical segment in which the business operates. To realize the potential of one-to-one relationship management, packaged applications must support the following activities: - Attract, retain and service visitors that range from the casual to the sophisticated by providing dynamic content, interactive dialogues and communities of interest in a friendly, easy-to-use Web site environment; - Provide non-technical business managers with the ability to define and modify the application's business rules and content in real time; - Develop and maintain visitor profiles, observe and remember interactions and engage in ongoing personalized dialogues while empowering individuals to control the privacy of their personal data; - Dynamically target personalized content, products and incentives to correspond to profile data in order to motivate visitors to interact and conduct transactions; - Integrate and interact with back office systems to fully utilize a company's data and information resources; - Fulfill financial and information transactions with secure electronic commerce processes; and - Offer a consistent end-user experience across multiple customer touch points such as interactive voice response systems and call centers. We believe that this trend toward packaged solutions is typical of the evolution of many uses of business automation software, including accounting, manufacturing, human resources and sales force management systems. OUR SOLUTION We offer a suite of packaged applications and related services to enable effective one-to-one relationship management. The BroadVision One-To-One product suite enables companies to capitalize on the Internet, intranets and extranets for selling, marketing and supporting all of their business constituents: customers, suppliers, partners, distributors, employees and others. Our products enable these businesses to organize dynamic profiles of Web site users from volunteered data and observed behavior, deliver highly specialized content in response to these 37 38 profiles and securely execute transactions. Business managers are able to modify business rules and content in real time, offering a personalized experience to each visitor. Because of the open architecture of our applications, they are easily integrated with our customers' existing systems and easily expanded as our customers' needs and businesses grow. We believe our products enhance our customers' revenue opportunities by enabling them to build long-term relationships. Their Web site visitors are engaged by highly personalized real-time interactions and the ability to transact business securely and are encouraged to remain on the Web site and make return visits. Our applications also improve the cost-effectiveness of one-to- one relationship management by enabling non-technical managers to modify business rules and content in real time and by helping to reduce costs of customer acquisition and retention, business development and technical support. In addition, the packaged solution nature of our products decreases our customers' time to market and allows them to easily manage and expand their Web sites in a cost-effective manner. Our targeted applications, BroadVision One- To-One Retail Commerce, BroadVision One-To-One Business Commerce, BroadVision One-To-One Financial and BroadVision One-To-One Knowledge, have the specific benefits of addressing personalization needs in the areas of Internet commerce, Internet financial services and corporate information distribution and development. OUR STRATEGY Our objective is to establish our one-to-one real-time relationship management solution as the standard for Web sites worldwide. In order to achieve that objective, we have adopted the following key elements of our strategy: BECOME THE STANDARD FOR ONE-TO-ONE RELATIONSHIP MANAGEMENT SOLUTIONS. We intend to establish the BroadVision One-To-One product suite as the standard for Internet-based one-to-one relationship management across the extended enterprise. We believe that the growth of one-to-one relationship management will be driven by complete packaged application solutions that allow businesses to capitalize more fully on the Internet as a business venue for interacting with the constituents of their extended enterprise. We believe that we offer the most complete solution available today for extended one-to-one relationship management. We intend to maintain our leadership position and become the standard by continuing to enhance our technology through heavy investment in research and development activities, incorporating industry-leading components into our products and employing our technology and human resources as a source of ongoing technological advantage. DEVELOP AND ENHANCE OUR TARGETED APPLICATION SOLUTIONS. We will continue to leverage our core BroadVision One-To-One Enterprise product and our experience gained from each customer engagement to enhance our application products and services focused on specific horizontal and vertical markets. Utilizing our expanding libraries of reusable application objects and templates and working closely with customers and strategic partners, we believe our products can deliver targeted application solutions for one-to-one relationship management that are faster, are of higher quality and have a lower total cost of ownership than those of our competitors. We currently deliver targeted application solutions for business-to-consumer and business-to-business commerce, for financial services and for knowledge management. We intend to remain nimble and flexible in developing other packaged application products in the general area of one-to-one relationship management in response to market opportunities that may arise. PROVIDE A WIDE RANGE OF PROFESSIONAL SERVICES FOR OUR CUSTOMERS. We will continue to provide a wide range of professional services to help our customers develop, integrate, design, implement and support their Web sites. We believe that our professional services are a critical component of our solutions and that they have a significant role in ensuring that our customers use our products successfully and effectively. The demand for our professional services continues to expand rapidly, and we will leverage our systems integrator partners in providing 38 39 professional services to our customers. We will also continue to expand our own professional services capabilities to meet this demand. EXPAND AND LEVERAGE ALLIANCES WITH KEY BUSINESS PARTNERS. To accelerate the acceptance of our products and to promote the adoption of the Web as a commercial marketplace, we have developed cooperative alliances with leading systems integrators, Internet technology vendors and Web site developers. As of September 30, 1999, we have signed business alliances with over 100 systems integration, design, consulting and other services organizations worldwide, which has expanded our sales and support infrastructure and post-sales implementation capabilities while broadening market awareness of our products. We believe that these alliances will provide additional sales and marketing channels for our products, enable us to more rapidly incorporate additional functions and platforms into our products and facilitate the successful deployment of customer applications. By leveraging our business alliances we intend to: - increase the number of personnel available to perform application design and development services for our customers; - expand our distribution channels; and - provide additional marketing expertise in certain industry segments while providing technical expertise in the development of reusable objects and templates. We will continue to place an emphasis on establishing additional alliances as new technologies and standards emerge, although we cannot assure you that we will be successful in establishing or maintaining such alliances. GROW OUR INTERNATIONAL PRESENCE. To capitalize on the emergence of the Internet as a global network, we have established worldwide distribution capabilities with direct or distributor sales personnel in 43 cities worldwide. We intend to continue to certify providers of professional services for our products in these and other countries. Our partners include multinational systems integrators, as well as partners with a single-country scope of operations. Our product architecture is designed to support multiple languages. We currently have available for shipping versions of our BroadVision One-To-One Enterprise product that support the display of content and interface in Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian and Turkish as well as most Western European languages. Our strategies involve substantial risk. We cannot assure you that we will be successful in implementing our strategies or that our strategies, even if implemented, will lead to successful achievement of the our objectives. If we are unable to implement our strategies effectively, our business may be harmed. 39 40 PRODUCTS We develop, market and support a suite of packaged applications for one-to-one relationship management and associated software tools for use in customizing and maintaining solutions built with these applications. The table below summarizes certain features of our packaged application products: - -------------------------------------------------------------------------------- PRODUCT NAME PRODUCT DESCRIPTION - ------------------------------------------------------------------------------------------------------- Core Application Product: BroadVision One-To-One Enterprise The core product. Packaged application solution for rapid development and real- time operation of large-scale, personalized Internet, intranet and extranet business applications. Each of the following targeted application products includes the functionality of BroadVision One-To-One Enterprise. - ------------------------------------------------------------------------------------------------------- Targeted Application Products: BroadVision One-To-One Retail Commerce Packaged application solution for electronic retail commerce. BroadVision One-To-One Business Commerce Packaged application solution for business-to-business commerce. BroadVision One-To-One Financial Packaged application solution for online financial services companies. BroadVision One-To-One Knowledge Packaged application solution for online knowledge management.
- -------------------------------------------------------------------------------- The table below summarizes certain features of our tool products: - -------------------------------------------------------------------------------- PRODUCT NAME PRODUCT DESCRIPTION - ------------------------------------------------------------------------------------------------------- BroadVision One-To-One Design Center PC-based tool enabling application developers and Web authors to quickly and easily build dynamic Web page templates. - ------------------------------------------------------------------------------------------------------- BroadVision One-To-One Command Center PC-based tool enabling business managers to monitor state of Web applications, interactively change business rules using wizards in real time and generate reports. - ------------------------------------------------------------------------------------------------------- BroadVision One-To-One Publishing Center Browser-based tool enabling content developers and editors to manage the publishing of new content to the Web site. - ------------------------------------------------------------------------------------------------------- BroadVision One-To-One Instant Publisher Browser-based tool for casual content developers.
- -------------------------------------------------------------------------------- BROADVISION ONE-TO-ONE APPLICATION PRODUCTS Our five application products -- BroadVision One-To-One Enterprise, BroadVision One-To-One Retail Commerce, BroadVision One-To-One Business Commerce, BroadVision One-To-One Financial and BroadVision One-To-One Knowledge -- provide a spectrum of complementary capabilities offering numerous business functions and supporting the needs of companies in different industries. 40 41 BROADVISION ONE-TO-ONE ENTERPRISE. Our base product that provides the technology platform on top of which the targeted market BroadVision One-To-One application products are built. This flexible relationship management system contains cross-industry functionality such as profile and content management, adapters to third-party systems, and matching technologies and algorithms. It utilizes an open, scalable application architecture for Web session management, secure user authentication and authorization, dynamic and personalized page generation and transaction handling. BROADVISION ONE-TO-ONE RETAIL COMMERCE. Our enterprise-class application solution that enables fast-moving, high transaction volume companies to immediately change their products, prices, promotions and other content to better meet user needs, even on a user's first visit to a Web site. Full commerce transaction capabilities include persistent shopping carts, shopping lists, real-time pricing, automatic tax calculation, shipping and handling cost computation, payment processing, and order fulfillment and management. BROADVISION ONE-TO-ONE BUSINESS COMMERCE. Our enterprise-class application solution that allows companies to effectively integrate with their business customers' existing systems. BroadVision One-To-One Business Commerce enhances the ability of a company to support business-to-business transactions by providing pricing, shipping and handling, tax calculation, payment processing, customer service, security and order processing capabilities. BROADVISION ONE-TO-ONE FINANCIAL. Our enterprise-class financial services application solution that enables banks, brokerages, mutual fund companies and other financial institutions to rapidly deploy personalized financial services applications that enable customers to access their account information and perform a rich set of secure transactions within and between accounts using the Internet. BroadVision One-To-One Financial provides customers with a Web site that offers customized interactions that enable financial institutions to differentiate themselves while enhancing customer relationships. BROADVISION ONE-TO-ONE KNOWLEDGE. Our enterprise-class application solution designed to increase the productivity of corporate knowledge workers, including sales and marketing professionals, channel business partners and executive management. Optimized for rapid deployment over corporate intranets and extranets, this application enables individuals and work groups to organize information into flexible, interactive knowledge channels accessible through Web browsers. These interactive channels automate the intelligent distribution of information for employees and partners on a one-to-one, just-in-time basis throughout an enterprise. KEY CAPABILITIES OF OUR APPLICATION PRODUCTS We designed all of these applications products for use in mission-critical, high-performance environments by customers with demanding architecture, deployment and maintenance requirements. Some of the key capabilities of the applications include: BROAD APPLICABILITY -- robust functionality to support business-to-business, business-to-consumer and business-to-employee relationship management, including personalized marketing and communications, selling and commerce transaction handling and customer self-service. EASE OF USE -- separation of the business logic from the applications, allowing non-technical business managers to modify business rules and content in real time. SCALABILITY -- ability to support large numbers of simultaneous users accessing the system over the Internet, intranets or extranets. MODULAR COMPONENT ARCHITECTURE BASED ON OPEN STANDARDS -- object-oriented application code written in C++, Java and JavaScript allowing developers and system integrators to use, integrate, modify, adapt or extend the applications with minimal impact on other areas 41 42 to create a rapidly customized product that meets the specific business requirements of a particular corporate customer. Support for the CORBA standard for object-oriented computing permits distribution of the application across multiple processors. This design enables high-volume performance, flexible application deployment and easy integration with other third-party or legacy applications. SECURE TRANSACTION PROCESSING -- secure handling of a wide-range of commerce and financial services transactions including order pricing and discount/incentive handling, tax computation, shipping and handling charges, payment authorization, credit card processing, order tracking, news and stock feeds -- through a combination of built-in functionality and integration with other products. MULTIPLE PLATFORMS -- availability of versions for multiple operating systems, including Sun Solaris, Microsoft Windows NT and HP-UX. Databases supported include Oracle, Sybase, Informix and Microsoft SQL Server. MULTILINGUAL -- availability of content display and interface in Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish and most Western European languages. BROADVISION ONE-TO-ONE TOOLS Our application products are customized and maintained using tools that are licensed to customers separately from the application products. Inherent to the functionality of our applications is a set of building blocks comprised of customizable components, application templates and rule sets that are instrumental in rapidly building and easily maintaining BroadVision One-To-One application products. A description of our tools products is as follows: BROADVISION ONE-TO-ONE DESIGN CENTER. A PC-based tool integrated with Macromedia(R)'s Dreamweaver 2 that offers Web authors and Internet application developers faster time to market by shortening the development cycle. It also requires fewer specialized skills and reduces overall development and maintenance costs. This tool gives the Web author direct access to our powerful personalization and functional components through a series of wizards in the Dreamweaver visual development environment. These wizards generate server-side JavaScript, which is the primary programming language for our applications. By making simple point and click choices, the Web author can visually construct a complete, dynamic application without having to write HTML or JavaScript. In addition, because the wizards directly access information on our development server, the code is generated correctly the first time, reducing human error. The result is increased productivity and accuracy. BROADVISION ONE-TO-ONE COMMAND CENTER. A PC-based tool that allows non-technical business managers to make rapid changes to the Web site without programmer intervention. With this tool, business managers can define rules incorporating "if-then" relationships to match content to users based on profile information, transaction history, session behavior and other data. They can also develop business rules that evaluate user information gathered during previous interactions and use it to target products and services during subsequent interactions. Also, business managers can make real-time changes to content and generate management reports that monitor the activity on their Web site, enabling the evaluation of the effectiveness of content and services being offered on the site. BROADVISION ONE-TO-ONE PUBLISHING CENTER. A Java- and Web-based tool that allows a distributed and remote team of non-technical content experts to manage most aspects of site content collaboratively, including creating, editing, staging, production and archiving. This tool provides personal and shared in-boxes that enable teams of content creators to collaborate in developing content. A programming calendar facilitates staging, scheduling and coordination of content publishing. This tool provides the ability to preview content prior to publishing, to control 42 43 access to publishing and to capture content classification information. It supports content created with HTML editors, Microsoft Office products and Lotus Domino. BROADVISION ONE-TO-ONE INSTANT PUBLISHER. A Java- and Web-based tool designed for casual content contributors. It provides simple, personalized publishing forms, so that casual contributors can leverage the functionality of the BroadVision One-To-One Publishing Center without becoming expert users. OTHER PRODUCTS In addition to our proprietary products, we have entered into agreements that enable us to resell third-party software products from Bluegill, CyberSource, Informix, Interwoven, IONA Technologies, Macromedia, Net Perceptions, Oracle, Sybase and Verity. These are sublicensed to end users and either incorporated in or sold as options to our products. License revenue from these third-party products was insignificant and constituted less than 2% of total software product license revenues in each of the years ended December 31, 1996, 1997 and 1998 and approximately 4% in the six months ended June 30, 1999. PRODUCT DEVELOPMENT We believe that our future success will depend in large part on our ability to enhance the BroadVision One-To-One product suite, develop new products, maintain technological leadership and satisfy an evolving range of customer requirements for large-scale interactive online relationship management applications. Our product development organization is responsible for product architecture, core technology, product testing and quality assurance, writing product user documentation and expanding the ability of BroadVision One-To-One products to operate with the leading hardware platforms, operating systems, database management systems and key electronic commerce transaction processing standards. Since inception, we have made substantial investments in product development and related activities. Certain technologies have been acquired and integrated into BroadVision One-To-One products through licensing arrangements. As of June 30, 1999, there were 75 employees in our product development organization. Our research and development expenses were $5.0 million in the year ended December 31, 1996, $7.4 million in the year ended December 31, 1997, $9.2 million in the year ended December 31, 1998, and $6.2 million in the six months ended June 30, 1999. To date, we have not capitalized any software development costs as products are made available for general release relatively concurrent with the establishment of technological feasibility. We expect to continue to devote substantial resources to our product development activities. PROFESSIONAL SERVICES Our Worldwide Professional Services Organization provides a broad range of consulting services in support of all of our products. This organization provides business application expertise, technical know-how and product knowledge to complement our products and to provide solutions that meet customer business requirements. By using our services, customers are able to build a customized application solution to maximize the benefits of one-to-one relationship management. A summary of the professional services that we provide is as follows: STRATEGIC SERVICES. We provide business strategy and process consulting to assist customers in defining and planning profitable online businesses. Services include in-depth needs analysis, customer segmentation, site storyboarding and preparation of detailed plans and procedures necessary to achieve timely and successful implementation of our software products. Strategic Services consulting is generally offered on a time and materials basis. INTERACTIVE SERVICES. We provide technical services for development of customized BroadVision One-To-One applications, custom interfaces, data conversions and system integra- 43 44 tion. These consultants participate in a wide range of activities, including requirements definition and application design, development and implementation. These consultants also provide advanced technology services focused on application development for custom objects and templates and database administration and tuning. Interactive Services consulting is generally offered on a time and materials basis. CONTENT AND CREATIVE SERVICES. This group specializes in content management, sourcing, workflow processes and user-interface design. The group is made up of BroadVision One-To-One product design experts and a variety of leading design houses. This unique team combines extensive interactive design and marketing experience to build effective user interfaces. Content and Creative Services consulting is generally offered on a time and materials basis. EDUCATION SERVICES. These services are offered to customers either at our education facilities or at the customers' locations, as either standard or customized classes. These classes are priced at either fixed daily rates or on a per-class basis. TECHNICAL SUPPORT. Under our standard maintenance agreement, we provide telephone support and upgrade rights to new releases (including patch releases as necessary) and product enhancements. The annual maintenance fee for these services is based upon a percentage of the then-current list price for the licensed software fee, payable annually in advance. STRATEGIC ALLIANCES A significant element of our sales strategy is to engage in strategic business alliances to assist us in marketing, selling and developing customer applications. As of June 30, 1999, we have developed key strategic business alliances with over 95 systems integration, design, consulting and other services organizations throughout the world, including Andersen Consulting, ASE/Broadiant, Cambridge Technology Partners, Ernst & Young, Hewlett-Packard, Itochu, GranVia Internet, NTT Data, Security First and Sema. In April 1999, we announced a strategic alliance with Hewlett-Packard. Hewlett-Packard has agreed to resell and support the current BroadVision One-To-One product suite and to co-develop, sell and support integrated business-portal solutions that will act as the interface to next generation e-services for enterprise customers. Hewlett-Packard is leveraging its approximately 5,000 person global sales force to resell and support the current BroadVision One-To-One product suite. The new co-developed products are being developed to run on multiple platforms and to enable enterprise customers to deploy quickly and easily a series of advanced, personalized business-portal solutions that provide integrated commerce, marketing and customer-relationship management across Web sites, e-mail, call centers, PCs, kiosks, mobile phones and personal digital assistants. Additionally, we have developed key technology partnerships with leading Internet focused companies in areas complementary to our solutions, such as data analysis and reporting, enterprise application integration, enterprise Web management, call center management, voice recognition, payment processing, auctioning and XML. These technology partnerships enhance our ability to base our products on industry standards and to take advantage of current and emerging technologies. These alliances include companies such as Andromedia, BroadBase Software, Genesys Systems, Hewlett-Packard, Interwoven, Nuance Communications, Moai Technologies, OnDisplay, PaylinX, Pegasystems and Security First. Our technology partnerships support our strategy of integrating throughout the extended enterprise, from multiple touchpoints such as Nuance's voice recognition/voice response technology, to integration with enterprise applications using technology such as Active Software's ActiveWorks. 44 45 CUSTOMERS AND MARKETS As of September 30, 1999, we have licensed our products to over 335 end-user customers and 100 partners. As of September 30, 1999, our products were commercially deployed in over 180 live Web sites. We have targeted a number of markets that we believe to be especially conducive to one-to-one relationship management applications such as financial services, manufacturing, media and publishing, retail and distribution, technology, telecommunications, and transportation. Our primary target customers are Global 2000 organizations that are at the forefront of building innovative Internet applications to increase revenues and reduce operational costs. We also target pure-play Internet companies that have built or are building their core businesses on the Internet. In the year ended December 31, 1998 and during the nine months ended September 30, 1999, one customer accounted for approximately 11% of our total revenues. The following table sets forth a representative list of our customers organized by industry segment. - ---------------------------------------------------------------------------------------- TARGET INDUSTRY SAMPLE APPLICATIONS SAMPLE CUSTOMERS - ---------------------------------------------------------------------------------------- Financial services and Home banking Banco Santander insurance Online brokerage Banque Cantonale de Geneve Obtaining information on and CCF France selecting: Citigroup -Loans Credit Suisse -Mutual funds The Hartford -Insurance -Knowledge management USAA - ---------------------------------------------------------------------------------------- High technology and Knowledge management Advanced Paradigm manufacturing Business-to-business Hewlett-Packard purchasing Macromedia Business-to-consumer Nortel Networks purchasing Xerox - ---------------------------------------------------------------------------------------- Internet Electronic storefronts chipshot.com Mercata Outpost.com Pets.com - ---------------------------------------------------------------------------------------- Retail and distribution Online shopping Circuit City Interactive catalogues cozone.com Hallmark Cards The Home Depot OfficeMax Sears Roebuck Wal-Mart - ---------------------------------------------------------------------------------------- Travel and leisure Reservations Air Miles Travel planning American Airlines Brand projection, loyalty programs and affinity marketing - ---------------------------------------------------------------------------------------- Telecommunications Commerce: British Telecom Business-to-business and CellNet business-to-consumer SwissCom Online services Telia Self-service (call centers) TELUS Vodafone - ----------------------------------------------------------------------------------------
45 46 SALES AND MARKETING We market our products primarily through a direct sales organization with operations in North America, Europe and Asia/Pacific. On June 30, 1999, our direct sales organization included 109 sales representatives, managers and sales support. We have a sales office at our headquarters in Redwood City, California and have North American sales offices in Atlanta, Boston, Chicago, Dallas, Los Angeles, Minneapolis and New York City and a sales and service office in Washington D.C. for the U.S. Federal Government. We have sales offices in London, England; Paris, France; Wanchai, Hong Kong; Munich, Germany; Milan, Italy; Tokyo, Japan; Amsterdam, The Netherlands; Wheelock Place, Singapore; and Basel, Switzerland. A component of our strategy is continued expansion of our international activities. We intend to broaden our presence in international markets by expanding our international sales force and by entering into additional distribution agreements. We also contract with third-party resellers, distributors and systems integrators in North America, South America, Europe and Asia. We intend to increase our use of this distribution channel. Initial sales activities typically include a demonstration of BroadVision One-To-One product suite capabilities at the prospect's site, followed by one or more detailed technical reviews, often presented at our headquarters. The sales process usually involves collaboration with the prospective customer in order to specify the scope of the application. Our professional services organization typically plays a key role in helping customers to design, and then develop, their applications. Our marketing efforts are targeted at: - product strategy development and product management; - building market awareness through press and analysts; - producing and maintaining marketing information and sales tools; - generating and developing customer leads; and - sourcing and managing relationships with systems integrators, value-added resellers, creative design and advertising agencies and technology partners. As of June 30, 1999, 40 employees were engaged in a variety of marketing activities, including preparing marketing research, product planning and collateral marketing materials, managing press coverage and other public relations, identifying potential customers, attending trade shows, seminars and conferences, establishing and maintaining close relationships with recognized industry analysts and maintaining our Web site. COMPETITION The market for one-to-one relationship management applications is rapidly evolving and intensely competitive. We expect competition to persist and intensify in the future. Our primary competition currently includes the following: - in-house development efforts by prospective customers or partners; - other vendors of application software or application development platforms and tools directed at interactive commerce and financial services, like ATG, InterWorld, Open Market and Vignette; - Web content developers that develop custom software or integrate other application software into custom solutions; - International Business Machines; and - Microsoft. 46 47 The principal competitive factors affecting the market for our products are: - depth and breadth of functionality offered; - ease of application development; - time required for application development; - reliance on industry standards; - product reliability; - proven track record; - scalability; - maintainability; - personalization and other features; - product quality; - price; and - customer support. We believe that we presently compete favorably with respect to each of these factors. However, our market is still evolving, and we cannot assure you that we will be able to compete successfully with current or future competitors. TECHNOLOGY We believe that the technical demands of interactive one-to-one relationship management on the Internet require an architectural design that is standards based, open, interoperable and flexible. We have designed our current product suite as a modular, component based architectural solution for building dynamic, scalable and extensible Internet applications. By emphasizing reusable methods, separation of application logic, business rules and data, and adherence to open standards, the BroadVision One-To-One product suite provides an efficient architecture for customers and partners to build, modify, and control applications, as well as to integrate them with external business systems. We believe this architecture also provides a robust foundation on which we can rapidly develop new products. We believe our advanced technology enables the delivery of robust, scalable and innovative one-to-one relationship management solutions into the market faster and at a lower cost than alternatives. Our technology consists of the following key elements: ADHERENCE TO INDUSTRY STANDARDS Adherence to industry standards protects a customer's investment by providing compatibility with existing applications, enabling ease of modification and reducing the need for software to be rewritten. We have invested substantially in developing our architecture to comply with CORBA, a standard for applications software design and development widely adopted in the commercial software industry. Applications that are CORBA-compliant can run on either single computers with one or more processors or across large networks, allow replication and relocation of object servers to improve system performance, are platform independent, and have strongly defined application programming interfaces through the use of the Interface Definition Language specified by CORBA. We are also strongly committed to Java and Java-based technologies such as Enterprise Java Beans, and our application templates are written in JavaScript. Most of our programs are written in C++ and Java, widely accepted standard programming languages for developing 47 48 object-oriented applications. In addition to CORBA, C++ and Java, we use other widely accepted standards in developing our products, including SQL (Structured Query Language) for accessing relational database management systems, CGI (Common Gateway Interface) and HTTP (Hypertext Transfer Protocol) for Internet access, NSAPI (Netscape Application Programming Interface) for access to Netscape's Internet servers, SSL (Secure Socket Layer) for secure transmissions over networks and the RC2 and MD5 encryption algorithms supplied by RSA. Our application products can be operated in conjunction with relational database management systems provided by Informix, Microsoft, Oracle and Sybase. N-TIER ARCHITECTURE Our application products utilize a modular, N-tier architecture that logically separates application presentation, business rules and data. Between each of these tiers are session manager and adapters to integrate to external business systems interface technologies, described below, that establish seamless interoperability between application components. This architecture partitions applications across: - A front-end tier that manages the application presentation and interface to Web site visitors; - Application engine tiers that manage the one-to-one life cycle activities -- community, profiling, targeting and transactions -- and the business rules that define the interactive characteristics and behavior of one-to-one relationship management applications. This layer utilizes a lightweight component model, which can be distributed across multiple logical and physical processors, thus enabling the N-tier design of the application; and - A back-end tier that integrates underlying database management systems with external business systems that perform specialized relationship management functions. SESSION MANAGER We have developed proprietary "session manager" technology designed to manage the high volume of dynamic interactions that occur in online sessions between many concurrent Web site visitors and a relationship management application. The session manager enables three key activities: - Maintaining user profile information between visitors and sites so that each current and future interaction can trigger a response appropriate to the objectives of both visitor and site provider; - Interpreting application objects and templates in real time and retrieving profile data and business rules to dynamically generate HTML code that tailors content, Web pages and interactions to the needs and interests of individual Web site visitors; and - Enabling application scalability by allowing Web site providers to add additional software processes or hardware processors to their Web systems to support more concurrent Web site visitors without incurring performance degradation or additional overhead in application maintenance. COMPONENTS AND APPLICATION TEMPLATES We believe that the costs and time associated with Internet application development and maintenance can be substantially reduced with our technology for object-oriented application development. This technology consists primarily of customizable components and application templates. Utilized in combination with our structured development methodology, these technologies are designed to help customers and partners create libraries of reusable program components that increase application quality and reduce cost and time-to-market of new and 48 49 maintained applications. In addition, application templates, written in JavaScript, enable business managers to define and implement business rules through the BroadVision One-To-One Command Center on a real-time basis. Our consultants currently use these technologies to develop application solutions for customers, and our Education Services Group offers training classes to customers and partners on the use of components and application templates. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS Our success and ability to compete are dependent to a significant degree on our proprietary technology. We rely on a combination of patent, copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We hold a patent issued on January 20, 1998 to us, covering certain elements of our BroadVision One-To-One Enterprise product. This patent is the subject of a lawsuit described in "Risk Factors -- Our success and competitive position depends on our ability to protect our proprietary technology." We have registered "BroadVision" and "BroadVision One-To-One" as trademarks in the United States. We cannot assure you that the steps taken by us will prevent misappropriation of our technology or that agreements entered into for that purpose will be enforceable. In addition, litigation like the lawsuit against ATG may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. We also cannot guarantee that infringement or other claims will not be asserted or prosecuted against us in the future whether resulting from our intellectual property or licenses from third parties. Such claims or litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could harm our business. We rely upon certain software that we license from third parties, including relational database management systems from Oracle and Sybase, object request broker software from IONA Technologies, database access technology from Rogue Wave Software and other software that is integrated with internally developed software and used in our software to perform key functions. In this regard, all of our services incorporate data encryption and authentication technology licensed from RSA. There can also be no assurance that our third-party technology licenses will continue to be available to us on commercially reasonable terms, if at all. The loss of or inability to maintain any of these technology licenses could result in delays in introduction of our products and services until equivalent technology, if available, is identified, licensed and integrated, which could have a material adverse effect on our business. EMPLOYEES As of June 30, 1999, we employed a total of 358 full-time employees, of whom 291 are based in the United States, 50 in Europe and 17 in Asia. 149 of these full-time employees are in sales and marketing, 75 are in product development, 93 are in professional services and client support, and 41 are in finance, administration and operations. We employed 271 full-time employees as of December 31, 1998, 188 full-time employees as of December 31, 1997 and 148 full-time employees as of December 31, 1996. We believe that our future success depends on attracting and retaining highly skilled personnel. Competition for such personnel is intense, and we cannot assure you that we will continue to be able to attract and retain high-caliber employees. Our employees are not represented by any collective bargaining unit. We have never experienced a work stoppage and consider our employee relations to be good. 49 50 FACILITIES Our principal administration, research and development, sales, consulting and support facilities are located in Redwood City, California, where we occupy approximately 60,000 square feet pursuant to a lease that expires in 2007. In the year ended December 31, 1998, our rent for this facility was $1.1 million. During March 1999, we entered into a lease agreement through December 2007 for an additional 55,000 square feet of office space adjacent to our corporate headquarters building in Redwood City, California. Our European headquarters are located in Bottmingen, Switzerland, where we lease approximately 2,282 square feet. We also rent space in various cities to support our sales and field support activities, including Irvine, CA; Hare Hatch, England; Courbevoie, France; Koln, Germany; Munchen, Germany; Atlanta, GA; Wanchai, Hong Kong; Schaumburg, IL; Tokyo, Japan; Burlington, MA; Bethesda, MD; Amersfoort, The Netherlands; New York, NY; Wheelock Place, Singapore; Madrid, Spain; Dallas, TX; and McLean, VA. We believe that our existing facilities are adequate to meet our needs for the foreseeable future. SUBSIDIARIES The following is a list of our wholly owned subsidiaries and their registered addresses: - BroadVision U.K., Ltd., organized under the laws of England and Wales and whose registered address is Hare Hatch Grange, Bath Road, Hare Hatch, Berkshire, RG10 9SA, United Kingdom. - BroadVision France S.A., organized under the laws of France and whose registered address is 3 rue Houssaye, 75008, Paris, France. - BroadVision Deutschland GmbH, organized under the laws of Germany and whose registered address is Prinzregentenstrasse 20, 80538 Munchen, Germany. - BroadVision Asia Pacific Ltd., organized under the Companies Ordinance of Hong Kong and whose registered address is Room 3203, 32/Fl Central Plaza, 18 Harbour Road, Wanchai, Hong Kong. - BroadVision Srl, organized under the laws of Italy and whose registered address is Via Conservatorio 22, 20122 Milano, Italy. - BroadVision B.V., organized under the laws of The Netherlands and whose registered address is Huizermaatweg 530, 1276 LM Huizen, The Netherlands. - BroadVision Singapore PTE. LTD., organized under the laws of Singapore and whose registered office is 16 Raffles Quay #23-01, Hong Leong Building, Singapore 048681. - BroadVision Switzerland, A.G., organized under the laws of Switzerland and whose registered address is Fiechthagstrasse 4, 4103 Bottmingen, Switzerland. LEGAL PROCEEDINGS On December 11, 1998, we filed a lawsuit against ATG in the Northern District of California. The complaint alleges that ATG is infringing our U.S. Patent No. 5,710,887 and seeks injunctive relief and unspecified damages. On February 3, 1999, ATG filed an answer and counterclaim against us in which ATG seeks judgment for non-infringement and invalidity of the patent. Trial is set for October 16, 2000. While the outcome of this lawsuit cannot be predicted with certainty, we currently expect that this lawsuit will not materially adversely affect our business. See "Risk Factors -- Our success and competitive position depends on our ability to protect our proprietary technology" for a description of the risks associated with this lawsuit. We are not a party to any other litigation or arbitration proceedings that would have, or during the last two fiscal years have had, a material effect on our business. 50 51 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL The following table sets forth certain information regarding our directors, executive officers and key personnel as of September 30, 1999.
NAME AGE POSITION ---- --- -------- Pehong Chen....................... 41 Chairman of the Board, Chief Executive Officer and President Randall C. Bolten................. 47 Chief Financial Officer and Vice President, Operations Clark W. Catelain................. 52 Vice President, Engineering Eric J. Golin..................... 39 Vice President, Chief Technology Officer Michael A. Kennedy................ 36 Vice President of Global Strategic Alliances Giuseppe Kobayashi................ 43 Vice President and General Manager of Asia/Pacific Operations Francois Stieger.................. 50 Vice President and General Manager of European Operations James W. Thanos................... 51 Vice President and General Manager, Americas Perry W. Thorndyke................ 50 Vice President, Business Development Sandra J. Vaughan................. 34 Vice President, Marketing Kenneth L. Guernsey............... 47 Secretary David L. Anderson(1)(2)........... 55 Director Yogen K. Dalal(1)(2).............. 49 Director Todd A. Garrett................... 52 Director Koh Boon Hwee(2).................. 48 Director Carl Pascarella................... 46 Director
- ------------------------- (1) Member of the Audit Committee (2) Member of the Compensation Committee PEHONG CHEN has served as our Chairman of the Board, Chief Executive Officer and President since our incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the Vice President of Multimedia Technology at Sybase, a supplier of client-server software products. Dr. Chen founded and, from 1989 to 1992, served as President of Gain Technology, a provider of multimedia applications development systems, which was acquired by Sybase. He received a B.S. in Computer Science from National Taiwan University, an M.S. in Computer Science from Indiana University and a Ph.D. in Computer Science from the University of California at Berkeley. RANDALL C. BOLTEN has served as our Chief Financial Officer and Vice President, Operations, since September 1995. From 1994 to 1995, Mr. Bolten served as a financial consultant to various entrepreneurial enterprises. From 1992 to 1994, Mr. Bolten served as Chief Financial Officer of BioCad Corporation, a supplier of drug discovery software products. From 1990 to 1992, Mr. Bolten served as Chief Financial Officer, Business Development Unit and then Vice President, Finance of Teknekron, a company engaged in the management of various high technology companies. He received an A.B. in Economics from Princeton University and an M.B.A. from Stanford University. CLARK W. CATELAIN has served as our Vice President, Engineering, since June 1995. From 1989 to May 1995, Mr. Catelain served as the Senior Vice President, Engineering of Gupta, a supplier of client-server database products. Mr. Catelain received a B.S. in Mathematics and Computer Science from Purdue University. ERIC J. GOLIN has served as our Vice President, Chief Technology Officer since June 1999. From September 1997 to June 1999, Dr. Golin served as our Vice President of Worldwide 51 52 Professional Services. From September 1994 to September 1997, Dr. Golin served as our Senior Architecture Engineer and later as Senior Director, Engineering. From September 1993 to September 1994, Dr. Golin was a principal architect for OpenVision Technology. From September 1989 to September 1993, Dr. Golin was Assistant Professor of Computer Science at the University of Illinois at Urbana-Champaign. Dr. Golin received an B.S., M.S. and a Ph.D. in Computer Science from Brown University. MICHAEL A. KENNEDY has served as our Vice President, Global Strategic Alliances, since September 1997. From September 1995 to August 1997, Mr. Kennedy served as Senior Director, Marketing. From August 1993 to August 1995, Mr. Kennedy served as Director, New Media Business Development for Oracle, supplier of database software. From December 1989 to July 1993, Mr. Kennedy served as Senior Product Marketing Manager for Oracle. Mr. Kennedy received a B.S. in Computer Science from the Aberdeen University, Scotland. GIUSEPPE KOBAYASHI has served as our Vice President and General Manager of Asia/Pacific Operations since January 1995. From 1994 to the present, Mr. Kobayashi has also served as consultant to Wind River Systems, a supplier of software development systems. During 1993, Mr. Kobayashi was General Manager, Japan Operations, Gain Group at Sybase. During 1992, Mr. Kobayashi was General Manager of Operations at Gain Technology. From 1990 to 1992, Mr. Kobayashi served as Managing Director of Asia Pacific Operations at Teradata, a supplier of database software. Mr. Kobayashi holds a B.S. in Computer Science from the University of San Francisco. FRANCOIS STIEGER has served as our Vice President and General Manager of European Operations since January 1996. From July 1994 to December 1995, Mr. Stieger was employed as Senior Vice President, Europe and Middle East, for OpenVision Technologies, a supplier of distributed systems management products and services. From 1993 to 1994, Mr. Stieger served as Vice President, Europe of the Gain Division of Sybase. From 1987 to 1992, Mr. Stieger served as Vice President, Europe, Central and Southern region of Oracle, a supplier of relational database software. Mr. Stieger holds a Diplome Universitaire De Technologie in Mathematics and Mechanics from the University of Strasbourg. JAMES W. THANOS has served as our Vice President and General Manager, Americas since January 1998. From January 1995 to January 1998, Mr. Thanos served as Vice President of North American Operations of Aurum Software, a sales force automation company. From May 1994 to January 1995, Mr. Thanos served as Vice President of Sales of Digital Equipment Corporation. From January 1993 to December 1994, Mr. Thanos served as Vice President of Sales of Harvest Software, an optical character recognition software company. From December 1988 to January 1993, Mr. Thanos served as Vice President of Sales Operations of Metaphor, a decision support software company. Mr. Thanos holds a B.A. in International Relations from Johns Hopkins University. PERRY W. THORNDYKE has served as our Vice President, Business Development since May 1998. From July 1997 to May 1998, Dr. Thorndyke served as our Vice President, Marketing. From August 1996 to July 1997, Dr. Thorndyke served as our Vice President, Business and Channel Development. From February 1995 to January 1996, Dr. Thorndyke served as a management consultant to the Vice President, Marketing for Quintus, a supplier of client/server solutions for customer information management. From February 1994 to January 1995, Dr. Thorndyke served as an management consultant on technology strategy for customer information management systems to independent software vendors and user organizations. From May 1992 to January 1994, Dr. Thorndyke served as Vice President and Division Manager for retail banking systems at Wells Fargo Bank. From 1990 to May 1992, Dr. Thorndyke served as Director of Marketing and Business Development at Metaphor Computer Systems, a supplier of client-server software applications for PC-based support decision products. Dr. Thorndyke received a B.A. in Computer 52 53 and Information Sciences from Yale University and a Ph.D. in Cognitive Psychology from Stanford University. SANDRA J. VAUGHAN has served as our Vice President, Marketing since May 1998. From June 1996 to April 1998, Ms. Vaughan served as Senior Director and later as our Vice President, Corporate Marketing. From 1993 to 1996, Ms. Vaughan served as Group Director, North America Field Marketing of Sybase. From 1989 to 1993, Ms. Vaughan served as Director, Customer Programs of Oracle. Ms. Vaughan received a B.S. in Managerial Economics from the University of California, Davis. KENNETH L. GUERNSEY has served as our Secretary since May 1995. From 1988 to the present, Mr. Guernsey has been a partner in the law firm of Cooley Godward LLP, where he served as Managing Partner from April 1990 to October 1996. Mr. Guernsey received a B.S. in Mathematics and an M.B.A. and a J.D. from the University of California, Los Angeles. DAVID L. ANDERSON has served as one of our directors since November 1993. Since 1974, Mr. Anderson has been a managing director of Sutter Hill Ventures, a venture capital investment firm. Mr. Anderson currently serves on the board of directors of Cytel, Dionex and Molecular Devices. He holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology and an M.B.A. from Harvard University. YOGEN K. DALAL has served as one of our directors since November 1993. He joined Mayfield Fund, a venture capital investment firm, in September 1991 and has been a general partner of several venture capital funds affiliated with Mayfield Fund since November 1992. Dr. Dalal holds a B.S. in Electrical Engineering from the India Institute of Technology, Bombay, and an M.S. and a Ph.D. in Electrical Engineering and Computer Science from Stanford University. TODD A. GARRETT has served as one of our directors since January 1999. Since 1985, Mr. Garrett has held various key executive positions with Proctor & Gamble, including Vice President, Asia-Pacific, Vice President, U.S. Beauty Care, Group President, President of Worldwide Strategic Planning, Beauty Care Products and Senior Vice President. Since October 1996, he has served as Chief Information Officer of Proctor & Gamble. Mr. Garrett holds a B.A. in Psychology/Sociology from the University of Rochester and an M.B.A. from Xavier University. KOH BOON HWEE has served as one of our directors since February 1996. Since 1991, Mr. Koh has been Executive Chairman of the Wuthelam Group of Companies, a diversified Singapore company with subsidiaries engaged in, among other things, real estate development, hotel management and high technology. Since 1992, he has also served as Chairman of the Board of Singapore Telecommunications. Mr. Koh currently serves on the Board of Directors of Excel Machine Tools, Raffles Medical Group and Qad. Mr. Koh holds a B.S. in Mechanical Engineering from the University of London and an M.B.A. from Harvard University. CARL PASCARELLA has served as one of our directors since September 1997. Since August 1993, Mr. Pascarella has been President and Chief Executive Officer of Visa USA. From January 1983 to August 1993, he was Assistant Chief General Manager of the Asia-Pacific region of Visa USA. Before joining Visa USA, Mr. Pascarella was Vice President of the International Division of Crocker National Bank. He also served as Vice President of Metropolitan Bank at BankersTrust. Mr. Pascarella holds a B.A. in Business Administration from the University of Buffalo and an M.B.A. from Harvard University. Each of our directors may be contacted at 585 Broadway, Redwood City, California 94063. Our board of directors is responsible for managing us in accordance with the provisions of our Restated Certificate, Restated Bylaws and applicable law. The number of directors on our board of directors is established by the board of directors, with the number currently set at six. Of these six members, one member, Pehong Chen, is also one of our executive officers. 53 54 COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS Directors currently do not receive any cash compensation from us for their services as members of the board of directors although they are reimbursed for their expenses in connection with attendance at board and committee meetings. To date we have granted each of our non-employee directors an option to purchase between 150,000 and 240,000 shares of our common stock. The options were granted to each non-employer director upon the later of the closing of our initial public offering or his election as a director. We may grant our non-employee directors additional options in the future. To date in 1999, the only non-employee director who has been granted an option is Mr. Garrett who was granted a stock option to purchase 240,000 shares of our common stock at an exercise price of $10.17 per share. The option vests 25% on the one-year anniversary of the vesting commencement date and monthly thereafter over a three-year period. The aggregate cash remuneration paid to our executive officers in fiscal year 1998 was approximately $2.0 million. See "Principal Stockholders" for a description of the options held by our directors and executive officers that are exercisable within 60 days of September 30, 1999. DIRECTORS' INTERESTS The beneficial ownership of our common stock by each of our directors is disclosed in the "Principal Stockholders" table. We have not granted any loans or provided any guarantees for the benefit of any director. 54 55 PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to us with respect to beneficial ownership of our common stock as of September 30, 1999 by (1) each of our directors; (2) our Chief Executive Officer and our four other most highly compensated executive officers for the fiscal year ended December 31, 1998; (3) all of our executive officers and directors as a group; and (4) each stockholder known by us to be the beneficial owner of more than 5% of our common stock.
PERCENTAGE OF SHARES BENEFICIALLY OWNED NUMBER OF --------------------- SHARES BENEFICIALLY PRIOR TO AFTER THE NAME OWNED(1) OFFERING OFFERING ---- ------------------- -------- --------- Pehong Chen(2)..................................... 19,125,000 23.8% 23.1% c/o BroadVision, Inc. 585 Broadway Redwood City, CA 94063 GeoCapital Corp.................................... 5,346,300 6.9 6.7 767 Fifth Ave. 45th Floor New York, NY 10153 Pilgrim Baxter & Associates........................ 3,894,900 5.0 4.9 825 Duportail Road Wayne, PA 19087 David L. Anderson(3)............................... 764,430 1.0 * Randall C. Bolten(4)............................... 615,075 * * Clark W. Catelain(5)............................... 551,100 * * Koh Boon Hwee(6)................................... 567,324 * * Sandra J. Vaughan(7)............................... 319,149 * * Yogen K. Dalal(8).................................. 246,567 * * Todd A. Garrett(9)................................. 240,000 * * Carl Pascarella(10)................................ 150,000 * * All directors and executive officers as a group (9 persons)(11)..................................... 22,578,645 27.6% 26.8%
- ------------------------- * Less than one percent (1) This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 77,440,986 shares outstanding on September 30, 1999 and 79,690,986 shares of common stock outstanding after the completion of this offering, adjusted as required by rules promulgated by the Commission and assuming no exercise of the underwriters' over-allotment option. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are exercisable within 60 days are deemed outstanding. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. See Note 7 of Notes to Consolidated Financial Statements. The balance of our outstanding shares of common stock are held by the general public, including stockholders and employee-stockholders owning less than 5% of our outstanding shares. 55 56 (2) Includes 3,000,000 shares of common stock issuable upon the exercise of a stock option exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. Excludes 900,000 shares of common stock held in trust by independent trustees for the benefit of Dr. Chen's children. (3) Includes 379,338 shares of common stock held in a retirement trust over which Mr. Anderson exercises voting and investing power. Includes 109,257 shares of common stock owned by Anvest L.P., over which Mr. Anderson exercises voting and investing power. Mr. Anderson disclaims beneficial ownership of the shares of common stock held by the other persons and entities associated with Sutter Hill, except to the extent of his pecuniary interest therein. Includes 150,000 shares of common stock issuable upon the exercise of a stock option exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (4) Includes 344,505 shares of common stock held in trust by Mr. Bolten and his wife for their benefit and 106,719 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (5) Includes 287,700 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (6) Includes 180,000 shares of common stock held by Seven Seas Group Ltd., in which Mr. Koh holds a controlling interest, and 150,000 shares of common stock issuable upon the exercise of a stock option exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (7) Includes 270,999 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (8) Includes 86,199 shares of common stock held in a family trust over which Mr. Dalal exercises voting and investing power. Includes 7,500 shares of common stock held in a retirement trust over which Mr. Dalal exercises voting and investing power, 150,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (9) Includes 240,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (10) Includes 150,000 shares of common stock issuable upon the exercise of a stock option exercisable within 60 days of September 30, 1999, subject to repurchase of unvested shares. (11) Includes the information contained in the notes above, as applicable. 56 57 DESCRIPTION OF CAPITAL STOCK CORPORATE INFORMATION We were incorporated in Delaware in May 1993 and our fiscal year is on a calendar year basis. Our principal executive offices are located at 585 Broadway, Redwood City, California 94063, and our telephone number in the United States is (650) 261-5100. Our Web site is located at http://www.broadvision.com. Information contained in our Web site shall not be deemed to be a part of this prospectus. Our corporate purpose, as set forth in our Restated Certificate, is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. DEVELOPMENT OF COMMON STOCK Since we amended and restated our Certificate of Incorporation on June 26, 1996 and through October 5, 1999, our authorized capital stock consisted of 50,000,000 pre-split shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share. On September 30, 1999, we announced a three for one stock split in the form of a two for one stock dividend, to be paid on October 25, 1999 to all stockholders of record as of October 11, 1999. Primarily to accommodate this stock split, on October 5, 1999, we amended our Certificate of Incorporation to increase our authorized capital stock to 500,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. Unless stated otherwise, the information contained in this prospectus reflects the stock split. All of our issued shares are in registered (non-bearer) form. Upon the closing of our initial public offering in June 1996, we had 58,857,312 shares of common stock outstanding. Since that time and as of October 22, 1999, we have issued the following additional shares of common stock: (i) 1,080,000 shares pursuant to the exercise of the underwriters' over-allotment option in connection with our initial public offering; (ii) 4,631,049 (net of repurchases) shares upon the exercise of outstanding options; (iii) 1,964,271 shares pursuant to our 1996 Employee Stock Purchase Plan; (iv) 200,127 shares pursuant to the exercise of outstanding warrants; (v) 10,367,550 shares pursuant to a follow-on offering of our common stock that closed in March 1998; and (vi) 369,003 shares to Security First pursuant to our strategic alliance in October 1998. As of October 22, 1999 there were 77,469,312 shares of common stock outstanding held of record by approximately 256 stockholders. We do not own any treasury shares. COMMON STOCK The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any outstanding shares of the preferred stock, the holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available for that purpose. In the event of a liquidation, dissolution, or winding up of the company, holders of the common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon the completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Pursuant to the Restated Certificate, the board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more 57 58 series and to fix the designations, powers, preferences, privileges, and relative participating, optional, or special rights and the qualifications, limitations, or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. The board of directors, without stockholder approval, can issue preferred stock with voting, conversion, or other rights that could impair the voting power and other rights of the holders of common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock and may adversely affect the voting and other rights of the holders of common stock. There are no shares of preferred stock outstanding and we have no current plans to issue any of the preferred stock. WARRANTS As of October 22, 1999, we had outstanding warrants to purchase 55,101 shares of common stock at a weighted average exercise price of approximately $2.83 per share. The warrants, which expire in June 2002 and February 2007, contain provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrants under certain circumstances, including stock dividends, stock splits, reorganizations, reclassifications, and consolidations. OPTIONS As of October 22, 1999, options to purchase a total of 12,199,671 shares of common stock were outstanding under our Equity Incentive Plan, and 2,959,953 shares of common stock were available for grant under the Equity Incentive Plan. Options are generally exercisable for 10 years from their date of grant, subject to vesting requirements. EMPLOYEE STOCK PURCHASE PLAN As of October 22, 1999, we had 1,485,693 shares reserved for future issuance under the Employee Stock Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock equivalent to a percentage of the employee's earnings, not to exceed 15%, at a price equal to 85% of the fair market value of the common stock at dates specified by the board of directors as specified in the Purchase Plan. Under the Purchase Plan, we issued 684,000 shares to employees in the year ended December 31, 1998. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW CHARTER DOCUMENTS The Restated Certificate and Restated Bylaws include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of our company, including the following: - the Restated Certificate provides that all stockholder action must be effected at a duly called meeting of stockholders and not by a consent in writing; - the Restated Bylaws provide that special meetings of the stockholders may be called only by the Chairman of the board of directors, the Chief Executive Officer, the board of directors pursuant to a resolution adopted by the board of directors or by the holders of not less than 10% of the outstanding voting stock; - the Restated Certificate does not include a provision for cumulative voting for directors whereby a minority stockholder holding a sufficient percentage of a class of shares could ensure the election of one or more directors; and 58 59 - the Restated Bylaws establish procedures, including advance notice procedures, with regard to the nomination of candidates or election as directors and stockholder proposals. DELAWARE TAKEOVER STATUTE We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale, or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns or, within three years prior, did own 15% or more of the corporation's voting stock. STOCKHOLDER MEETINGS The Restated Certificate provides that stockholders may not take action by written consent but only at duly called annual or special meetings of stockholders. The Restated Bylaws provide that stockholder meetings shall be held at the place, either within or without the State of Delaware, date and time as may be designated by the board of directors. If the board of directors does not designate a place, the meetings shall be held at our principal place of business. The annual meeting of stockholders for the election of directors and for other business as may properly be brought before it shall be held on the date and time as set forth in the notice of meeting. Special meetings of the stockholders may be called at any time for any purpose by the Chairman of the board of directors, the Chief Executive Officer, a majority of the board of directors or the holders of shares of not less than 10% of the outstanding voting stock. Special meeting shall be held at the place, date and time as designated by the board of directors and specified in the notice of meeting. NOTICE OF MEETINGS Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at the meeting. The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose for which the meeting is called. RECORD DATE Except as otherwise provided by law, only those persons in whose names shares stand on our stock records on the record date shall be entitled to vote at any meeting of stockholders. The record date shall be as set forth in the notice of meeting. ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS Stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice in writing to our Secretary. To be timely, a notice must be delivered to or mailed and received at our principal executive offices not later than the 60th day nor earlier than the 90th day prior to the first anniversary of the preceding year's annual meeting. However, if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy 59 60 statement, to be timely, a notice must be received not earlier than the 90th day nor later than the 60th day prior to the annual meeting, provided that if less than 70 days prior public announcement of the meeting date is made, notice must be received not later than the 10th day following the date on which notice of the meeting date is publicly announced. AUTHORIZED BUT UNISSUED SHARES As of October 22, 1999, we had 422,530,688 shares of authorized but unissued common stock and 10,000,000 shares of authorized but unissued preferred stock. Our authorized but unissued shares are available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares could render more difficult or discourage an attempt to obtain control of our company by means of a proxy contest, tender offer, merger or otherwise. STOCK CERTIFICATES Stockholders are entitled to certificates, in the form as may be prescribed by our Restated Certificate and by law, certifying the number and class of shares owned by the stockholder. Each certificate shall be signed by, or in our name by, the Chairman of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. LISTING Our common stock is approved for quotation on the Nasdaq National Market under the symbol "BVSN." We have applied to list our common stock on the Neuer Markt segment of the Frankfurt Stock Exchange under the symbol "BDN." TRANSFER AGENT AND REGISTRAR American Securities Transfer Incorporated has been appointed as the transfer agent and registrar for the common stock. Its telephone number in the United States is (800) 962-4284. PAYING AND DEPOSITARY AGENTS; NOTICES In addition to our Secretary, Commerzbank Aktiengesellschaft and its branches will serve as paying and depositary agents with respect to the deposit of shares of our common stock in order to exercise the right to attend a stockholders' meeting and all other measures regarding common stock that may be taken free of charge when presenting a share certificate. Stockholder notices will be published in one German national newspaper approved for official notices by the Frankfurt Stock Exchange. TRANSFERABILITY, DELIVERABILITY AND CLEARING Except as otherwise established by agreement and subject to applicable law, shares may be transferred on our books by the surrender to us or to our transfer agent, of the certificate representing such shares properly endorsed and with such proof of authority or the authenticity of signature as we or our transfer agent may reasonably require. Shares of our common stock traded on the Neuer Markt will be represented by a book-entry position credited to The Depository Trust Company, or DTC, who will hold these shares for Deutsche Borse Clearing AG, or DBC. On or about November 8, 1999, the book-entry position representing shares of our common stock traded on the Neuer Markt will be credited to DTC. Shares of our common stock are expected to be accepted for clearance through DTC. Shares of 60 61 our common stock may be credited at the option of Neuer Markt investors either to a German bank's DBC account or to the accounts of participants with DBC. The German securities identification number or WKN of our common stock is 901 599. The international securities identification number or ISIN of our common stock is US 111 4121023. The CUSIP number of our common stock is 111412 10 2. LEGAL MATTERS The validity of the shares of common stock we are offering under this prospectus will be passed upon for us by our counsel, Cooley Godward LLP, San Francisco, California and certain other legal matters will be passed upon for us by our counsel, Hengeler Mueller Weitzel Wirtz, Frankfurt, Germany. Certain legal matters in connection with this offering will be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California and Deringer Tessin Herrmann & Sedemund, Frankfurt, Germany. EXPERTS Our consolidated balance sheets as of December 31, 1996, 1997 and 1998, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998, have been included in the registration statement in reliance upon the report of KPMG LLP, 500 East Middlefield Road, Mountain View, California 94043, independent auditors and upon the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance with the Exchange Act we file reports, proxy statements and other information with the Securities and Exchange Commission. These reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices located at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Reports, proxy statements and other information that we file electronically with the Commission are available at the Commission's Web site at http://www.sec.gov. The common stock is listed on the Nasdaq National Market, and reports, proxy statements and other information concerning us may also be inspected at the offices of the National Association of Securities Dealers, Inc. 1735 K. Street, N.W., Washington, D.C. 20006. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-3 under the Securities Act with respect to the shares of common stock we are offering under this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits to the registration statement. For further information with respect to us and the common stock we are offering under this prospectus, reference is made to the registration statement and the exhibits and schedules filed as a part of the registration statement. The registration statement may be inspected without charge at the Securities and Exchange Commission's principal office at 450 Fifth Street, Washington D.C. 20549, and copies of all or any part thereof may be obtained from the Public Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, upon payment of the prescribed fees. 61 62 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed by us with the Commission and are incorporated herein by reference: 1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998; 2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; 3. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, as amended; 4. Proxy Statement for our 1999 Annual Meeting; 5. Proxy Statement for our 1999 Special Meeting; and 6. The description of the common stock contained in our Registration Statement on Form 8-A. All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of the offering shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. This prospectus incorporates documents by reference that are not presented in the prospectus or delivered with the prospectus. We will provide without charge to each person to whom this prospectus has been delivered, and who so requests, a copy of any and all of the documents referred to above that have been or may be incorporated by reference into this prospectus and deemed to be part of the prospectus. We will not provide exhibits to such requested documents unless the exhibits are specifically incorporated by reference in such documents. You should direct any requests to Corporate Secretary, BroadVision, Inc., 585 Broadway, Redwood City, California 94063, telephone number in the United States (650) 261-5100. 62 63 BROADVISION, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
PAGE ---- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 64 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders BroadVision, Inc.: We have audited the accompanying consolidated balance sheets of BroadVision, Inc. and subsidiaries as of December 31, 1996, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BroadVision, Inc. and subsidiaries as of December 31, 1996, 1997 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Mountain View, California January 26, 1999, except as to Note 10 which is as of October 11, 1999 F-2 65 BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ------------------------------ JUNE 30, 1996 1997 1998 1999 -------- -------- -------- ----------- (UNAUDITED) ASSETS Current assets: Cash, and cash equivalents..................... $ 17,608 $ 8,277 $ 61,878 $ 53,735 Restricted cash................................ -- 1,400 -- -- Short-term investments, restricted in 1997..... 2,112 796 -- 18,823 Accounts receivable, less allowance for doubtful accounts of $191, $671, $788 and $1,018 for December 31, 1996, 1997 and 1998 and June 30, 1999, respectively............. 3,332 8,783 15,361 21,479 Prepaids and other............................. 317 566 3,589 3,820 -------- -------- -------- -------- Total current assets................... 23,369 19,822 80,828 97,857 Property and equipment, net...................... 3,024 6,467 8,034 9,978 Long-term investments............................ -- -- 11,546 28,286 Other assets..................................... 321 250 1,154 1,077 -------- -------- -------- -------- Total assets........................... $ 26,714 $ 26,539 $101,562 $137,198 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................... $ 958 $ 1,863 $ 2,243 $ 3,336 Accrued expenses............................... 2,526 2,168 4,933 7,312 Unearned revenue............................... 409 532 1,918 3,298 Deferred maintenance........................... 924 2,552 6,157 10,165 Current portion of capital lease obligations... 294 773 709 547 Current portion of long-term debt.............. -- 449 548 548 -------- -------- -------- -------- Total current liabilities.............. 5,111 8,337 16,508 25,206 Capital lease obligations........................ 495 803 270 16 Long-term debt................................... -- 2,202 2,924 2,600 Deferred income taxes............................ -- -- -- 529 Other liabilities................................ 92 76 51 35 -------- -------- -------- -------- Total liabilities...................... 5,698 11,418 19,753 28,386 -------- -------- -------- -------- Commitments Stockholders' equity: Convertible preferred stock, $0.0001 par value; 10,000 shares authorized; none issued and outstanding................................. -- -- -- -- Common stock, $0.0001 par value; 500,000 shares authorized; 59,724, 61,029, 74,388 and 76,525 shares issued and outstanding at December 31, 1996, 1997 and 1998 and June 30, 1999, respectively...................... 6 6 7 8 Additional paid-in capital..................... 39,312 40,362 98,762 109,301 Deferred compensation.......................... (2,033) (1,605) (555) (389) Accumulated other comprehensive income......... -- -- 3,198 13,243 Accumulated deficit............................ (16,269) (23,642) (19,603) (13,351) -------- -------- -------- -------- Total stockholders' equity............. 21,016 15,121 81,809 108,812 -------- -------- -------- -------- Total liabilities and stockholders' equity............................... $ 26,714 $ 26,539 $101,562 $137,198 ======== ======== ======== ========
See accompanying notes to consolidated financial statements F-3 66 BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------ ------------------ 1996 1997 1998 1998 1999 -------- ------- ------- ------- ------- (UNAUDITED) Revenues: Software licenses................. $ 7,464 $18,973 $36,067 $15,297 $28,267 Services.......................... 3,418 8,132 14,844 6,167 13,673 -------- ------- ------- ------- ------- Total revenues............ 10,882 27,105 50,911 21,464 41,940 Cost of revenues: Cost of license revenues.......... 330 1,664 1,001 400 1,784 Cost of service revenues.......... 2,164 4,284 8,704 3,711 7,945 -------- ------- ------- ------- ------- Total cost of revenues.... 2,494 5,948 9,705 4,111 9,729 -------- ------- ------- ------- ------- Gross profit.............. 8,388 21,157 41,206 17,353 32,211 Operating expenses: Research and development.......... 4,985 7,392 9,227 4,083 6,169 Sales and marketing............... 12,066 18,413 26,269 12,104 17,684 General and administrative........ 2,034 2,990 3,786 1,585 2,882 -------- ------- ------- ------- ------- Total operating expenses................ 19,085 28,795 39,282 17,772 26,735 -------- ------- ------- ------- ------- Operating income (loss)... (10,697) (7,638) 1,924 (419) 5,476 Other income, net................... 552 265 2,036 613 1,110 -------- ------- ------- ------- ------- Income (loss) before income taxes............ (10,145) (7,373) 3,960 194 6,586 Income tax benefit (expense)........ -- -- 79 -- (334) -------- ------- ------- ------- ------- Net income (loss)......... $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252 ======== ======= ======= ======= ======= Basic earnings (loss) per share..... $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08 ======== ======= ======= ======= ======= Diluted earnings (loss) per share... $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07 ======== ======= ======= ======= ======= Shares used in computing basic earnings (loss) per share......... 56,445 60,624 70,038 66,732 74,658 ======== ======= ======= ======= ======= Shares used in computing diluted earnings (loss) per share......... 56,445 60,624 76,959 74,457 83,838 ======== ======= ======= ======= =======
See accompanying notes to consolidated financial statements F-4 67 BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONVERTIBLE ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER ---------------- ---------------- PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME DEFICIT ------- ------ ------- ------ ---------- ------------ ------------- ----------- Balances as of December 31, 1995... 25,803 $ 3 18,924 $2 $ 11,409 $(1,036) $ -- $ (6,124) Net loss and comprehensive loss.... -- -- -- -- -- -- -- (10,145) Issuance of Series C convertible preferred ($0.67 per share)....... 9 -- -- -- 6 -- -- -- Issuance of Series E convertible preferred ($2.67 per share)....... 1,902 -- -- -- 5,055 -- -- -- Conversion of Series A, B, C and E preferred to common stock......... (27,714) (3) 27,774 3 -- -- -- -- Issuance of common stock from public offering, net of costs..... -- -- 10,080 1 20,754 -- -- -- Issuance of stock under employee stock purchase plan............... -- -- -- -- 394 -- -- -- Issuance of common stock from exercise of options............... -- -- 3,336 -- 205 -- -- -- Common stock repurchased........... -- -- (390) -- (21) -- -- -- Deferred compensation on stock options........................... -- -- -- -- 1,510 (1,510) -- -- Amortization of deferred compensation...................... -- -- -- -- -- 513 -- -- ------- --- ------- -- -------- ------- ------- -------- Balances as of December 31, 1996... -- -- 59,724 6 39,312 (2,033) -- (16,269) Net loss and comprehensive loss.... -- -- -- -- -- -- -- (7,373) Issuance of stock under employee stock purchase plan............... -- -- 726 -- 979 -- -- -- Issuance of common stock from exercise of options............... -- -- 765 -- 81 -- -- -- Common stock repurchased........... -- -- (186) -- (10) -- -- -- Amortization of deferred compensation...................... -- -- -- -- -- 428 -- -- ------- --- ------- -- -------- ------- ------- -------- Balances as of December 31, 1997... -- -- 61,029 6 40,362 (1,605) -- (23,642) Comprehensive income: Net income........................ 4,039 Unrealized gain on equity securities...................... 3,198 Total comprehensive income..................... Issuance of common stock from public offering, net of costs..... -- -- 10,368 1 53,744 -- -- -- Issuance of common stock for long-term investments............. -- -- 369 -- 1,322 -- -- -- Issuance of common stock from exercise of warrants.............. -- -- 87 -- -- -- -- -- Issuance of stock under employee stock purchase plan............... -- -- 684 -- 1,599 -- -- -- Issuance of common stock from exercise of options............... -- -- 1,899 -- 2,190 -- -- -- Common stock repurchased........... -- -- (48) -- (2) -- -- -- Deferred compensation forfeited due to voluntary terminations......... -- -- -- -- (693) 693 -- -- Deferred compensation on stock options........................... -- -- -- -- 240 (240) -- -- Amortization of deferred compensation...................... -- -- -- -- -- 597 -- -- ------- --- ------- -- -------- ------- ------- -------- Balances as of December 31, 1998... -- -- 74,388 7 98,762 (555) 3,198 (19,603) Comprehensive income: Net income (unaudited)............ 6,252 Unrealized gain on equity securities (unaudited).......... 10,045 Total comprehensive income (unaudited)................ Issuance of common stock under employee stock purchase plan (unaudited)....................... -- -- 471 -- 1,709 -- -- -- Issuance of common stock from exercise of options (unaudited)... -- -- 1,666 1 2,663 -- -- -- Income tax benefits from stock options exercised (unaudited)..... -- -- -- -- 6,167 -- -- -- Amortization of deferred compensation (unaudited).......... -- -- -- -- -- 166 -- -- ------- --- ------- -- -------- ------- ------- -------- Balances as of June 30, 1999 (unaudited)....................... -- $-- 76,525 $8 $109,301 $ (389) $13,243 $(13,351) ======= === ======= == ======== ======= ======= ======== TOTAL COMPREHENSIVE STOCKHOLDERS' INCOME (LOSS) EQUITY ------------- ------------- Balances as of December 31, 1995... $ 4,254 Net loss and comprehensive loss.... $(10,145) (10,145) ======== Issuance of Series C convertible preferred ($0.67 per share)....... 6 Issuance of Series E convertible preferred ($2.67 per share)....... 5,055 Conversion of Series A, B, C and E preferred to common stock......... -- Issuance of common stock from public offering, net of costs..... 20,755 Issuance of stock under employee stock purchase plan............... 394 Issuance of common stock from exercise of options............... 205 Common stock repurchased........... (21) Deferred compensation on stock options........................... -- Amortization of deferred compensation...................... 513 -------- Balances as of December 31, 1996... 21,016 Net loss and comprehensive loss.... $ (7,373) (7,373) ======== Issuance of stock under employee stock purchase plan............... 979 Issuance of common stock from exercise of options............... 81 Common stock repurchased........... (10) Amortization of deferred compensation...................... 428 -------- Balances as of December 31, 1997... 15,121 Comprehensive income: Net income........................ $ 4,039 4,039 Unrealized gain on equity securities...................... 3,198 3,198 -------- Total comprehensive income..................... $ 7,237 ======== Issuance of common stock from public offering, net of costs..... 53,745 Issuance of common stock for long-term investments............. 1,322 Issuance of common stock from exercise of warrants.............. -- Issuance of stock under employee stock purchase plan............... 1,599 Issuance of common stock from exercise of options............... 2,190 Common stock repurchased........... (2) Deferred compensation forfeited due to voluntary terminations......... -- Deferred compensation on stock options........................... -- Amortization of deferred compensation...................... 597 -------- Balances as of December 31, 1998... 81,809 Comprehensive income: Net income (unaudited)............ $ 6,252 6,252 Unrealized gain on equity securities (unaudited).......... 10,045 10,045 -------- Total comprehensive income (unaudited)................ $ 16,297 ======== Issuance of common stock under employee stock purchase plan (unaudited)....................... 1,709 Issuance of common stock from exercise of options (unaudited)... 2,664 Income tax benefits from stock options exercised (unaudited)..... 6,167 Amortization of deferred compensation (unaudited).......... 166 -------- Balances as of June 30, 1999 (unaudited)....................... $108,812 ========
F-5 68 BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------ ------------------- 1996 1997 1998 1998 1999 -------- ------- ------- ------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................................... $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization......................... 753 1,613 2,947 1,316 1,921 Amortization of deferred compensation................. 513 428 597 180 166 Provision for doubtful accounts and returns........... 196 515 458 283 230 Revenue resulting from non-monetary transactions...... -- -- (2,917) (1,031) -- Amortization of prepaid royalties..................... -- -- 250 -- 167 Changes in operating assets and liabilities: Accounts receivable................................... (917) (5,966) (7,036) (541) (6,348) Prepaid expenses and other............................ (536) (194) (2,716) (514) (246) Accounts payable and accrued expenses................. 2,996 547 3,145 348 3,472 Unearned revenue and deferred maintenance............. (1,238) 1,751 2,633 419 5,388 -------- ------- ------- ------- -------- Net cash provided by (used for) operating activities...................................... (8,378) (8,679) 1,400 654 11,002 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment...................... (2,529) (4,878) (4,198) (2,074) (3,865) Purchase of long-term investments....................... -- -- (3,000) (1,500) -- Increase in other assets................................ -- -- (237) (139) (90) Purchase of short-term investments...................... (2,112) (796) -- -- (18,823) Maturity of short-term investments...................... 196 2,112 796 796 -- -------- ------- ------- ------- -------- Net cash used for investing activities............ (4,445) (3,562) (6,639) (2,917) (22,778) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale/leaseback............................ -- 987 -- -- -- Net change in restricted cash........................... -- (1,400) 1,400 1,400 -- Proceeds from borrowings, net........................... -- 2,651 821 1,095 (324) Payments on capital lease obligations................... (274) (378) (913) (425) (416) Proceeds from issuance of common stock, net............. 21,333 1,050 57,532 55,455 4,373 Proceeds from issuance of preferred stock............... 5,061 -- -- -- -- -------- ------- ------- ------- -------- Net cash provided by financing activities......... 26,120 2,910 58,840 57,525 3,633 Net increase (decrease) in cash and cash equivalents...... 13,297 (9,331) 53,601 55,262 (8,143) Cash and cash equivalents, beginning of period............ 4,311 17,608 8,277 8,277 61,878 -------- ------- ------- ------- -------- Cash and cash equivalents, end of period.................. $ 17,608 $ 8,277 $61,878 $63,539 $ 53,735 ======== ======= ======= ======= ======== SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest.................................. $ 86 $ 108 $ 394 $ 172 $ 177 Cash paid for income taxes.............................. 66 156 428 84 431 Prepaids and other assets acquired through non-monetary transactions.......................................... -- -- 1,250 -- -- Investments acquired through non-monetary transactions.......................................... -- -- 4,025 1,250 -- Unearned revenue and deferred maintenance from non- monetary transactions................................. -- -- 2,358 219 -- Equipment acquired under capital leases................. 380 1,165 316 215 -- Long-term investment acquired in exchange for common stock................................................. -- -- 1,322 -- -- Deferred compensation on stock options.................. 1,510 -- 240 -- -- Deferred compensation forfeited due to voluntary terminations.......................................... -- -- 693 693 -- Net unrealized gain on long-term investments............ -- -- 3,198 -- 10,045 Contributed capital -- income tax benefit from stock option exercises...................................... -- -- -- -- 6,167
See accompanying notes to consolidated financial statements. F-6 69 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS BroadVision, Inc. (the "Company") develops, markets and supports application software solutions for one-to-one relationship management across the extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, offer online customer self-service and support, deliver targeted information and provide online financial services. Each of these capabilities can be provided to all constituents of the extended enterprise, including: customers, suppliers, partners, distributors and employees. The BroadVision One-To-One product suite allows businesses to tailor Web site content to the needs and interests of individual users by personalizing each visit on a real-time basis. The Company's applications interactively capture Web site visitor profile information, organize the enterprise's content, target that content to each visitor based on easily constructed business rules and execute transactions. BASIS OF PRESENTATION AND USE OF ESTIMATES The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain assumptions and estimates that affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The actual results could differ from those estimates. REVENUE RECOGNITION The Company's revenue recognition policies are in accordance with Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4, which was adopted by the Company effective January 1, 1998. There was no material change to the Company's accounting for revenues as a result of the adoption of SOP 97-2, as amended. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable; professional services revenues are recognized as such services are performed; and maintenance revenues, including revenues bundled with software agreements which entitle the customers to technical support and future unspecified enhancements to the Company's products, are deferred and recognized ratably over the related contract period, generally twelve months. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as software products, upgrades, enhancements, post contract customer support, installation, or training. The determination of fair value is based on objective evidence which is specific to the Company. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value does exist or until all elements of the arrangement are delivered. The Company records unearned revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under F-7 70 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) the Company's revenue recognition policy. The Company records accounts receivable for software arrangements when the arrangement qualifies for revenue recognition and cash or other consideration has not been received from the customer. In December 1998, AcSEC issued SOP 98-9 Software Revenue Recognition, With Respect to Certain Transactions, which requires recognition of revenue using the "residual method" in a multiple-element arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the "residual method", the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. The Company does not expect a material change to its accounting for revenues as a result of the provisions of SOP 98-9. RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS Development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been established at which time such costs are capitalized, subject to recoverability. Products are made available for limited release, concurrent with the achievement of technological feasibility. Accordingly, software development costs incurred subsequent to the establishment of technological feasibility have not been significant, and the Company has not capitalized any software development costs to date. PREPAID ROYALTIES Prepaid royalties relating to purchased software to be incorporated and sold with the Company's software products are amortized as a cost of revenue either on a straight-line basis over the remaining term of the royalty agreement or on the basis of projected product revenues, whichever results in greater amortization. CASH EQUIVALENTS The Company considers all debt securities with remaining maturities of three months or less at the date of purchase to be cash equivalents. The Company's cash equivalents consisted of the following (in thousands):
DECEMBER 31, ---------------------------- JUNE 30, 1996 1997 1998 1999 ------- ------ ------- ----------- (UNAUDITED) Money market funds.............................. -- $7,708 $48,900 $30,790 Commercial paper................................ $16,729 -- 11,000 19,991 ------- ------ ------- ------- $16,729 $7,708 $59,900 $50,781 ======= ====== ======= =======
SHORT-TERM INVESTMENTS The Company's short-term investments consisted primarily of debt securities. They have been classified as available-for-sale and carried at amortized cost which approximates fair value. As of December 31, 1996, short-term investments consisted principally of commercial paper. As of December 31, 1997, short-term investments consisted of a one-year certificate of deposit maintained with the Company's commercial bank as a guarantee for a standby letter of credit F-8 71 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) issued by the bank in favor of the Company's landlord. As of June 30, 1999, short-term investments consisted of $8,694,000 of debt securities with maturities of approximately one year and $10,129,000 of mutual bond funds. CONCENTRATIONS OF CREDIT RISK Financial assets that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade accounts receivable. The Company's cash, cash equivalents and short-term investments are held with a commercial bank. The Company markets and sells its products throughout the world and performs ongoing credit evaluations of its customers. The Company generally does not require collateral on accounts receivable as the majority of its customers are large, well-established companies. The Company maintains reserves for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable and debt. The Company does not have any derivative financial instruments. The Company believes the reported carrying amounts of its financial instruments approximates fair value, based upon the short maturity of cash equivalents, short-term investments, accounts receivable and payable, and based on the current rates available to the Company on similar debt issues. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (two to five years). Leasehold improvements are amortized over the corresponding lease term or their estimated useful lives, whichever is shorter. The Company evaluates long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property and equipment exceeds its fair market value. LONG-TERM INVESTMENTS As of December 31, 1998 and June 30, 1999, the Company's long-term investments consisted of investments in nonmarketable equity securities and an investment in marketable equity securities. The Company currently has no plans or intentions to dispose of the investments within one year of June 30, 1999. Accordingly, the investments have been classified as long term. The Company accounts for its investments in nonmarketable equity securities based on the cost method as the Company does not have the ability to significantly influence the operating and financial policies of the investees. Any decline in value, which is other than a temporary decline, is charged immediately to earnings in the period in which the impairment occurs. The carrying value of the investments in nonmarketable equity securities amounted to F-9 72 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) $3,000,000 at December 31, 1998. The Company classifies its investment in marketable equity securities as available for sale. Accordingly, the investment is recorded at its fair value with any unrealized gains or losses reported as accumulated other comprehensive income in stockholders' equity and changes in the unrealized gain or loss are reported as other comprehensive income. Any decline in value, which is other than a temporary decline, is charged immediately to earnings in the period in which the impairment occurs. As of December 31, 1998, the Company's investment in marketable equity securities had a fair value of $8,546,000, a cost basis of $5,348,000, and an unrealized gain of $3,198,000. As of June 30, 1999, the Company's investment in marketable equity securities had a fair value of $25,286,000, a cost basis of $5,348,000, and an unrealized gain of $19,938,000. INCOME TAXES The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are established to recognize the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. The effects on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. EMPLOYEE STOCK OPTION AND PURCHASE PLANS The Company accounts for employee stock-based awards in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Pursuant to Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, the Company discloses the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements. PER SHARE INFORMATION Basic earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options and warrants using the treasury stock method. Excluded from the computation of diluted earnings per share for the year ended December 31, 1996, are options to acquire 4,566,000 shares of Common Stock with a weighted-average exercise price of $0.38 and warrants to acquire 39,000 shares of Common Stock with a weighted-average exercise price of $0.67 because their effects would be anti-dilutive. Excluded from the computation of diluted earnings per share for the year ended December 31, 1997, are options to acquire 11,106,000 shares of Common Stock with a weighted-average exercise price of $1.47 and warrants to acquire 281,250 shares of Common Stock with a weighted-average F-10 73 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) exercise price of $2.05 because their effects would be anti-dilutive. The following table sets forth the basic and diluted earnings (loss) per share computational data for the periods presented.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------ ----------------- 1996 1997 1998 1998 1999 -------- ------- ------- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) for basic and diluted earnings (loss) per share... $(10,145) $(7,373) $ 4,039 $ 194 $ 6,252 ======== ======= ======= ======= ======= Weighted-average common shares outstanding utilized for basic earnings (loss) per share........... 56,445 60,624 70,038 66,732 74,658 Weighted-average common equivalent shares outstanding: Employee common stock options.... --(1) --(1) 6,864 7,506 9,090 Common stock warrant............. --(1) --(1) 57 219 90 -------- ------- ------- ------- ------- Total weighted-average common and common equivalent shares outstanding utilized for diluted earnings (loss) per share....................... 56,445 60,624 76,959 74,457 83,838 ======== ======= ======= ======= ======= Basic earnings (loss) per share....... $ (0.18) $ (0.12) $ 0.06 $ -- $ 0.08 ======== ======= ======= ======= ======= Diluted earnings (loss) per share..... $ (0.18) $ (0.12) $ 0.05 $ -- $ 0.07 ======== ======= ======= ======= =======
- --------------- (1) The Company incurred a net loss for the indicated period. Accordingly, common equivalent shares are excluded from the diluted loss per share calculation because they are antidilutive. FOREIGN CURRENCY TRANSACTIONS The functional currency of the Company's foreign subsidiaries is the U.S. dollar. Resulting foreign exchange gains and losses are included in the consolidated results of operations and, to date, have not been significant. COMPREHENSIVE INCOME (LOSS) The Company adopted SFAS No. 130, Reporting Comprehensive Income effective January 1, 1998. SFAS No. 130 establishes standards for the reporting and disclosure of comprehensive income (loss) and its components. Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by or distributions to owners. The Company did not have any significant components of other comprehensive loss for the years ended December 31, 1996 and 1997 and, thus, the comprehensive loss is the same as net loss for those periods. Comprehensive income for the year ended December 31, 1998 was $7,237,000. The Company's only component of accumulated other comprehensive income and other comprehensive income as of and for the year ended December 31, 1998, and as of and for the six months ended June 30, 1999, related to the unrealized gain on available-for-sale F-11 74 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) investments. As a result of unrecognized tax benefits represented by a valuation allowance for deferred tax assets, no incremental tax effects were attributed to unrealized gain for the year ended December 31, 1998. Accordingly, the unrealized gain is the same on a pre-tax and net of tax basis. The unrealized gain on available-for-sale investments for the six months ended June 30, 1999, has been reported net of taxes in the amount of $6,695,000. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. UNAUDITED INTERIM FINANCIAL STATEMENTS The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, the accompanying unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company's financial position as of June 30, 1999, and the results of its operation and its cash flows for the six-month periods ended June 30, 1998 and 1999. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly, the Company will adopt SFAS No. 133 beginning on January 1, 2001. SFAS No. 133, as amended, establishes standards for the accounting and reporting of derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts. Under SFAS No. 133, entities are required to carry all derivative instruments at fair value on their balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging activity and the underlying purpose for it. The Company does not believe that the adoption of SFAS No. 133 will have a significant impact on the Company's consolidated financial statements or related disclosures. NOTE 2 -- PROPERTY AND EQUIPMENT (IN THOUSANDS):
DECEMBER 31, --------------------------- JUNE 30, 1996 1997 1998 1999 ------ ------- ------ ----------- (UNAUDITED) Furniture and fixtures........................... $ 539 $ 636 $1,001 $ 1,164 Computer and software............................ 3,210 5,458 8,662 12,263 Leasehold improvements........................... 138 2,780 3,725 3,827 ------ ------- ------ ------- 3,887 8,874 13,388 17,254 Less accumulated depreciation and amortization... (863) (2,407) (5,354) (7,276) ------ ------- ------ ------- $3,024 $ 6,467 $8,034 $ 9,978 ====== ======= ====== =======
F-12 75 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) As of December 31, 1996, 1997 and 1998, and June 30, 1999, leased equipment totaled approximately $1,105,000, $2,256,000, $2,572,000, and $2,572,000, respectively. Accumulated amortization for leased equipment totaled approximately $355,000, $927,000, $1,750,000, and $2,070,000 as of December 31, 1996, 1997 and 1998, and June 30, 1999, respectively. NOTE 3 -- ACCRUED EXPENSES (IN THOUSANDS):
DECEMBER 31, ------------------------ JUNE 30, 1996 1997 1998 1999 ------ ------ ------ ----------- (UNAUDITED) Employee benefits.................................... $ 254 $ 420 $ 678 $1,008 Commissions and bonuses.............................. 696 833 2,013 2,526 Taxes payable........................................ 129 366 785 1,173 Other................................................ 1,447 549 1,457 2,605 ------ ------ ------ ------ $2,526 $2,168 $4,933 $7,312 ====== ====== ====== ======
NOTE 4 -- DEBT As of December 31, 1998, and June 30, 1999, the Company has a credit facility with a commercial lender which included outstanding borrowings of $3,472,000 and $3,148,000, respectively, under a note payable. Borrowings bear interest at the bank's prime rate (7.75% as of December 31, 1998 and June 30, 1999). Principal and interest is due in consecutive monthly payments through maturity based on the term of the facility. Principal payments of $548,000 are due annually from 1999 through 2004 with a final payment of $183,000 due in 2005. Available credit under the Company's credit facilities include a term debt credit facility of $1,000,000 and a revolving line of credit that provides for up to $2,300,000 of total borrowings (based on eligible accounts receivable). During the six months ended June 30, 1999, the Company's commercial lender increased its term debt and revolving line of credit facilities to provide for total borrowings of up to $3,000,000 and $5,000,000, respectively. As of December 31, 1998 and June 30, 1999, the Company has outstanding commitments totaling $2,196,000 and $2,822,000, respectively, in the form of standby letters of credit under its revolving line of credit facility (see Note 6). The credit facility includes covenants which impose certain restrictions on the payment of dividends and other distributions and requires the Company to maintain monthly financial covenants, including a minimum quick ratio, tangible net worth ratio and minimum cash reserves. The minimum cash reserves covenant is replaced with a minimum debt service coverage ratio upon six consecutive quarters of profitability. Borrowings are collateralized by a security interest in substantially all of the Company's owned assets. The Company was in compliance with all of its financial covenants as of December 31, 1998 and June 30, 1999. F-13 76 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) NOTE 5 -- INCOME TAXES Income before taxes includes losses from foreign operations of approximately $986,000, $1,567,000 and $2,906,000, for the years ended December 31, 1996, 1997 and 1998, respectively. The components of income tax expense (benefit) are as follows (in thousands):
YEARS ENDED DECEMBER 31, ---------------------------- 1996 1997 1998 ------- ------- ------ Current: Federal................................................... $ -- $ -- $ 192 State..................................................... -- -- 13 Foreign................................................... -- -- 416 ------- ------- ------ Total current..................................... $ -- $ -- $ 621 Deferred: Federal................................................... -- -- (600) State..................................................... -- -- (100) ------- ------- ------ Total deferred.................................... $ -- $ -- $ (700) ------- ------- ------ $ -- $ -- $ (79) ======= ======= ======
The differences between the income tax expense (benefit) computed at the federal statutory rate of 34% and the Company's actual income tax expense (benefit) for the periods presented are as follows (in thousands):
YEARS ENDED DECEMBER 31, ---------------------------- 1996 1997 1998 ------- ------- ------ Expected income tax expense................................. $(3,449) $(2,507) $1,346 State income taxes, net of federal tax benefit.............. -- -- (58) Foreign taxes............................................... -- -- 416 Alternative minimum tax..................................... -- -- 97 Utilization of net operating loss carryforwards............. -- -- (2,471) Decrease in beginning of year valuation allowance........... (600) Foreign losses not benefited................................ -- -- 988 Net operating losses not benefited.......................... 3,449 2,507 -- Other....................................................... -- -- 203 ------- ------- ------ Income tax benefit.......................................... $ -- $ -- $ (79) ======= ======= ======
F-14 77 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) The individual components of the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, ----------------------------- 1996 1997 1998 ------- ------- ------- Deferred tax assets: Depreciation and amortization..................... $ 175 $ 401 $ 766 Accrued liabilities............................... 403 887 723 Capitalized research and development.............. 531 1,024 721 Net operating losses.............................. 5,093 6,408 6,737 Tax credits....................................... 431 1,258 2,180 ------- ------- ------- Total deferred tax assets.................... 6,633 9,978 11,127 Less valuation allowance.......................... (6,633) (9,978) (9,153) ------- ------- ------- -- -- 1,974 Deferred tax liabilities -- unrealized gain on marketable securities.......................... -- -- (1,274) ------- ------- ------- Net deferred tax assets...................... $ -- $ -- $ 700 ======= ======= =======
The total deferred tax assets as of December 31, 1998, include approximately $1,900,000 relating to the tax benefit arising from the exercise of stock options, which will be credited to stockholders' equity when recognized in the form of a reduction of the valuation allowance. In addition, as a result of the intraperiod income tax allocation provisions of SFAS No. 109, the deferred tax liability related to the unrealized gain on marketable securities decreased the valuation allowance for the deferred tax assets and was not charged to accumulated other comprehensive income in stockholders' equity. The Company has provided a valuation allowance for a significant portion of its deferred tax assets as of December 31, 1998. The total valuation allowance decreased $825,000 from December 31, 1997 to December 31, 1998, of which $700,000 relates to a change in the beginning-of-the-year valuation allowance. As of December 31, 1998, the Company had federal and state net operating loss carryforwards of approximately $12,973,000 and $5,539,000, respectively, available to offset future regular and alternative minimum taxable income. In addition, the Company had federal and state research and development credit carryforwards of approximately $790,000 and $666,000, respectively, available to offset future tax liabilities. The Company's federal net operating loss and tax credit carryforwards expire in the years 2010 through 2012, if not utilized. The state net operating loss carryforwards expire in the years 2000 through 2002. The state research and development credits can be carried forward indefinitely. As of December 31, 1998, the Company's foreign subsidiaries had net operating loss carryforwards in foreign jurisdictions of approximately $5,400,000 that can be used to offset future foreign income. Of these losses, approximately $1,600,000 expire in the years 2001 through 2003. Approximately $3,800,000 of these losses can be carried forward indefinitely. Federal and state tax laws limit the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. The Company believes such an ownership change, as defined, may have occurred and, accordingly, certain of the Company's federal and state net operating loss carryforwards may be limited in their annual usage. F-15 78 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) NOTE 6 -- COMMITMENTS Leases The Company entered into its headquarters facility lease during 1997. The Company leases this and its other facilities under noncancelable operating lease agreements expiring through the year 2007. Under the terms of the agreements, the Company is required to pay property taxes, insurance and normal maintenance costs. The Company also leases certain equipment under capital leases expiring through the year 2000. Subsequently, during March 1999, the Company entered into an operating lease agreement through December 2007 for an additional 55,000 square feet of office space adjacent to its corporate headquarters building in Redwood City, California with annual rental payments of approximately $1,500,000. A summary of future minimum lease payments is as follows (in thousands):
CAPITAL OPERATING YEAR ENDED DECEMBER 31, LEASES LEASES ----------------------- ------- --------- 1999........................................................ $ 849 $ 2,236 2000........................................................ 330 1,734 2001........................................................ -- 1,297 2002........................................................ -- 1,346 2003........................................................ -- 1,426 Thereafter................................................ -- 6,018 ------ ------- Total minimum lease payments................................ 1,179 $14,057 ======= Less amount representing imputed interest................... 200 ------ Present value of net minimum capital lease payments......... 979 Less current portion........................................ (709) ------ Capital leases, excluding current portion................... $ 270 ======
Rental expense relating to operating leases was approximately $571,000, $1,161,000, and $1,101,000 for the years ended December 31, 1996, 1997 and 1998, respectively. Total minimum sublease payments to be received in the future under noncancelable subleases total $1,093,000 through May 2000. Standby Letter of Credit Commitments As of December 31, 1998, the Company had outstanding commitments in the form of two standby letters of credit. A letter for $1,400,000 was issued in favor of the Company's equipment leasing financier on November 12, 1997; with provisions for automatic annual renewals not to extend beyond April 10, 2000. A letter for $796,000 was issued in favor of the Company's corporate facility landlord to secure obligations under the Company's corporate headquarters facility lease. Subsequently, during March 1999, a standby letter of credit in the amount of $498,000 was issued in favor of the Company's corporate facility landlord to secure obligations relating to a lease for additional facility office space. F-16 79 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) NOTE 7 -- STOCKHOLDERS' EQUITY Convertible Preferred Stock All outstanding convertible preferred stock and warrants to purchase convertible preferred stock were converted to common stock and warrants to purchase common stock at the time of the Company's initial public offering in June 1996. Warrants As of December 31, 1998 and June 30, 1999, there were warrants outstanding to acquire 180,000 shares of common stock at $2.83 per share related to a facilities lease. At the date these warrants were granted, the fair value of these warrants was not significant. Common Stock The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option and stock purchase plans. Accordingly, the Company has recorded deferred compensation of $1,510,000 and $240,000 in the years ended December 31, 1996 and 1998, respectively, for the difference between the exercise price and the fair value of the common stock underlying options granted. The deferred compensation is being amortized to expense over the vesting period of the individual options, generally five years. As of December 31, 1998, the Company had reserved 17,925,000 shares of common stock for issuance under its Equity Incentive Plan. As of June 30, 1999, the Company has reserved 20,625,000 shares of common stock for issuance under its Equity Incentive Plan. Under this plan, the Board of Directors may grant incentive or nonqualified stock options at prices not less than 100% or 85%, respectively, of the fair market value of the Company's common stock, as determined by the Board of Directors, at the date of grant. The vesting of individual options may vary but in each case at least 20% of the total number of shares subject to options will become exercisable per year. These options generally expire ten years after the grant date. When an employee option is exercised prior to vesting, any unvested shares so purchased are subject to repurchase by the Company at the original purchase price of the stock upon termination of employment. The Company's right to repurchase lapses at a minimum rate of 20% per year over five years from the date the option was granted or, for new employees, the date of hire. Such right is exercisable only within 90 days following termination of employment. Approximately 48,000 unvested shares were repurchased by the Company during the year ended December 31, 1998. As of December 31, 1998 and June 30, 1999, 706,545 and 704,937 shares were subject to repurchase at a weighted-average price of $0.15 and $0.34, respectively. As of December 31, 1998, the Company's President and Chief Executive Officer held an option to purchase 1,500,000 shares of common stock at an exercise price of $1.33 per share. The shares subject to option vest ratably on a monthly basis over a 60-month period commencing April 1, 1995. As of December 31, 1998 and June 30, 1999, 1,101,000 and 1,250,001 shares were vested, respectively. In June 1999, the Company's President and Chief Executive Officer was granted an additional option to purchase 1,500,000 shares of common stock at an exercise price of $20.00 per share. The shares subject to the second option vest ratably on a monthly basis over a 60-month period commencing June 23, 1999. F-17 80 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) Activity in the Company's stock option plan is as follows:
YEARS ENDED DECEMBER 31, --------------------------------------------------------------- SIX MONTHS ENDED 1996 1997 1998 JUNE 30, 1999 ------------------- ------------------- ------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE FIXED OPTIONS (000'S) PRICE (000'S) PRICE (000'S) PRICE (000'S) PRICE ------------- ------- --------- ------- --------- ------- --------- ------- --------- (UNAUDITED) Outstanding at beginning of period.... 5,772 $0.04 7,179 $0.92 8,721 $1.50 10,494 $ 2.89 Granted............................... 5,547 1.33 4,038 2.23 4,764 4.56 4,533 15.35 Exercised............................. (3,276) 0.06 (765) 0.10 (1,731) 1.21 (1,569) 1.55 Forfeited............................. (864) 0.94 (1,731) 1.40 (1,260) 1.91 (582) 4.21 ------ ------ ------ ------ Outstanding at end of period.......... 7,179 $0.92 8,721 $1.50 10,494 $2.89 12,876 $ 7.38 ====== ====== ====== ====== Options vested at end of period....... 927 $0.07 1,923 $0.88 2,409 $1.43 2,424 $ 2.07 ====== ====== ====== ====== Weighted-average fair value of options granted during the period........... $0.76 $2.23 $2.96 $12.95 ===== ===== ===== ======
The following table summarizes stock options outstanding as of December 31, 1998:
OPTIONS OUTSTANDING ------------------------------------------------- OPTIONS VESTED WEIGHTED-AVG. ----------------------------- NUMBER REMAINING NUMBER RANGE OF OUTSTANDING CONTRACTUAL LIFE WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG. EXERCISE PRICES (000'S) IN YEARS EXERCISE PRICE (000'S) EXERCISE PRICE --------------- ----------- ---------------- -------------- ----------- -------------- $0.02 - $1.77.................. 1,938 7.15 $ 0.31 1,044 $0.22 1.83 - 2.31.................. 2,364 7.40 2.00 618 1.97 2.33 - 2.60.................. 2,286 8.25 2.47 576 2.41 2.63 - 4.21.................. 1,869 9.05 3.76 144 2.75 4.31 - 9.27.................. 2,037 9.57 6.03 27 8.06 ------ ----- $0.02 - $9.27.................. 10,494 8.25 $ 2.89 2,409 $1.43 ====== =====
The following table summarizes stock options outstanding as of June 30, 1999 (unaudited):
OPTIONS OUTSTANDING ------------------------------------------------- OPTIONS VESTED WEIGHTED-AVG. ----------------------------- NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING CONTRACTUAL LIFE AVG. EXERCISABLE AVG. EXERCISE PRICES (000'S) IN YEARS EXERCISE PRICE (000'S) EXERCISE PRICE --------------- ----------- ---------------- -------------- ----------- -------------- $ 0.02 - $ 2.17................ 2,775 7.22 $ 1.24 1,254 $1.01 2.21 - 3.67................ 2,814 7.97 2.63 852 2.50 3.88 - 7.96................ 2,592 8.94 5.13 291 4.83 8.00 - 14.25................ 2,937 9.71 12.40 27 8.82 17.29 - 20.00................ 1,758 9.98 19.58 -- -- ------ ----- $ 0.02 - $20.00................ 12,876 8.67 $ 7.38 2,424 $2.07 ====== =====
F-18 81 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) The Company grants options outside of the Company's stock option plan. A summary of options outside of the plan is presented below:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ SIX MONTHS ENDED 1996 1997 1998 JUNE 30, 1999 -------------------- -------------------- -------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE AVERAGE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE FIXED OPTIONS (000'S) PRICE (000'S) PRICE (000'S) PRICE (000'S) PRICE ------------- ------- ---------- ------- ---------- ------- ---------- -------- ---------- (UNAUDITED) Outstanding at beginning of period................... 60 $0.07 2,133 $1.17 2,385 $1.36 2,217 $ 1.41 Granted.................... 2,181 1.15 462 1.83 -- -- 459 14.73 Exercised.................. (60) 0.07 -- -- (168) 0.62 (96) 2.25 Forfeited.................. (48) 0.27 (210) 0.27 -- -- -- -- ----- ----- ----- ----- Outstanding at end of period................... 2,133 $1.17 2,385 $1.36 2,217 $1.41 2,580 $ 3.75 ===== ===== ===== ===== Options vested at end of period................... 591 $1.45 1,185 $1.20 1,491 $1.34 1,617 $ 1.30 ===== ===== ===== ===== Weighted-average fair value of options granted during the period............... $0.68 $1.83 $ -- $11.85 ===== ===== ===== ======
The 2,217,000 and 2,580,000 options outstanding as of December 31, 1998 and June 30, 1999, respectively, have exercise prices ranging from $0.27 to $20.44 and a weighted-average contractual life of 6.22 and 5.88 years, respectively. As of December 31, 1998 and June 30, 1999, no shares were subject to repurchase. Employee Stock Purchase Plan As of December 31, 1998, the Company had reserved 2,400,000 shares for issuance under the Company's Employee Stock Purchase Plan (the "Purchase Plan"). As of June 30, 1999, the Company has reserved 3,300,000 shares for issuance under the Company's Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock equivalent to a percentage of the employee's earnings, not to exceed 15%, at a price equal to 85% of the fair market value of the common stock at dates specified by the Board of Directors as provided in the Plan. Under the Purchase Plan, the Company issued 726,000, 684,000 and 471,000 shares to employees in the years ended December 31, 1997 and 1998 and in the six month period ended June 30, 1999, respectively. Under SFAS No. 123, compensation cost is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes option pricing model with no expected dividends, an expected life of 7 months, and the following weighted-average assumptions:
YEARS ENDED DECEMBER 31, ------------------------------ SIX MONTHS ENDED 1996 1997 1998 JUNE 30, 1999 -------- -------- -------- ---------------- (UNAUDITED) Risk-free interest rate............. 6.50% 5.05% 4.48% 4.82% Volatility.......................... 60% 67% 112% 104%
F-19 82 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) The weighted-average fair value of the purchase rights granted in the years ended December 31, 1996, 1997, 1998, and the six month period ended June 30, 1999, was $0.87, $0.72, $1.39 and $3.24, respectively. Pro Forma Disclosure The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with no expected dividends and the following weighted-average assumptions:
YEARS ENDED DECEMBER 31, --------------------------------- SIX MONTHS ENDED 1996 1997 1998 JUNE 30, 1999 --------- --------- --------- ---------------- (UNAUDITED) Expected life....................... 5.0 years 2.8 years 3.0 years 3.7 years Risk-free interest rate............. 6.50% 5.91% 4.70% 5.75% Volatility.......................... 60% 67% 112% 104%
Had compensation cost for the Company's stock option plan and stock purchase plan been determined consistent with SFAS No. 123, the Company's reported net income (loss) and net income (loss) per share would have been changed to the amounts indicated below (in thousands except per share data):
YEARS ENDED DECEMBER 31, ---------------------------- SIX MONTHS ENDED 1996 1997 1998 JUNE 30, 1999 -------- ------- ------- ---------------- (UNAUDITED) Net income (loss): As reported.......................... $(10,145) $(7,373) $ 4,039 $ 6,252 Pro forma............................ $(11,270) $(9,551) $(1,885) $(1,508) Basic net income (loss) per share: As reported.......................... $ (0.18) $ (0.12) $ 0.06 $ 0.08 Pro forma............................ $ (0.20) $ (0.16) $ (0.03) $ (0.02) Diluted net income (loss) per share: As reported.......................... $ (0.18) $ (0.12) $ 0.05 $ 0.07 Pro forma............................ $ (0.20) $ (0.16) $ (0.03) $ (0.02)
NOTE 8 -- EMPLOYEE BENEFIT PLAN In November 1994, the Company adopted a 401(k) employee retirement plan under which eligible employees may contribute up to 20% of their annual compensation, subject to a limitation of $10,000 in the year ended December 31, 1998. Employees vest immediately in their contributions and earnings thereon. The plan allows for, but does not require, Company matching contributions. As of December 31, 1998 and June 30, 1999, the Company has not made any such matching contributions. NOTE 9 -- GEOGRAPHIC, SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION The Company adopted the provisions of SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, during 1998. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information F-20 83 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company's chief operating decision maker is considered to be the Company's Chief Executive Officer ("CEO"). The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance. The disaggregated financial information on a product basis reviewed by the CEO is as follows (in thousands):
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, --------------------------- ----------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- (UNAUDITED) Software licenses: One-To-One Enterprise...................... $ 7,464 $14,479 $17,799 $ 8,354 $ 4,586 One-To-One Packaged Solutions.............. -- 4,494 18,268 6,943 23,681 Services..................................... 2,819 5,981 9,739 4,269 9,063 Maintenance.................................. 599 2,151 5,105 1,898 4,610 ------- ------- ------- ------- ------- Total Company.............................. $10,882 $27,105 $50,911 $21,464 $41,940 ======= ======= ======= ======= =======
The Company sells its products and provides services worldwide through a direct sales force, independent distributors, value-added resellers, and system integrators. It currently operates in three primary regions, the Americas which includes North and South America, Europe which includes Eastern and Western Europe and the Middle East, and Asia/Pacific which includes the Pacific Rim and the Far East. Information regarding the business operations of these regions are as follows (In thousands):
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, --------------------------- ----------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- (UNAUDITED) Revenues: Americas................................... $ 4,406 $12,872 $29,330 $11,815 $29,746 Europe..................................... 3,280 10,850 16,944 6,804 7,637 Asia/Pacific............................... 3,196 3,383 4,637 2,845 4,557 ------- ------- ------- ------- ------- Total Company.............................. $10,882 $27,105 $50,911 $21,464 $41,940 ======= ======= ======= ======= =======
DECEMBER 31, ---------------------------- JUNE 30, 1996 1997 1998 1999 ------- ------- -------- ----------- (UNAUDITED) Identifiable assets: Americas.......................................... $28,093 $25,362 $ 99,343 $134,748 Europe............................................ 366 822 1,754 1,880 Asia/Pacific...................................... 471 355 465 570 ------- ------- -------- -------- Total Company..................................... $28,930 $26,539 $101,562 $137,198 ======= ======= ======== ========
F-21 84 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999 (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999, IS UNAUDITED) During the year ended December 31, 1996, approximately 10% of the Company's revenues were attributable to one customer. During the year ended December 31, 1997, approximately 11% of the Company's revenues were attributable to one customer. During the year ended December 31, 1998, no customer accounted for 10% or more of the Company's revenues. During the six months ended June 30, 1999, one customer accounted for approximately 11% of the Company's total revenues. NOTE 10 -- SUBSEQUENT EVENTS On October 6, 1999, the Company's Board of Directors increased the authorized shares of common stock and convertible preferred stock to 500,000,000 and 10,000,000, respectively. In addition, the Board of Directors increased the aggregate number of shares of common stock available to be issued under the Company's Equity Incentive Plan by 3,000,000 shares. On October 11, 1999, the Company effected a three-for-one stock split of its common stock in the form of a stock dividend. Stockholders of record on October 11, 1999, will receive two additional shares of common stock for each share held on that date. The shares are to be distributed on October 25, 1999. The accompanying consolidated financial statements have been retroactively restated to give effect to the stock split. F-22 85 UNDERWRITING BroadVision and the underwriters for the U.S. offering (the "U.S. Underwriters") named below have entered into an underwriting agreement with respect to the shares being offered in the United States. Subject to certain conditions, each U.S. Underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., ABN AMRO Incorporated, Banc of America Securities LLC, Commerzbank Capital Markets Corporation and Friedman, Billings, Ramsey & Co., Inc. are the representatives of the U.S. Underwriters.
U.S. Underwriters Number of Shares ----------------- ------------------ Goldman, Sachs & Co. .................................. BancBoston Robertson Stephens Inc. .................... ABN AMRO Incorporated.................................. Banc of America Securities LLC......................... Commerzbank Capital Markets Corporation................ Friedman, Billings, Ramsey & Co., Inc.................. ---------- Total........................................ 1,125,000 ==========
---------------------- If the U.S. Underwriters sell more shares than the total number set forth in the table above, the U.S. Underwriters have an option to buy up to an additional 168,750 shares from BroadVision to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the U.S. Underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the U.S. Underwriters by BroadVision. Such amounts are shown assuming both no exercise and full exercise of the U.S. Underwriters' option to purchase additional shares.
Paid by BroadVision ------------------- No Exercise Full Exercise ------------ -------------- Per Share................................................... $ $ Total....................................................... $ $
Shares sold by the underwriters to the public will initially be offered at the initial price to public set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial price to public. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial price to public. If all the shares are not sold at the initial price to public, the representatives may change the offering price and the other selling terms. BroadVision has entered into an underwriting agreement with the underwriters for the sale of 1,125,000 shares outside of the United States. The terms and conditions of both offerings are the same and the sale of shares in both offerings are conditioned on each other. Goldman, Sachs & Co. oHG, BancBoston Robertson Stephens International Ltd., ABN AMRO Rothschild, Bank of America International Limited and Commerzbank Aktiengesellschaft are representatives of the underwriters for the international offering outside of the United States (the "International Underwriters"). BroadVision has granted the International Underwriters a similar option to purchase up to an aggregate of an additional 168,750 shares. Shares sold by the International Underwriters will be priced in euros. The initial price to public set forth on the cover of this U-1 86 prospectus will be translated into euros at the rate of $1.00 = E , the noon buying rate in The City of New York for cable transfers in foreign currencies certified by the Federal Reserve Bank of New York for customs purposes (the "Noon Buying Rate"). On October 20, 1999, the Noon Buying Rate for the euro was E 1.00 = $1.0765. The underwriters for both of the offerings have entered into an agreement in which they have agreed to restrictions on where and to whom they and any dealer purchasing from them may offer shares as a part of the distribution of the shares. The underwriters also have agreed that they may sell shares among each of the underwriting groups. BroadVision and holders of 22,578,645 shares of the common stock have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans, or shares issued in connection with certain acquisitions or in conjunction with an agreement involving a technical manufacturing or marketing collaboration, provided that such shares (i) do not represent, in the aggregate, more than 15% of BroadVision's then outstanding shares of stock, (ii) are issued in a transaction not requiring registration under the Act and (iii) are subject to these same share transfer restrictions. In addition, BroadVision and its Chief Executive Officer, who holds an aggregate of 19,125,000 shares of common stock, have agreed to a lock-up with the Deutsche Borse AG, pursuant to the rules of admission of the Neuer Markt. Pursuant to this lock-up, BroadVision and its Chief Executive Officer may not, for a period of six months from the date of commencement of trading on the Neuer Markt, offer or sell shares of the Company's common stock, or take other measures economically equivalent to a sale of the common stock. Deutsche Borse AG may grant exemptions from this lock-up under certain circumstances. In connection with the offerings, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offerings. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offerings are in progress. The U.S. underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market and on the Neuer Markt of the Frankfurt Stock Exchange, in the over-the-counter market or otherwise. BroadVision estimates that its share of the total expenses for the offering, excluding underwriting discounts and commissions, will be approximately $3,275,000. BroadVision has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the U.S. Securities Act of 1933. This prospectus may be used by the underwriters and other dealers in connection with offers and sales of the shares, including sales of shares initially sold by the underwriters in the offering being made outside of the United States, to persons located in the United States. U-2 87 GLOSSARY Browser-based Tool............ Tool that runs in any HTML browser. C++........................... An object-oriented platform programming language. CGI........................... "Common Gateway Interface" is the interface used by HTTP servers to execute a process or application in response to a request. CORBA......................... "Common Object Request Broker Architecture" allows applications to communicate with one another no matter where they are located or who has designed them. Extranet...................... External internet web application for customers' partners and customers. HTTP.......................... "HyperText Transfer Protocol" is the protocol developed for communication between browsers and web servers. Interface Definition Language...................... "IDL" is the language used that defines the CORBA protocol of application interfaces. Intranet...................... Internal internet web application for customers' employees and internal users. Java.......................... An object-oriented platform neutral programming language developed by Sun Microsystems. JavaScript.................... An open, cross-platform object scripting language for the creation and customization of applications developed by NetScape. Modular Component Architecture.................. Software system that provides architecture for developing an application in logical components, and support for integrating together. N-tier Architecture........... Applications whose logical processes can be distributed across multiple host machines, typically to provide a scalable design. NSAPI......................... "NetScape Application Program Interface" is a high performance alternative to CGI. Object-oriented Application Code.......................... An application written in an object-oriented language, such as C++ or Java. Packaged Applications......... Pre-built application software packages that require less customization to be deployed. PC-based Tool................. Tool that runs on the Windows/PC platform. Real-time Interaction......... Providing immediate responses to actions or requests. Relationship Management....... Managing relationships with customers. SQL........................... "Standard Query Language" is a database language for accessing relational databases. SSL........................... "Secure Sockets Layer" is a security protocol that provides data encryption, server authentication, message G-1 88 integrity, and optional client authentication for a TCP/IP connection. Systems Integrators........... Companies whose focus is on integrating systems to provide solutions to customers' business needs. Wizards....................... Graphical interface that walks a user through a series of steps to achieve a task. XML........................... "eXtensible Markup Language" is the universal format for structured documents and data on the Web. G-2 89 [INSIDE FRONT COVER] LEFT CAPTION: One-to-One Text: Know the Customers. With the advent of the Internet, business managers may never have face-to-face contact with millions of their customers, customers who now have the ability to change vendors at the click of a button. As a result, compared to traditional businesses, e-Businesses are faced with a greatly increased need for differentiation and thus the need to personalize business interactions. BroadVision helps companies around the world personalize e-commerce by enabling the delivery of the information that customers want, need and expect. BROADVISION LOGO LEFT CAPTION: One-to-One Text: Empower Employees. We believe that the most effective intranets offer personalized content, navigation and alerts. By personalizing content, BroadVision can enhance the workflow and knowledge management capabilities of an organization. By personalizing navigation, employees quickly find information they need. And personalized notifications instantly advise employees when information important to them arrives or changes. BROADVISION LOGO [This page has four close-up photos of people's faces] [INSIDE BACK COVER] LEFT CAPTION: One-to-One Text: Streamline Business Partners. BroadVision delivers one of the first e-Business applications to permit business partners such as distributors, resellers and suppliers to access, by themselves, commonly requested information such as inventory status, order status and ship dates. These personalized corporate knowledge portals feature personalized navigation and personalized content to allow business partners to help themselves. BROADVISION LOG Text: Get To Know BroadVision. We develop, market and support application software solutions for one-to-one relationship management. We help companies around the world personalize their interactions and transactions with all constituents of the extended enterprise, including customers, employees and business partners. BROADVISION LOGO LOWER CAPTION: One-to-One [This page has six close-up photos of people's faces] 90 - ------------------------------------------------------ - ------------------------------------------------------ No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ------------------------ TABLE OF CONTENTS
Page ----- Prospectus Summary................... 3 Risk Factors......................... 6 Special Note Regarding Forward- Looking Statements................. 16 Use of Proceeds...................... 17 Price Range of Common Stock.......... 17 Dividend Policy...................... 18 Capitalization....................... 19 Selected Consolidated Financial Data............................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 21 Business............................. 36 Management........................... 51 Principal Stockholders............... 55 Description of Capital Stock......... 57 Legal Matters........................ 61 Experts.............................. 61 Available Information................ 61 Additional Information............... 61 Incorporation of Certain Documents by Reference.......................... 62 Index to Financial Statements........ F-1 Underwriting......................... U-1 Glossary............................. G-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 2,250,000 Shares BROADVISION, INC. Common Stock ---------------------- LOGO ---------------------- GOLDMAN, SACHS & CO. ROBERTSON STEPHENS ABN AMRO ROTHSCHILD A DIVISION OF ABN AMRO INCORPORATED BANC OF AMERICA SECURITIES LLC COMMERZBANK CAPITAL MARKETS CORP. FRIEDMAN BILLINGS RAMSEY Representatives of the Underwriters - ------------------------------------------------------ - ------------------------------------------------------ 91 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the common stock being registered. All the amounts shown are estimates, except for the registration fee and the NASD filing fee. SEC Registration fee........................................ $ 27,723 NASD filing fee............................................. 9,033 Nasdaq National Market Additional Listing Fee............... 15,250 Accounting fees and expenses................................ 230,000 Legal fees and expenses..................................... 500,000 Blue Sky fees and expenses (including counsel fees)......... 5,000 Printing and engraving expenses............................. 300,000 Transfer Agent and Registrar fees and expenses.............. 5,000 Advertising and Public Relations............................ 1,950,000 Miscellaneous............................................... 232,994 ---------- Total............................................. $3,275,000 ==========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes a court to award or a corporation's board of directors to grant indemnification to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act. The Registrant's Restated Certificate and Restated Bylaws provide for mandatory indemnification of its directors and permissive indemnification of officers, employees and other agents to the maximum extent permitted by the DGCL. The Registrant has entered into indemnification agreements with its directors. The indemnification agreements provide the Registrant's directors with further indemnification to the maximum extent permitted by the DGCL. The Company also has obtained directors and officers insurance to insure its directors and officers against certain liabilities, including liabilities under the securities laws. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1 Form of Underwriting Agreement 5.1 Opinion of Cooley Godward LLP 23.1 Report on Financial Statement Schedule and Consent of KPMG LLP (included on page II-5) 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1) 24.1 Power of Attorney+
- ------------------------ + Previously filed as an Exhibit to this Form S-3 (No. 333-86557). ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall II-1 92 be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 15 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 197(h) under the Securities Act shall be deemed to be a part of this Registration Statement as of the time it was declared effective. (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 93 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood City, State of California, on October 22, 1999. BROADVISION, INC. By: /s/ PEHONG CHEN ------------------------------------ Pehong Chen Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ PEHONG CHEN Chairman of the Board, President and October 22, 1999 - ------------------------------------------ Chief Executive Officer (Principal Pehong Chen Executive Officer) /s/ RANDALL C. BOLTEN Vice President, Operations and Chief October 22, 1999 - ------------------------------------------ Financial Officer (Principal Financial Randall C. Bolten and Accounting Officer) * DAVID L. ANDERSON Director October 22, 1999 - ------------------------------------------ David L. Anderson * YOGEN K. DALAL Director October 22, 1999 - ------------------------------------------ Yogen K. Dalal * TODD A. GARRETT Director October 22, 1999 - ------------------------------------------ Todd A. Garrett * KOH BOON HWEE Director October 22, 1999 - ------------------------------------------ Koh Boon Hwee * CARL PASCARELLA Director October 22, 1999 - ------------------------------------------ Carl Pascarella *By: /s/ PEHONG CHEN ----------------------------------- Pehong Chen Attorney-in-fact
II-3 94 REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders BroadVision, Inc.: The audits referred to in our report dated January 26, 1999, except as to Note 10 which is as of October 11, 1999, included the related financial statement schedule as of December 31, 1996, 1997 and 1998, and for each of the years in the three-year period ended December 31, 1998. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We consent to the use of our reports incorporated by reference and included herein and to the reference to our firm under the heading "Experts" in the Prospectus. KPMG LLP Mountain View, California October 22, 1999 II-4 95 BROADVISION, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BEGINNING OF COSTS AND BALANCE AT PERIOD EXPENSES DEDUCTIONS(1) END OF PERIOD ------------ ---------- ------------- ------------- Year Ended December 31, 1996................ $ -- $196 $ 5 $191 ==== ==== ==== ==== Year Ended December 31, 1997................ $191 $515 $ 35 $671 ==== ==== ==== ==== Year Ended December 31, 1998................ $671 $458 $341 $788 ==== ==== ==== ====
- --------------- (1) Represents net charge-offs of specific receivables. II-5 96 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1 Form of Underwriting Agreement 5.1 Opinion of Cooley Godward LLP 23.1 Report on Financial Statement Schedule and Consent of KPMG LLP (included on page II-5) 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1) 24.1 Power of Attorney+
- ------------------------ + Previously filed as an Exhibit to this Form S-3 (No. 333-86557). EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 BROADVISION, INC. COMMON STOCK, PAR VALUE $0.0001 PER SHARE ------------ UNDERWRITING AGREEMENT (U.S. VERSION) ------------ ..................... , 1999 Goldman, Sachs & Co. BancBoston Robertson Stephens Inc. ABN AMRO Incorporated Banc of America Securities LLC Commerzbank Capital Markets Corporation Friedman, Billings, Ramsey & Co., Inc. As representatives of the several Underwriters named in Schedule I hereto c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: BroadVision, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 1,125,000 shares (the "Firm Shares") and, at the election of the Underwriters, up to 168,750 additional shares (the "Optional Shares") of Common Stock, par value $0.0001 per share ("Stock") of the Company (the Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof being collectively called the "Shares"). It is understood and agreed to by all parties that the Company is concurrently entering into an agreement, a copy of which is attached hereto as Exhibit A, (the "International Underwriting Agreement") providing for the sale by the Company of up to a total of 1,125,000 shares of Stock (the "International Shares"), including the overallotment option thereunder, through arrangements with certain underwriters outside the United States (the "International Underwriters"), for whom Goldman Sachs & Co. oHG, BancBoston Robertson Stephens International Ltd., ABN AMRO Rothschild, Bank of America International Limited and Commerzbank Aktiengesellschaft are acting as lead managers. Anything herein or therein to the contrary notwithstanding, the respective closings under this Agreement and the International Agreement are hereby expressly made conditional on one another. The Underwriters hereunder and the International Underwriters are simultaneously entering into an Agreement between U.S. and International Underwriting Syndicates (the "Agreement between Syndicates") which 2 provides, among other things, for the transfer of shares of Stock between the two syndicates. Two forms of prospectus are to be used in connection with the offering and sale of shares of Stock contemplated by the foregoing, one relating to the Shares hereunder and the other relating to the International Shares. The latter form of prospectus will be identical to the former except for certain substitute pages as included in the registration statement and amendments thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the context may otherwise require, references hereinafter to the Shares shall include all the shares of Stock which may be sold pursuant to either this Agreement or the International Underwriting Agreement, and references herein to any prospectus whether in preliminary or final form, and whether as amended or supplemented, shall include both the U.S. and the international versions thereof. 1. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement on Form S-3 (File No. 333-86557) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective and (ii) the documents incorporated by reference in the prospectus contained in the Initial Registration Statement at the time such part of the Initial Registration Statement became effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed 2 3 to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Initial Registration Statement that is incorporated by reference in the Registration Statement); (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (c) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (d) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects, to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; 3 4 (e) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (f) Each of the Company and its subsidiaries has good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property or do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (g) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (h) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as rights to indemnification and contribution hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles or the limitation on availability of equitable remedies; (i) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the Stock contained in the Prospectus, the Registration Statement and any document incorporated by reference; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except for 5 directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equitable interests or claims; (j) The unissued Shares to be issued and sold by the Company to the Underwriters hereunder and under the International Underwriting Agreement have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein and in the International Underwriting Agreement, will be duly and validly issued and fully paid and non-assessable, will be sold free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, and will conform to the description of the Stock contained in the Prospectus; (k) The issue and sale of the Shares by the Company hereunder and under the International Underwriting Agreement and the compliance by the Company with all of the provisions of this Agreement and the International Underwriting Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or Bylaws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement and the International Underwriting Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws or the bylaws, rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution of the Shares by the Underwriters and the International Underwriters; (l) Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or Bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound; (m) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (n) Other than as set forth or contemplated in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which (i) might prevent consummation of the transactions contemplated hereby, (ii) if determined adversely to 5 6 the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries, or (iii) is required to be disclosed in the Registration Statement or Prospectus and is not so disclosed; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (o) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company", as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (p) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (q) KPMG LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; the audited consolidated financial statements of the Company, together with the related schedules and notes, and the unaudited consolidated financial information, forming part of the Registration Statement and Prospectus, fairly present the financial position and the results of operations of the Company and its subsidiaries at the respective dates and for the respective periods to which they apply; and all audited consolidated financial statements of the Company, together with the related schedules and notes, and the unaudited consolidate financial information, filed with the Commission as part of or incorporated by reference into the Registration Statement, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved except as may be otherwise stated therein. The selected and summary financial and statistical data included or incorporated by reference in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with the audited financial statements presented therein. No other financial statements or schedules are required to be included or incorporated by reference in the Registration Statements; (r) The Company has reviewed its operations and that of its subsidiaries and any third parties with which the Company or any of its subsidiaries has a material relationship to evaluate the extent to which the business or operations of the Company or any of its subsidiaries will be affected by the Year 2000 Problem. As a result of such review, the Company has no reason to believe, and does not believe, that the Year 2000 Problem will have a material adverse effect on the general affairs, management, the current or future consolidated financial position, business prospects, stockholders' equity or results of operations of the Company and its subsidiaries or result in any material loss or interference with the Company's business or operations. The "Year 2000 Problem" as used herein means any significant risk that computer hardware or software used in the receipt, transmission, processing, manipulation, storage, retrieval, retransmission or other utilization of data or in the operation of mechanical or electrical systems of any kind will not, in the case of dates or time periods occurring after December 31, 1999, function at least as effectively as in the case of dates or time periods occurring prior to January 1, 2000; 6 7 (s) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been (i) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (ii) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (iii) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (iv) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (v) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, or (vi) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; (t) The Company and its subsidiaries have timely filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes shown thereon as due, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided and there is no tax deficiency that has been or, to the best of the Company's knowledge, might properly and validly be asserted against the Company or any of its subsidiaries that would have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; and all tax liabilities are adequately provided for on the books of the Company and its subsidiaries; (u) The Company and its subsidiaries maintain insurance with insurers of recognized financial responsibility of the types and in the amounts generally deemed adequate for their respective businesses and consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company or its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; (v) To the best of the Company's knowledge, no labor disturbance by the employees of the Company or any of its subsidiaries exists or is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, subassemblers, value added resellers, subcontractors, original equipment manufacturers, authorized dealers or international distributors that might be expected to result in a material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. No 7 8 collective bargaining agreement exists with any of the Company's employees and, to the best of the Company's knowledge, no such agreement is imminent; (w) Each of the Company and its subsidiaries owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names and copyrights which are necessary to conduct its businesses as described in the Registration Statement and Prospectus and any Incorporated Document; other than as disclosed in the Registration Statement and Prospectus and any Incorporated Document, the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of the Company by others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights; and other than as disclosed in the Registration Statement and Prospectus and any Incorporated Document, the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; (x) The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from The Nasdaq National Market, nor has the Company received any notification that the Commission or the NASD is contemplating terminating such registration or listing; (y) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date, or any date on which Optional Shares are to be purchased, as the case may be, and (ii) completion of the distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the Registration Statement and other materials, if any, permitted by the Act; (z) Neither the Company nor any of its subsidiaries has at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any such contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof; (aa) The Company has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares; (bb) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, (i) the Company is in material compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("Environmental Laws") which are applicable to its business, (ii) 8 9 the Company has received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus and any Incorporated Document, (iii) the Company will not be required to make future material capital expenditures to comply with Environmental Laws and (iv) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site under applicable state or local law; (cc) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (dd) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of the members of the families of any of them, except as disclosed in the Registration Statement and the Prospectus and any Incorporated Document. (ee) The Company does not have any Significant Subsidiaries as defined pursuant to Rule 1-02 of Regulation S-X. 2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price per share of $........................, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Company hereby grants to the Underwriters the right to purchase at their election up to 168,750 Optional Shares, at the purchase price per share set forth in the paragraph above, for the purpose of covering sales of shares in excess of the number of Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting 9 10 forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company, shall be delivered by or on behalf of the Company to Goldman, Sachs & Co., through the facilities of the Depository Trust Company, ("DTC") for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company, to Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on ............., 1999 or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at .......p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of 10 11 business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 A.M. New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act or the Exchange Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to 11 12 prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder and under the International Underwriting Agreement, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than (i) pursuant to employee stock plans or agreements described in the Prospectus and adopted prior to, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement or (ii) in connection with the acquisition by the Company of another business, product or technology, or to a strategic investor or partner of the Company in conjunction with an agreement involving a technical manufacturing or marketing collaboration; provided that in each case that such shares of Stock or other securities (when taken together with all such other securities previously issued pursuant to this Section 5(e)(ii) do not, or would not upon conversion or exchange, represent more than 15% of the Company's then-outstanding shares of Stock, that such securities are issued in connection with a transaction not requiring registration under the Act and that such shares are subject to the same restrictions on sale provided by this Section 5(e)), without your prior written consent. To the extent the Company intends to offer, sell, contract to sell or otherwise transfer any securities of the Company pursuant to Section 5(e)(ii), the Company shall give the Underwriters written notice, pursuant to Section 12 herein, of such intention at least twenty (20) days prior to the consummation of such transaction; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); 12 13 (h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement and the International Underwriting Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (i) To use its best efforts to list for quotation the Shares on the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ"); (j) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar (which may be the same entity as the transfer agent) for its Common Stock; and (k) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the International Underwriting Agreement, the Agreement between Syndicates, the Selling Agreement, the Blue Sky Memorandum, closing documents (including compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. The Underwriters also agree to pay their travel and related expenses in connection with the "road show" for the public offering of the Shares. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of such 13 14 Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Brobeck, Phleger & Harrison LLP, counsel for the Underwriters, shall have furnished to you such written opinion or opinions (a draft of each such opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with respect to the matters covered in paragraphs (i), (ii), the second sentence of (viii), (xii), (xiv) and (xvii) of subsection (c) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Cooley Godward LLP, counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and corporate authority to own its properties and conduct its business as described in the Prospectus; (ii) The Company either has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (iii) The authorized, issued and outstanding capital stock of the Company was as set forth in the Prospectus under the caption "Capitalization" as of the date stated therein, the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and nonassessable; and, to such counsel's knowledge, will not have been issued in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right; (iv) The Firm Shares or the Optional Shares, as the case may be, have been duly authorized and, upon issuance and delivery against payment therefor in accordance with the 14 15 terms hereof, will be duly and validly issued and fully paid and nonassessable, and, to such counsel's knowledge, will not have been issued in violation of or subject to any preemptive right, co-sale right, registration right, or, to such counsel's knowledge, right of first refusal or other similar right of stockholders; (v) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending or overtly threatened to which the Company is a party or of which any property of the Company is the subject which, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company; (vi) The Company has the corporate power and authority to enter into this Agreement and the International Underwriting Agreement and to issue, sell and deliver to the Underwriters the Shares. This Agreement and the International Underwriting Agreement have been duly authorized by all necessary corporate action on the part of the Company and has been duly executed and delivered by the Company, and, assuming due authorization, execution and delivery by you, is a valid and binding agreement of the Company, enforceable in accordance with its terms, except insofar as indemnification and contribution provisions may be limited by applicable law and except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally or by general equitable principles and limitations on availability of equitable remedies; (vii) The issue and sale of the Shares being delivered at such Time of Delivery by the Company and the compliance by the Company with all of the provisions of this Agreement and the International Underwriting Agreement and the consummation of the transactions herein and therein set forth will not conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject and which has been identified to us by the Company as material and filed as an exhibit to the Registration Statement or any Incorporated Document pursuant to Item 10 of Rule 601 promulgated under the Securities Act, nor will such action result in any violation of the provisions of the Certificate of Incorporation or Bylaws of the Company or any material violation of any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its properties except for the rules and regulations of the NASD and state securities and Blue Sky laws, as to which such counsel need not express any opinion; (viii) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement and the International Underwriting Agreement, except the registration under the Act of the Shares, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws or the bylaws, rules and regulations of the NASD (as to which such counsel need express no opinion) in connection with the purchase and distribution of the Shares by the Underwriters; 15 16 (ix) To such counsel's knowledge, the Company is not in material violation of its Certificate of Incorporation or Bylaws or in material default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument known to such counsel to which it is a party or by which it or any of its properties may be bound; (x) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock, are accurate and summarize the information called for with respect to such matters to the extent required by the Act and the rules and regulations thereunder; (xi) The Company is not an "investment company", as such term is defined in the Investment Company Act; (xii) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules other financial data and accounting data derived therefrom, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder;; (xiii) The Registration Statement has become effective under the Act and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Act; (xiv) To such counsel's knowledge, there are no agreements, contracts, leases or documents to which the Company is a party of a character required under the Act and the applicable Rules and Regulations to be described or referred to in the Registration Statement or Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement or any Incorporated Document which are not described or referred to therein or filed as required; (xv) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements, related schedules other financial data and accounting data derived therefrom, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; and such counsel does not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required; In addition, such counsel shall state the following: in connection with the preparation of the Registration Statement and the Prospectus, it has participated in conferences with officers 16 17 and representatives of the Company and with its certified public accountants, as well as with representatives of the Underwriters and their counsel. At such conferences, the contents of the Registration Statement and the Prospectus and related matters were discussed. Such counsel has not independently verified, and accordingly, except as specified in subparagraphs (iv) and (xi) above, is not confirming and assumes no responsibility for the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus. On the basis of the foregoing, nothing has come to such counsel's attention that has caused it to believe (i) that the Registration Statement (except as to the financial statements, related schedules, other financial data and accounting data derived therefrom, as to which such counsel need express no belief) at the effective date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) that the Prospectus (except as to the financial statements, related schedules, other financial data and accounting data derived therefrom, as to which such counsel need express no belief) as of its date or at the Time of Delivery, contained or contains any untrue statement of material fact or omitted or omits to state a material fact necessary, in order to make the statements therein, in light of circumstances under which they were made, not misleading. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction outside the United States. (d) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, KPMG LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); (e) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (f) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or material limitation in trading in the 17 18 Company's securities on NASDAQ; (iii) a general moratorium on commercial banking activities declared by either Federal or New York or California State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (g) The Shares to be sold at such Time of Delivery shall have been duly listed for quotation on NASDAQ; (h) The Company has obtained from each officer and director and delivered to the Underwriters executed copies of an agreement, substantially to the effect set forth in Subsection 5(e) hereof in form and substance satisfactory to you; (i) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and (j) The Company shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company satisfactory to you as to the accuracy of the representations and warranties of the Company herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (a) and (e) of this Section and as to such other matters as you may reasonably request. 8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (b) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a 18 19 material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in 19 20 such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the 20 21 Company that you have so arranged for the purchase of such Shares, or the Company notifies you that it has so arranged for the purchase of such Shares, you or the Company shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, the Company shall not then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, 21 22 reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration Department; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 22 23 If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement between each of the Underwriters and the Company. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters (U.S. Version), the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, BroadVision, Inc. By: ----------------------------------- Name: Title: Accepted as of the date hereof: Goldman, Sachs & Co. BancBoston Robertson Stephens Inc. ABN AMRO Incorporated Banc of America Securities LLC Commerzbank Capital Markets Corporation Friedman, Billings, Ramsey & Co., Inc. By Goldman, Sachs & Co. By: ------------------------------------- Name: Title: On behalf of each of the Underwriters 23 24 SCHEDULE I
NUMBER OF OPTIONAL SHARES TO BE TOTAL NUMBER OF PURCHASED IF FIRM SHARES MAXIMUM OPTION UNDERWRITER TO BE PURCHASED EXERCISED ----------- --------------- ------------------ Goldman, Sachs & Co.......................... BancBoston Robertson Stephens Inc............ ABN AMRO Incorporated........................ Banc of America Securities LLC............... Commerzbank Capital Markets Corporation...... Friedman, Billings, Ramsey & Co., Inc........ --------------- ------------------ Total.................................... =============== ==================
24 25 ANNEX I Pursuant to Section 7(d) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules (and, if applicable, financial forecasts and/or pro forma financial information) examined by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the consolidated interim financial statements, selected financial data, pro forma financial information, financial forecasts and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been separately furnished to the representatives of the Underwriters (the "Representatives"); (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus and/or included in the Company's quarterly report on Form 10-Q incorporated by reference into the Prospectus as indicated in their reports thereon copies of which have been separately furnished to the Representatives; and on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Company's Annual Report on Form 10-K for the most recent fiscal year agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Company's Annual Reports on Form 10-K for such fiscal years; 25 26 (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus and/or included or incorporated by reference in the Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus or included in the Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus, for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived the unaudited condensed financial statements referred to in clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in clause (B) were not determined on a basis substantially consistent with the basis for the audited financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (D) any unaudited pro forma consolidated condensed financial statements included or incorporated by reference in the Prospectus do not comply 26 27 as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest balance sheet included or incorporated by reference in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or stockholders' equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included or incorporated by reference in the Prospectus to the specified date referred to in clause (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included or incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus (excluding documents incorporated by reference) or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives or in documents incorporated by reference in the Prospectus specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. 27 28 EXHIBIT A BROADVISION, INC. COMMON STOCK, PAR VALUE $0.0001 PER SHARE ---------- UNDERWRITING AGREEMENT (INTERNATIONAL VERSION) ---------- ..................... , 1999 Goldman Sachs & Co. oHG BancBoston Robertson Stephens International Ltd. ABN AMRO Rothschild Bank of America International Limited Commerzbank Aktiengesellschaft As representatives of the several Underwriters named in Schedule I hereto c/o Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB, England Ladies and Gentlemen: BroadVision, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 1,125,000 shares (the "Firm Shares") and, at the election of the Underwriters, up to 168,750 additional shares (the "Optional Shares") of Common Stock, par value $0.0001 per share (the "Stock") of the Company (the Firm Shares and the Optional Shares which the Underwriters elect to purchase pursuant to Section 2 hereof being collectively called the "Shares"). It is understood and agreed to by all parties that the Company is concurrently entering into an agreement, a copy of which is attached hereto (the "U.S. Underwriting Agreement"), providing for the offering by the Company of up to a total of 1,125,000 shares of Stock (the "U.S. Shares") including the overallotment option thereunder through arrangements with certain underwriters in the United States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., ABN AMRO Incorporated, Banc of America Securities LLC, Commerzbank Capital Markets Corporation and Friedman, Billings, Ramsey & Co., Inc. are acting as representatives. Anything herein and therein to the contrary notwithstanding, the respective closings under this Agreement and the U.S. Underwriting Agreement are hereby 28 29 expressly made conditional on one another. The Underwriters hereunder and the U.S. Underwriters are simultaneously entering into an Agreement between U.S. and International Underwriting Syndicates (the "Agreement between Syndicates") which provides, among other things, for the transfer of shares of Stock between the two syndicates and for consultation by the Lead Managers hereunder with Goldman, Sachs & Co. prior to exercising the rights of the Underwriters under Section 7 hereof. Two forms of prospectus are to be used in connection with the offering and sale of shares of Stock contemplated by the foregoing, one relating to the Shares hereunder and the other relating to the U.S. Shares. The latter form of prospectus will be identical to the former except for certain substitute pages as included in the registration statement and amendments thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the context may otherwise require, references hereinafter to the Shares shall include all of the shares of Stock which may be sold pursuant to either this Agreement or the U.S. Underwriting Agreement, and references herein to any prospectus whether in preliminary or final form, and whether as amended or supplemented, shall include both of the U.S. and the international versions thereof. In addition, this Agreement incorporates by reference certain provisions from the U.S. Underwriting Agreement (including the related definitions of terms, which are also used elsewhere herein) and, for purposes of applying the same, references (whether in these precise words or their equivalent) in the incorporated provisions to the "Underwriters" shall be to the Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to "this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to this Agreement (except where this Agreement is already referred to or as the context may otherwise require) and to the representatives of the Underwriters or to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to Goldman Sachs & Co. oHG ("GSI"), and, in general, all such provisions and defined terms shall be applied mutatis mutandis as if the incorporated provisions were set forth in full herein having regard to their context in this Agreement as opposed to the U.S. Underwriting Agreement. 17. The Company hereby makes with the Underwriters the same representations, warranties and agreements as are set forth in Section 1 of the U.S. Underwriting Agreement, which Section is incorporated herein by this reference. 18. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price per share of $......, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. 29 30 The Company hereby grants to the Underwriters the right to purchase at their election up to 168,750 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 19. Upon the authorization by GSI of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus and in the forms of Agreement among Underwriters (International Version) and Selling Agreements, which have been previously submitted to the Company by you. Each Underwriter hereby makes to and with the Company the representations and agreements of such Underwriter as a member of the selling group contained in Sections 3(d) and 3(e) of the form of Selling Agreements. 20. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as GSI may request upon at least forty-eight hours' prior notice to the Company shall be delivered by or on behalf of the Company to GSI, through the facilities of the Depository Trust Company ("DTC"), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company to Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on ............., 1999 or such other time and date as GSI and the Company may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the date specified by GSI in the written notice given by GSI of the Underwriters' election to purchase such Optional Shares, or such other time and date as GSI and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 of the U.S. Underwriting Agreement, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(k) of the U.S. Underwriting Agreement hereof, will be delivered at the offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at .......p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding 30 31 sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 21. The Company hereby makes to the Underwriters the same agreements as are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is incorporated herein by this reference. 22. The Company and the Underwriters hereby agree with respect to certain expenses on the same terms as are set forth in Section 6 of the U.S. Underwriting Agreement, which Section is incorporated herein by this reference. 23. Subject to the provisions of the Agreement between Syndicates, the obligations of the Underwriters hereunder shall be subject, in their discretion, at each Time of Delivery, to the condition that all representations and warranties and other statements of the Company herein are, at and as of such Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and additional conditions identical to those set forth in Section 7 of the U.S. Underwriting Agreement, which Section is incorporated herein by this reference. 24. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through GSI expressly for use therein. (b) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any 31 32 Preliminary Prospectus, the Registration Statement or Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through GSI expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased 32 33 under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus relating to such Shares. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. 25. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Shares, or the Company notifies you that it has so arranged for the purchase of such Shares, you or the Company shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may 33 34 thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligation of the Underwriters to purchase and of the Company to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 26. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares. 27. If this Agreement shall be terminated pursuant to Section 9 hereof, the Company shall not then be under any liability to any Underwriter except as provided in Section 6 and Section 8 hereof, but, if for any other reason any Shares are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Underwriters through GSI for all out-of-pocket expenses approved in writing by GSI, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 34 35 28. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by GSI on behalf of you as the representatives of the Underwriters. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to the Underwriters in care of GSI, Peterborough Court, 133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets, Telex No. 94012165, facsimile transmission No. (071) 774-1550; and if to the Company shall be delivered or sent by registered mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by GSI upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 29. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 30. Time shall be of the essence of this Agreement. 31. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. 32. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 35 36 If the foregoing is in accordance with your understanding, please sign and return to us [five] counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters and the Company. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters (International Version), the form of which shall be furnished to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, BroadVision, Inc. By: ----------------------------------- Name: Title: Accepted as of the date hereof: Goldman Sachs & Co. oHG BancBoston Robertson Stephens International Ltd. ABN AMRO Rothschild Bank of America International Limited Commerzbank Aktiengesellschaft By: Goldman Sachs & Co. oHG By: ------------------------------------- Name: Title: On behalf of each of the Underwriters 36 37 SCHEDULE I
NUMBER OF OPTIONAL SHARES TO BE TOTAL NUMBER OF PURCHASED IF FIRM SHARES MAXIMUM OPTION UNDERWRITER TO BE PURCHASED EXERCISED ----------- --------------- ------------------ Goldman, Sachs & Co.......................... BancBoston Robertson Stephens Inc............ ABN AMRO Incorporated........................ Bank of America International Limited........ Commerzbank Aktiengesellschaft............... --------------- ------------------ Total.................................... =============== ==================
37 EX-5.1 3 OPINION OF COOLEY GODWARD LLP 1 Exhibit 5.1 [COOLEY GODWARD LLP LETTERHEAD] October 22, 1999 BroadVision, Inc. 585 Broadway Redwood City, CA 94063 Ladies and Gentlemen: You have requested our opinion with respect to certain matters in connection with the filing by BroadVision, Inc. (the "Company") of a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") covering the underwritten public offering of up to 2,587,500 post-split shares of common stock (the "Shares"), including 337,500 shares for which the Underwriters have been granted an over-allotment option. In connection with this opinion, we have (i) examined and relied upon the Registration Statement and related Prospectus, the Company's Certificate of Incorporation, as amended, and Amended and Restated Bylaws and the originals or copies certified to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below, and (ii) assumed that the Shares will be sold by the Underwriters at a price established by the Pricing Committee of the Company's Board of Directors. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when sold and issued in accordance with the Registration Statement and related Prospectus, will be validly issued, fully paid and nonassessable. We consent to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, COOLEY GODWARD LLP By: /s/ Jamie E. Chung ------------------------ Jamie E. Chung -----END PRIVACY-ENHANCED MESSAGE-----