As filed with the Securities and Exchange Commission on March 27, 2000
Registration No. 333-83491
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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POST-EFFECTIVE
AMENDMENT NO. 4
to
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
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TIBCO SOFTWARE INC.
(Exact name of Registrant as specified in its charter)
Delaware 7372 77-0449727
(State or other jurisdiction of (Primary Standard Industrial (I. R. S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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TIBCO Software Inc.
3165 Porter Drive
Palo Alto, CA 94304
(650) 846-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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VIVEK RANADIVE
President and Chief Executive Officer
TIBCO Software Inc.
3165 Porter Drive
Palo Alto, CA 94304
(650) 846-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
LARRY W. SONSINI, Esq. ALISON S. RESSLER, Esq. JULIAN BROWN, Esq.
BRIAN C. ERB, Esq. Sullivan & Cromwell TIBCO Finance Technology Inc.
Wilson Sonsini Goodrich & Rosati 1888 Century Park East 3375 Hillview Ave.
Professional Corporation Los Angeles, CA 90067 Palo Alto, CA 94304
650 Page Mill Road (310) 712-6600 (650) 846-5000
Palo Alto, CA 94304
(650) 493-9300
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
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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, check the following box. [X]
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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: [_]
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this 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 prospectus is not an +
+offer to sell these securities, and no offers to buy these securities, are +
+being solicited in any state where their offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated March 27, 2000.
20,250,000 Shares
[LOGO OF TIBCO]
TIBCO Software Inc.
Common Stock
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This prospectus covers shares of common stock of TIBCO Software Inc. to be
sold by TIBCO Finance Technology Inc. ("TFT") to its employees and consultants
upon the exercise of options granted under TFT's stock option plan.
This prospectus also covers shares of TIBCO Software common stock previously
sold by TFT to its employees and consultants upon the exercise of options and
permits the resale by them as "selling stockholders". The selling stockholders
are listed in Appendix A.
All of the shares covered by this Registration Statement are already issued
and outstanding. The shares referred to in the first paragraph are owned by
Reuters Nederland B.V. who provides them to TFT pursuant to a Stock
Contribution Agreement between the parties. The shares referred to in the
second paragraph are owned by the selling stockholders.
The common stock of TIBCO Software trades on the Nasdaq National Market under
the symbol "TIBX". On March 21, 2000, the last reported sale price of our
common stock on the Nasdaq National Market was $106.00 per share.
You should read the risk factors beginning on page 7 in the accompanying
prospectus before purchasing the shares of 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.
The date of this prospectus is March , 2000.
No dealer, salesperson or any other person is authorized to give any
information or 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, and 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.
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TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 27
Management............................................................... 41
Relationship with Reuters and Certain Transactions....................... 52
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Plan of Distribution..................................................... 65
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
Appendix A--Selling Stockholders......................................... A-1
Index to Financial Statements............................................ F-1
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold and our
financial statements and notes to those statements appearing elsewhere in this
prospectus. Except as otherwise specified, all information in this prospectus
reflects a 3-for-1 split of our outstanding capital stock effected on February
18, 2000.
Our Business
We are a leading provider of eBusiness infrastructure software products that
enable business-to-business, business-to-consumer and business-to-employee
solutions. Our software products allow businesses to integrate internal
operations, business partners and customer channels in real-time. Through our
products and services, we enable computer applications and systems to
communicate efficiently across the Internet and intranets to conduct electronic
business, or eBusiness.
Our TIB products facilitate the distribution of information and integration
of business processes by connecting applications and data sources through a
technology called The Information Bus, or the TIB. This technology uses a
publish/subscribe model, in which a user specifies the type of information
desired only once, and the specified information is then delivered to the user
automatically each time it becomes available. The TIB technology allows
multiple applications, web sites, databases and other content sources to be
integrated and managed in real-time within a common framework. The TIB products
also enable enterprises to extend their information technology infrastructures
and business processes across the Internet. Our products are employed in high-
performance environments and provide enterprises with a comprehensive and
scalable method of conducting eBusiness.
Our products are currently in use by over 300 companies in diverse markets
such as telecommunications, manufacturing, energy, financial services and
Internet portals. Current users of our TIB products include 3Com, Adidas,
AltaVista, Banque Nationale de Paris, Bechtel, BellSouth, Cedel Global
Services, Chevron, Cisco Systems, Compaq, Dalkia, Delta Air Lines, Digital
Impact, Ericsson, Fidelity, Financial Times, First National Bank of South
Africa, Gateway, Goldman Sachs, Hyundai, Intel, Intuit, Level 3, Lucent
Technologies, Marubeni, Mobil, Motorola, The Nasdaq Stock Market, National
Westminster Bank, NEC Electronics, Pacific Power, PageNet, Philips Medical,
Procter & Gamble, SAP, Seagate, Telia, Taiwan Semiconductor Manufacturing
Company, United Microelectronics Corp., Unibank and Yahoo!. Each of these
companies, other than financial services companies, accounted for at least
$500,000 of our revenue over the period from January 1997 through November 30,
1999. Each of the financial services companies accounted for at least $200,000
of our revenue during that period.
In fiscal 1997, 1998 and 1999, we had revenue of $35.3 million, $52.8 million
and $96.4 million. During those periods, we incurred net losses of $4.7
million, $13.0 million and $19.5 million. As of November 30, 1999, we had an
accumulated deficit of approximately $37.1 million.
Our Market Opportunity
As the range of computing environments and software applications used across
the typical business grows, creating a real-time eBusiness enterprise is
becoming vastly more complex. In today's increasingly global and competitive
environment, applications must be tightly integrated within and between
enterprises in order to effectively manage, grow and extend the business.
Enabling real-time transactions and information exchange among suppliers,
customers and partners can enhance management and employee productivity, create
manufacturing efficiencies and improve customer service. We believe that many
application integration and niche eBusiness connectivity solutions have failed
to address all of today's eBusiness needs because they lack comprehensiveness
or flexibility, or use network resources inefficiently.
3
Our Strategy
Our objective is to establish the TIB technology as the leading software
solution for eBusiness infrastructure. The core elements of our strategy
include:
. Promote the widespread adoption of our technology. We seek to establish
our technology and products as the industry standard by embedding our
technology in leading vendors' products and further extending the
functionality of our solution.
. Enhance our position as a provider of portal infrastructure. We plan to
leverage our technology to offer solutions that enable companies to build
robust eBusiness portals.
. Focus on licensing our products. We plan to focus on licensing our
products. To support this strategy, we plan to expand our relationships
with systems integrators and professional services firms.
. Leverage our expertise in specific markets. We plan to expand our
presence in markets such as telecommunications, manufacturing, energy and
Internet portals and capitalize on the presence of Reuters, the global
news and information group, in the financial services sector.
. Expand our international market presence. We intend to continue building
the strength of our international presence in regions such as Europe and
Asia.
Company Background
We are the successor to a portion of the business of Teknekron Software
Systems, Inc., a leading innovator in the development of software
infrastructure for the integration and delivery of market data, such as stock
quotes, news and other financial information, in trading rooms of large banks
and financial services institutions. Teknekron was acquired by Reuters in March
1994. In January 1997, we were established as a separate entity to focus on
creating and marketing software solutions for use in the integration of
business information, processes and applications in diverse industries outside
the financial services market.
Reuters holds a majority equity interest in our company, but has agreed to
limit its voting rights. Nevertheless, Reuters has significant influence over
our company. See "Relationship with Reuters and Certain Transactions--
Stockholders Agreement" beginning on page 57 for a description of arrangements
that enables Reuters to exercise influence over our company. We license the
technology underlying some of our TIB products from Reuters, and Reuters is our
preferred distributor in the financial services market. When we refer to
Reuters in this prospectus, we include Reuters Group PLC and its consolidated
subsidiaries, including TFT, but excluding our company, TIBCO Software.
Recent Developments
On March 22, 2000, we filed a final prospectus with the Securities and
Exchange Commission relating to an underwritten public offering of 5,000,000
shares of our common stock, or up to 5,750,000 shares if the underwriters
exercise their option to purchase additional shares, at a public offering price
of $106.00 per share. Of the shares being offered, we are offering 4,025,750
shares, or up to 4,775,750 shares if the underwriters exercise their option to
purchase additional shares, and selling stockholders are offering 974,250
shares. We anticipate that the sale of these shares will be consummated on
March 27, 2000, and that we will receive net proceeds of approximately $405.8
million, or approximately $481.5 million if the underwriters exercise their
option to purchase additional shares in full.
On March 20, 2000, we announced our financial results for the first quarter
of fiscal 2000. Our financial results for that quarter are summarized in the
Summary Financial Data table on page 5. Our revenue for that quarter was $42.0
million. This represents an increase of 132.8% over 1999 first quarter revenue
of $18.0 million. License revenue for the first quarter of fiscal 2000 was
67.6% of total
4
revenue, compared to 53.9% of total revenue for first quarter 1999. This
represents an increase of 191.9% in license revenue over 1999 first quarter
license revenue. We had a net loss of $9.5 million, or $0.05 per share, in the
first quarter of fiscal 2000, compared to a net loss of $3.9 million, or $0.06
per share, in the first quarter of fiscal 1999.
In February 2000, our board of directors increased its size by one seat and
nominated Matthew J. Szulilk to serve as a director.
Mr. Szulik has served as Chief Executive Officer of Red Hat, Inc. since
November 1999, as its President since November 1998 and as a director of Red
Hat since April 1999. Prior to that, he served as Red Hat's Chief Operating
Officer from November 1998 to April 1999. Our stockholders will vote on the
election of Mr. Szulik to our board of directors at our 2000 Annual Meeting of
Stockholders, which is scheduled to occur on April 12, 2000.
5
Summary Financial Information
(in thousands, except per share data)
Prior to 1997, we were part of a subsidiary of Reuters that included the
operations of TFT. Our statement of operations data for fiscal 1996 was
prepared on a carved-out basis from the financial statements of that
subsidiary. Our pro forma net loss per share reflects the automatic conversion
of all of our outstanding preferred stock into common stock upon the closing of
our initial public offering, as if such conversion occurred on December 1, 1997
or at the date of original issuance, if later.
Year Ended
Eleven November 30, Three Months Ended
Months Ended ------------------ -------------------------
November 30, February 28, February 29,
1997 1998 1999 1999 2000
------------ -------- -------- ------------ ------------
Statement of Operations
Data:
Revenue:
License................ $ 6,219 $ 17,495 $ 56,916 $ 9,719 $ 28,365
Service and
maintenance........... 29,055 35,262 39,524 8,303 13,591
------- -------- -------- ------- --------
Total revenue......... 35,274 52,757 96,440 18,022 41,956
Gross profit............ 19,427 25,075 59,828 10,510 29,497
Loss from operations.... (5,203) (14,043) (21,582) (3,671) (10,610)
Net loss................ (4,663) (12,951) (19,481) (3,945) (9,511)
Net loss per share-basic
and diluted............ $ (0.08) $ (0.22) $ (0.19) $ (0.06) $ (0.05)
Weighted average common
shares outstanding..... 57,606 60,033 104,112 61,951 176,461
November 30, February 29,
1999 2000
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Balance Sheet Data:
Cash, cash equivalents, deposits held by Reuters and
short-term investments............................. $89,807 $ 93,573
Working capital..................................... 95,603 91,886
Total assets........................................ 179,638 180,405
Accumulated deficit................................. (37,095) (46,606)
Stockholders' equity................................ 137,918 139,405
6
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the events described below actually occur, our
business, financial condition or results of operations could be harmed. In such
case, the trading price of our common stock could decline, and you could lose
all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of various factors,
including the risks described below and elsewhere in this prospectus.
Risks Related to Our Business
Because we have a limited operating history as an independent entity, it may be
difficult for prospective investors to evaluate our business and prospects
When making an investment decision, you should consider the risks, expenses
and difficulties that we may encounter as a newly-independent company. We have
operated as a stand-alone company only since January 1997. Prior to January
1997, our business was conducted by a subsidiary of Reuters that focused on
providing market data, custom messaging and integration solutions to companies
in the financial services, high-tech manufacturing and energy markets. At the
time we were formed as a separate entity, we implemented an expanded business
strategy focused on deriving license revenue from direct licensing of our TIB
products to a diverse group of customers outside the financial services market.
We began shipments of TIB products in the second half of fiscal 1998. These
changes have required us to adjust our business processes and hire additional
employees. We cannot be certain that our business strategy will be successful
or that we can successfully operate as an independent entity.
Reuters historically provided us with shared functions and services such as
accounting, legal and insurance. Although we are majority-owned by Reuters,
Reuters has no obligation to provide us with any operational assistance in the
future.
We have a history of losses and we expect future losses, and if we do not
achieve and sustain profitability our business will suffer and our stock price
may decline
Although our revenue has increased in recent quarters, we may not be able to
sustain our growth or obtain sufficient revenue to achieve and sustain
profitability. We incurred net losses of approximately $4.7 million,
$13.0 million and $19.5 million in fiscal 1997, 1998 and 1999. As of February
29, 2000, we had an accumulated deficit of approximately $46.6 million.
Since the beginning of fiscal 1998, we have invested significantly in our
technology research and development and in building our sales and marketing
organization. We expect to continue to spend substantial financial and other
resources on developing and introducing enhancements to our existing products
and new software products and on expanding our direct sales and marketing
activities. As a result, we need to generate significant revenue to achieve and
maintain profitability. We expect that our research and development expenses
and our sales and marketing expenses will continue to increase in absolute
dollars and may increase as percentages of revenue for the forseeable future.
Our future revenue is unpredictable, and we expect our quarterly operating
results to fluctuate, which may cause our stock price to decline
Period-to-period comparisons of our operating results may not be a good
indication of our future performance. Moreover, our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that event, our stock price
7
would likely decline. As a result of our limited operating history and the
evolving nature of the markets in which we compete, we may have difficulty
accurately forecasting our revenue in any given period. In addition to the
factors discussed elsewhere in this section, a number of factors may cause our
revenue to fall short of our expectations or cause fluctuations in our
operating results, including:
. the announcement or introduction of new or enhanced products or services
by our competitors;
. the amount and timing of operating costs and capital expenditures
relating to the expansion of our operations; and
. the capital and expense budgeting decisions of our customers.
In addition, our quarterly operating results have historically been subject
to variations throughout the year due to a general slow-down in our sales in
the summer months, particularly in Europe and to a lesser extent in the United
States. Specifically, we generally experience relatively lower revenue in our
third and, to a lesser extent, our first fiscal quarters. These seasonal
variations in our operating results may lead to fluctuations in our results of
operations from quarter to quarter throughout the year.
Variations in the time it takes us to sell our products may cause fluctuations
in our operating results
Variations in the length of our sales cycles could cause our revenue to
fluctuate widely from period to period. Because our operating expenses are
relatively fixed over the short term, these fluctuations could cause our
operating results to suffer in some future periods. Our customers generally
take a long time to evaluate our products, and many people are involved in the
evaluation process. Because of the number of factors influencing the sales
process, the period between our initial contact with a new customer and the
time when we recognize revenue from that customer varies widely in length. Our
sales cycles typically range from three to six months. For larger opportunities
with new customers, however, these cycles can be much longer.
Our dependence on a limited number of customers for a substantial amount of our
sales could lead to fluctuations in our operating results
Our business depends on sales of our products to a limited number of
customers, which may cause fluctuations in our operating results. We do not
have long-term contracts with any of our customers. Any of our customers could
stop purchasing our products in the future. As a result, a customer that
generates substantial revenue for us in one period may not be a source of
revenue in subsequent periods.
Our licensing and distribution relationship with Reuters places limitations on
our ability to conduct our business
We are substantially dependent on our licensing relationship, and to a lesser
extent our distribution relationship, with Reuters. Our relationship with
Reuters involves limitations and restrictions on our business, as well as other
risks, described below. See "Relationship with Reuters and Certain
Transactions--Intercompany Agreements--License, Maintenance and Distribution
Agreement with Reuters" beginning on page 54 for a detailed description of the
agreement that governs our licensing and distribution relationship with
Reuters.
Reuters has access to the intellectual property used in our products, and
could use that intellectual property to compete with us. We license the
underlying TIB messaging technology incorporated into some of our important TIB
products from Reuters. We do not own this technology. Reuters is not restricted
from using the TIB technology to produce products that compete with our
products, and Reuters can grant limited licenses to the TIB technology to
others who may compete with us. In addition, we must license to Reuters all the
intellectual property and products we create through December 2011. This will
place Reuters in a position to more easily develop products that compete with
our product offerings.
We must rely on Reuters and other distributors to sell our products in the
financial
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services market, and they may not be successful in doing so. Under our
agreements with Reuters, we are restricted from selling our products and
providing consulting services directly to companies in the financial services
market and major competitors of Reuters, and from using the TIB technology we
license from Reuters to develop products specifically for use by these
companies. Accordingly, we must rely on Reuters and other third-party resellers
and distributors to sell our products to these companies.
In fiscal 1997, 1998 and 1999, substantially all of our revenue from sales in
the financial services market, excluding sales to Cedel Global Services,
consisted of product fees paid to us by Reuters. Although Reuters is the
preferred distributor of our products in the financial services market and is
required to pay us guaranteed minimum product fee payments until the end of
2001, Reuters has no contractual obligation to distribute our products to
financial services customers. Reuters and other distributors may not be
successful in selling our products into the financial services market, or they
may elect to sell competitive third-party products into that market, either of
which may adversely affect our revenue in that market.
Our relationship with Reuters restricts our ability to earn revenue from
sales in the financial services market. Under the license agreement, Reuters is
required to pay us product fees based on a percentage of its revenue from sales
of our products in the financial services market, excluding products that are
embedded in any Reuters products. These product fees may be materially less
than the product fees we could obtain from other distributors or resellers in
the financial services market. In addition, when we sell our products into the
financial services market through third-party distributors other than Reuters,
Reuters receives a share of our license revenue.
Our license agreement with Reuters imposes practical restrictions on our
ability to acquire other companies. Our license agreement with Reuters places
no specific restrictions on our ability to acquire companies with all or part
of their business in the financial services market. However, under the terms of
the license agreement, we are prohibited from bundling or combining any of our
products that are based on licensed technology with an acquired company's
products and services and then selling the bundled or combined products
directly to financial services companies. This prohibition could prevent us
from realizing potential synergies with companies we acquire.
If we do not retain our key management personnel and attract and retain other
highly skilled employees, our business will suffer
If we fail to retain and recruit the necessary personnel, our business and
our ability to obtain new customers, develop new products and provide
acceptable levels of customer service could suffer. The success of our business
is heavily dependent on the leadership of our key management personnel,
including Vivek Ranadive, our President and Chief Executive Officer. All our
executive officers and key personnel are employees at-will. If any of these
people were to leave our company it would be difficult to replace them, and our
business would be harmed.
Our success also depends on our ability to recruit, retain and motivate
highly skilled sales, marketing and engineering personnel. Competition for
these people in the software and Internet industries is intense, and we may not
be able to successfully recruit, train or retain qualified personnel.
We must expand our sales force and our network of distribution partners in
order to successfully sell our products
In connection with our establishment as a separate entity in January 1997, we
implemented a direct sales model under which we sell our products outside the
financial services market principally through our direct sales force and, to a
lesser extent, through indirect sales channels such as systems integrators,
resellers and distributors. We began to hire and train direct sales personnel
in the third quarter of fiscal 1998. We are currently investing, and plan to
continue investing, significant resources to expand our direct sales force and
our relationships with systems integrators, resellers and distributors. We may
not be successful in expanding our direct sales
9
force or other distribution channels, and even if we are, such expansion might
not result in an increase in our revenues. If we fail to maintain our existing
relationships with indirect sales channel partners or fail to establish new
ones, or if our revenue does not increase correspondingly with the expenses we
incur in pursuing such relationships, our business will suffer.
Our acquisition strategy could cause financial or operational problems.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, we may acquire new and complementary
businesses, products or technologies, and we may use some of the proceeds of
this offering to do so. We do not know if we will be able to complete any
acquisitions or if we will be able to successfully integrate any acquired
businesses, operate them profitably or retain their key employees. For example,
we completed the acquisition of substantially all of the assets of InConcert,
Inc. in November 1999. Integrating InConcert or any other newly acquired
business, product or technology could be expensive and time-consuming, could
disrupt our ongoing business and could distract our management. We may face
competition for acquisition targets from larger and more established companies
with greater financial resources. In addition, in order to finance any
acquisitions, we might be forced to obtain equity or debt financing on terms
that are not favorable to us and, in case of equity financing, that results in
dilution to our stockholders. If we are unable to integrate effectively
InConcert or any other newly acquired entity, product or technology, our
business, financial condition and operating results will suffer. In addition,
any amortization of goodwill or other assets or other charges resulting from
the costs of acquisitions could harm our operating results.
Our software products may have unknown defects which could harm our reputation
or decrease market acceptance of our products
Because our customers depend on our software for their critical systems and
business functions, any interruptions caused by unknown defects in our products
could damage our reputation, cause our customers to initiate product liability
suits against us, increase our product development costs, divert our product
development resources, cause us to lose revenue or delay market acceptance of
our products, any of which could cause our business to suffer. Our product
offerings consist of complex software, both internally developed and licensed
from third parties. Complex software may contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Although we conduct extensive testing, we may not discover software
defects that affect our current or new products or enhancements until after
they are sold. Although we have not experienced any material software defects
to date, such defects could cause our customers to experience severe system
failures.
The rapid growth of our operations could strain our resources and cause our
business to suffer
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations and the size
of our direct sales force domestically and internationally, and we have
recently increased our headcount substantially. Between December 1, 1997 and
November 30, 1999, our total number of employees increased from 145 to 490.
Moreover, our revenue increased from $35.3 million in fiscal 1997 to $52.8
million in fiscal 1998 and was $96.4 million in fiscal 1999. This growth has
placed and will continue to place a significant strain on our management
systems, infrastructure and resources. We expect that we will need to continue
to improve our financial and managerial controls, reporting systems and
procedures. We will also need to expand, train and manage our workforce
worldwide. Furthermore, we expect that we will be required to manage an
increasing number of relationships with various customers and other third
parties. Failure to expand any of the foregoing areas efficiently and
effectively could
10
interfere with the growth of our business as a whole.
Our substantial and expanding international operations are subject to
uncertainties which could affect our operating results
If our revenue from international operations does not exceed the expense of
maintaining these operations, our business, financial condition and operating
results will suffer. Revenue from the sale of our products and services outside
the United States accounted for $15.8 million, $27.7 million and $48.7 million,
or 45%, 53% and 51%, of our total revenue for fiscal 1997, 1998 and 1999. We
believe that revenue from sales outside the United States will continue to
account for a material portion of our total revenue for the foreseeable future.
We are exposed to several risks inherent in conducting business
internationally, such as:
. fluctuations in currency exchange rates;
. unexpected changes in regulatory requirements, including imposition of
currency exchange controls, applicable to our business or to the
Internet;
. difficulties and costs of staffing and managing international operations;
. political and economic instability; and
. reduced protection for intellectual property rights in certain countries.
Any of these factors could adversely affect our international operations and,
consequently, our operating results.
Our products may infringe the intellectual property rights of others, which may
cause us to incur unexpected costs or prevent us from selling our products
We cannot be certain that our products do not infringe issued patents or
other intellectual property rights of others. Because patent applications in
the United States are not publicly disclosed until the patent is issued,
applications of which we are not aware may have been filed which relate to our
software products. We may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the patents, trademarks and other intellectual property rights
of third parties by us or our licensees in connection with their use of our
products. Intellectual property litigation is expensive and time-consuming, and
could divert our management's attention away from running our business. If we
were to discover that our products violated the intellectual property rights of
others, we would have to obtain licenses from these parties in order to
continue marketing our products without substantial reengineering. We might not
be able to obtain the necessary licenses on acceptable terms or at all, and if
we could not obtain such licenses, we might not be able to reengineer our
products successfully or in a timely fashion. If we fail to address any
infringement issues successfully, we will be forced to incur significant costs
and could be prevented from selling our products.
Risks Related to Our Industry
The market for eBusiness infrastructure software may not grow as quickly as we
anticipate, which would cause our revenues to fall below expectations
The market for eBusiness infrastructure software is relatively new and
evolving. We earn a substantial portion of our revenue from sales of our
eBusiness infrastructure software, including application integration software,
and related services. We expect to earn substantially all of our revenue in the
foreseeable future from sales of these products and services. Our future
financial performance will depend on continued growth in the number of
organizations demanding software and services for application integration,
eBusiness and information delivery. Many of our potential customers have made
significant investments in internally developed systems and would incur
significant costs in switching to third-party products, which may substantially
inhibit the growth of the market for enterprise infrastructure software. If
this market fails to grow, or grows more slowly than we expect, our sales will
be adversely affected.
11
We must keep pace with rapidly changing technologies and customer demands in
order to remain competitive
If we fail to develop and introduce new products or enhancements of existing
products in a timely manner in response to technological and customer demands,
our business will suffer. The markets in which we compete are characterized by
rapid technological changes, frequent new product introductions and
enhancements and changing customer demands and industry standards. The
introduction of products incorporating new technologies and the emergence of
shifting customer requirements and changing industry standards could render our
existing products obsolete. The technological life cycles of our products are
difficult to estimate and may vary across customer market segments.
Our business depends on continued growth in use of the Internet for
communications and commerce
If use of the Internet for communications and commerce does not grow as
quickly as we expect, revenue from our Internet product and service offerings
would be adversely affected. Our strategy includes expanding our business in
the portal infrastructure and eBusiness markets, as well as incorporating the
Internet as part of the solutions we offer to our customers in other markets.
Accordingly, our future success depends in part on the continued growth in the
use of the Internet for communications and commerce. The infrastructure,
products or services necessary to maintain this growth may not be developed.
Other Risks
Reuters has significant influence over matters affecting us, and the interests
of Reuters may conflict with those of our public stockholders
Reuters is in a position to significantly influence the outcome of corporate
actions that could conflict with the interests of our public stockholders, such
as:
. amending our corporate documents;
. determining the amount and timing of dividends paid to itself and to
other holders of common stock;
. changing the size and composition of our board of directors and
committees of our board of directors; and
. otherwise controlling management and operations and the outcome of most
matters submitted for stockholder votes.
As of November 30, 1999, and assuming our issuance of 4,025,750 shares of
common stock in this offering, Reuters will own approximately 61.2% of our
common stock. Reuters has agreed to limit its right to vote its shares of our
stock so that the votes cast by Reuters will not represent more than 49% of the
total votes eligible to be cast.
In addition, pursuant to a stockholders agreement, Reuters has the right to
nominate four of the ten representatives on our board of directors and one
member of the audit and compensation committees of our board of directors, and
stockholders holding a majority of our stock have agreed to vote for the
Reuters nominees. Reuters also has the right under the stockholders agreement
to approve fundamental decisions relating to sales of our company and stock
issuances and acquisitions in excess of specified thresholds.
Management might apply the net proceeds from this offering to uses that do not
improve our operating results or market value.
We have not reserved or allocated the net proceeds for any specific purpose,
and we cannot specify with certainty how we will use the proceeds of this
offering. Consequently, our management will have broad discretion with respect
to the application of proceeds from this offering, and you will not have the
opportunity, as part of your investment in our common stock, to assess whether
the proceeds are being used appropriately. The net proceeds may be used for
corporate purposes that do not improve our operating results or market value.
12
We may use a portion of the net proceeds for investments in companies with
complementary technologies or products, or which provide us with access to
additional vertical markets. These investments may not result in any meaningful
commercial benefit to us and our investments could lose all or a significant
part of their value. Moreover, in certain circumstances, these investments
could subject us to restrictions imposed by the Investment Company Act of 1940.
We may have to take actions, including buying, refraining from buying, selling
or refraining from selling securities when we would otherwise not wish to, in
order to avoid registration under the Investment Company Act.
Our stock price may be volatile, which could cause investors to lose all or
part of their investments in our stock
The stock market in general, and the stock prices of technology and Internet-
related companies in particular, have recently experienced volatility which has
often been unrelated to the operating performance of any particular company or
companies. If market or industry-based fluctuations continue, our stock price
could decline regardless of our actual operating performance, and investors
could lose all or part of their investments.
Future dispositions of our common stock by Reuters could adversely affect the
market price of our common stock
Any sale or distribution by Reuters of a substantial amount of common stock
in the public market or to its stockholders, or the perception that such a sale
or distribution could occur, could have an adverse effect on the market price
of our common stock. As of November 30, 1999, and assuming our issuance of
4,025,750 shares of common stock in this offering, Reuters will own
approximately 61.2% of our outstanding common stock. Reuters is not obligated
to retain these shares, except that subject to limited exceptions, it has
agreed not to sell or otherwise dispose of any shares of common stock for 90
days after the completion of this offering without the consent of the
underwriters of this offering. After the expiration of this 90-day period,
Reuters could dispose of its shares of our common stock through a public
offering, spin-off or other transaction. Reuters has the right, under certain
circumstances, to require us to register its shares of our common stock for
public resale.
13
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by TFT or the
selling stockholders pursuant to this prospectus.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on The Nasdaq National Market under the symbol
"TIBX". The following table shows the 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 1999
Third Quarter (from July 14, 1999)......................... $ 13.79 $ 6.58
Fourth Quarter............................................. 43.83 8.88
Fiscal Year 2000
First Quarter.............................................. 137.94 29.13
Second Quarter (through March 21, 2000).................... 147.00 101.00
On March 21, 2000, the last reported sale price of our common stock on The
Nasdaq National Market was $106.00 per share. As of November 30, 1999, there
were approximately 387 stockholders of record of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock or other securities. We
anticipate that we will retain any future earnings for use in the expansion and
operation of our business, and accordingly we do not anticipate paying any cash
dividends in the foreseeable future.
14
CAPITALIZATION
The following table sets forth our capitalization as of November 30, 1999.
November 30,
1999
------------
(in thousands,
except
per
share data)
Stockholders' equity:
Preferred stock, $0.001 par value per share;
25,000 shares authorized; no shares issued or outstanding.... $ --
Common stock, $0.001 par value per share; 300,000 shares
authorized; 181,215 shares issued and outstanding ........... 181
Additional paid-in capital.................................... 182,939
Unearned stock-based compensation............................. (8,083)
Accumulated other comprehensive loss.......................... (24)
Accumulated deficit........................................... (37,095)
--------
Total capitalization........................................ $137,918
========
The table above excludes approximately 31,440,000 shares of common stock
issuable upon exercise of outstanding options at a weighted average exercise
price of $1.12 share as of November 30, 1999, and approximately 1,661,000
shares reserved for future grants under our 1996 Stock Option Plan and our 1998
Director Option Plan as of November 30, 1999. See "Management--Stock Plans"
beginning on page 49 for a description of these plans, and "Description of
Capital Stock" beginning on page 63 and Note 8 of Notes to Consolidated
Financial Statements beginning on page F-17 for a description of our capital
stock.
15
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with, and
are qualified by reference to, our financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of operations
data for the eleven months ended November 30, 1997 and the years ended
November 30, 1998 and 1999, and the balance sheet data as of November 30, 1998
and 1999 are derived from, and are qualified by reference to, our audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the year ended December 31, 1996 and the balance sheet data
as of December 31, 1996 and November 30, 1997 are derived from, and are
qualified by reference to, our audited financial statements not included in
this prospectus. The financial data as of and for the year ended December 31,
1995 are derived from unaudited financial information not included in this
prospectus.
Our financial statements discussed herein, and the following selected
financial data, reflect our historical results of operations, financial
position and cash flows. The financial information for 1995 and 1996 contained
herein have been carved out from the financial statements of a subsidiary of
Reuters using the historical results of operations and the historical bases of
the assets and liabilities of the non-financial business of such subsidiary. We
believe that the assumptions underlying our financial information for 1995 and
1996 are reasonable. However, the financial information included herein,
particularly for periods prior to fiscal 1997, may not necessarily reflect our
future results of operations, financial position and cash flows or the
financial results we would have achieved if we had been a separate stand-alone
entity during these periods.
Year Ended Eleven Months Year Ended
December 31, Ended November 30,
----------------- November 30, ------------------
1995 1996 1997 1998 1999
-------- ------- ------------- -------- --------
(in thousands, except per share data)
Statement of Operations
Data:
Revenue:
License revenue......... $ 4,487 $ 6,066 $ 6,219 $ 17,495 $ 56,916
Service and maintenance
revenue................ 21,507 24,249 29,055 35,262 39,524
-------- ------- ------- -------- --------
Total revenue......... 25,994 30,315 35,274 52,757 96,440
Cost of revenue........... 14,658 19,606 15,847 27,682 36,612
-------- ------- ------- -------- --------
Gross profit.............. 11,336 10,709 19,427 25,075 59,828
-------- ------- ------- -------- --------
Operating expenses:
Research and
development............ 3,592 6,576 9,385 14,787 27,478
Sales and marketing..... 1,838 2,949 7,008 15,242 33,130
General and
administrative......... 1,483 2,077 3,565 4,025 8,229
Amortization of stock-
based and other
compensation(/1/)...... 20,684 2,196 4,672 5,064 9,252
Acquired in-process
research and
development............ -- -- -- -- 2,800
Amortization of goodwill
and acquired
intangibles............ -- -- -- -- 521
-------- ------- ------- -------- --------
Total operating
expenses............. 27,597 13,798 24,630 39,118 81,410
-------- ------- ------- -------- --------
Loss from operations...... (16,261) (3,089) (5,203) (14,043) (21,582)
Other income (expense),
net...................... (468) (1,551) 540 1,092 2,101
-------- ------- ------- -------- --------
Net loss.................. $(16,729) $(4,640) $(4,663) $(12,951) $(19,481)
======== ======= ======= ======== ========
Net loss per share--basic
and diluted.............. $ (0.08) $ (0.22) $ (0.19)
======= ======== ========
Weighted average common
shares outstanding(/2/).. 57,606 60,033 104,112
======= ======== ========
- --------
(1) In the years ended December 31, 1995 and 1996, our stock-based and other
compensation expense consisted of contingent compensation earned by
employees in connection with the acquisition of Teknekron by Reuters.
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of shares used to compute net loss per share.
16
December 31, November 30,
----------------- ------------------------
1995 1996 1997 1998 1999
-------- ------- ------- ------- --------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents, deposits
held by
Reuters and short-term
investments....................... $ -- $ -- $18,318 $15,970 $ 89,807
Working capital.................... (22,155) (2,167) 15,168 18,301 95,603
Total assets....................... 9,539 10,996 31,046 36,289 179,638
Owner's net investment
(liability)....................... (19,574) 451 -- -- --
Stockholders' equity............... -- -- 17,167 21,704 137,918
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with "Selected
Financial Data" and our financial statements and the notes to those statements
included elsewhere in this prospectus. This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections about us and our industry. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
indicated in these forward-looking statements as a result of certain factors,
including those more fully described in the "Risk Factors" section and
elsewhere in this prospectus. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
Overview
We develop and market a suite of eBusiness infrastructure software products
that enables businesses to link internal operations, business partners and
customer channels in real time. We are the successor to a portion of the
business of Teknekron Software Systems, Inc. Teknekron developed software,
known as the TIB technology, for the integration and delivery of market data,
such as stock quotes, news and other financial information, in trading rooms of
large banks and financial services institutions. In 1992, Teknekron expanded
its development efforts to include solutions designed to enable complex and
disparate manufacturing equipment and software applications--primarily in the
semiconductor fabrication market--to communicate within the factory
environment. Teknekron was acquired by Reuters in 1994. Following the
acquisition, continued development of the TIB technology was undertaken to
expand its use in the financial services markets. In January 1997, our company,
TIBCO Software Inc., was established as an entity separate from Teknekron.
We were formed to create and market software solutions for use in the
integration of business information, processes and applications in diverse
markets and industries outside the financial services sector. In connection
with our establishment as a separate entity, Reuters transferred to us certain
assets and liabilities related to our business and granted to us a royalty-free
license to the intellectual property incorporated into some of our current
software products. Reuters also assigned to us license and service contracts
primarily within the manufacturing and energy markets.
During fiscal 1997, our operating activities related primarily to the
development of our TIB products, supporting the installed base of financial
services companies using TIB-based solutions sold through Reuters and expanding
our presence in the manufacturing and energy markets. During fiscal 1998, we
expanded our product development activities and continued to invest in creating
a product marketing organization and engaging in advertising programs to build
our corporate brand identity. We also built our domestic and international
direct sales force and created a general and administrative infrastructure.
During the second half of fiscal 1998, we began initial shipments of our TIB
products. We also formally introduced our TIBCO.net product and service
offering for creating and managing eBusiness activities, such as enabling stock
quotation services. During fiscal 1999, we added approximately 200 new
customers for our TIB products, and we strengthened our position in our key
vertical markets--telecommunication, Internet portals, manufacturing, energy
and financial services. In fiscal 1999, we also established and strengthened
strategic realtionships with leading companies aimed at providing complementary
business-to-business eCommerce and Internet solutions. In addition, we released
TIB/PortalBuilder, a portal construction product.
In fiscal 1997 and to a lesser extent in fiscal 1998, our revenue consisted
primarily of license and maintenance fees from the contracts assigned to us by
Reuters in connection with our formation, fees from
18
providing integration services to customers transferred to us by Reuters and
development and maintenance fees paid to us by Reuters. Our revenue in fiscal
1999 consisted primarily of license and product fees from our customers and
distributors, including from Reuters pursuant to our license agreement with
them, both of which are primarily attributable to sales of our TIB products. In
addition, we receive fees from our customers for providing project integration
services. We also receive revenue from our TIBCO.net customers. Revenue from
these customers is a combination of fixed service charges, a percentage of the
advertising fees generated from their TIBCO.net-enabled web pages and a charge
for each user visit to these web pages. We also receive revenue from strategic
relationships with business partners who embed our products in their solutions,
as well as from systems integrators who resell our products.
We recognize license revenue when a signed contract or other persuasive
evidence of an arrangement exists, the software has been shipped or
electronically delivered, the license fee is fixed or determinable, and
collection of the resulting receivable is probable. When contracts contain
multiple elements wherein vendor specific objective evidence exists for all
undelivered elements, we account for the delivered elements in accordance with
the "Residual Method" prescribed by SOP 98-9. Any maintenance revenue included
in these arrangements is recognized ratably over the term of the arrangement.
Revenue from subscription license agreements, which include software, rights to
future products and maintenance, is recognized ratably over the term of the
subscription period. Revenue on shipments to resellers, which is generally
subject to certain rights of return and price protection, is recognized when
the products are sold by the resellers to the end-user.
We recognize service revenue as the services are performed or on the
percentage-of-completion method of accounting, depending on the nature of the
project. Under the percentage-of-completion method, revenue recognized is that
portion of the total contract price equal to the ratio of costs expended to
date to the anticipated final total cost, based on current estimates of the
cost to complete the project. To the extent that these arrangements include
license fees, such fees are recorded as license revenue based on the
percentage-of-completion ratio. If the total estimated cost to complete a
project exceeds the total contract amount, indicating a loss, the entire
anticipated loss would be recognized currently.
Our distributors generally pay us negotiated royalties on their sales of our
products. Reuters distributes our products to customers in the financial
services market segment. Through December 2001, Reuters must pay us product
fees based on a percentage of the revenue it derives from the sale of licenses
and maintenance for our products. Under our license agreement with Reuters,
minimum guaranteed product fees are $16 million in calendar 1999, $18 million
in calendar 2000 and $20 million in calendar 2001. We recognized $14.2 million
in fiscal 1999. We will recognize revenue in the amount of these guaranteed
product fees ratably over the contractual period. In any period where actual
product fees exceed the minimum guaranteed product fees for the year, the
actual product fees and cumulative minimum guaranteed product fees will be
recognized as revenue.
In 1997, we changed our fiscal year from the twelve months ending December
31st to the twelve months ending November 30th. Accordingly, our financial
results for 1997 reflect our operations for the eleven months ended November
30, 1997 and are not comparable to our results for fiscal 1999, 1998 or any
prior period. Our fiscal year ends on November 30th and our fiscal quarters
generally end on the Friday closest to calender month-end of February, May and
August. For ease of readership throughout this prospectus, we have indicated
our interim fiscal periods as having ended on the last day of the month in
which such period actually ended.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. These
factors include the timing of significant orders and the length of our sales
cycle, technical difficulties in our software, the growth rate of the eBusiness
infrastructure
19
software market, our ability to continue to attract and retain customers in
international markets, and the success of Reuters and other distributors in
selling our products in the financial services market. Due to the emerging
nature of the markets in which we compete, it may be difficult to forecast our
revenue accurately. Our expense levels are based in part on our expectations
with regard to future revenue. We may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Any of these factors
may have a material adverse effect on our business, results of operations and
financial condition. See "Risk Factors" for a further description of these and
other factors that could adversely affect our business, results of operations
and financial condition.
Results of Operations
The following table sets forth data from our statement of operations
expressed as percentages of revenue:
Eleven Year Ended
Months Ended November 30,
November 30, ----------------
1997 1998 1999
------------ ------ ------
Revenue:
License....................................... 18 % 33 % 59 %
Service and maintenance....................... 82 67 41
--- ------ ------
Total revenue............................... 100 100 100
Cost of revenue................................. 45 52 38
--- ------ ------
Gross profit.................................... 55 48 62
--- ------ ------
Operating expenses:
Research and development...................... 27 28 28
Sales and marketing........................... 20 29 34
General and administrative.................... 10 8 9
Amortization of stock-based compensation...... 13 10 10
Acquired in-process research and development.. -- -- 3
Amortization of goodwill and acquired
intangibles.................................. -- -- 1
--- ------ ------
Total operating expenses.................... 70 75 85
--- ------ ------
Loss from operations............................ (15) (27) (23)
Other income, net............................... 2 2 2
--- ------ ------
Net loss........................................ (13)% (25)% (21)%
=== ====== ======
Total Revenue
Revenue was $35.3 million, $52.8 million and $96.4 million in fiscal 1997,
1998, and 1999, respectively, representing increases of $17.5 million, or 50%,
from fiscal 1997 to fiscal 1998 and $43.7 million, or 83%, from fiscal 1998 to
fiscal 1999. No trade customer accounted for more than 10% of our total revenue
in fiscal 1999. In fiscal 1998, Cedel Global Services accounted for 17% of
total revenue. NEC Electronics accounted for 17% of total revenue in fiscal
1997. Revenue from Reuters accounted for 27%, 15% and 19% of our total revenue
in fiscal 1997, 1998 and 1999, respectively. In fiscal 1997 and 1998 revenue
from Reuters consisted primarily of maintenance and consulting fees for
services we performed for Reuters, while in fiscal 1999, revenue from Reuters
of $18 million consisted primarily of product fees on its sales of our products
under our license agreement.
License Revenue
License revenue was $6.2 million, $17.5 million and $56.9 million in fiscal
1997, 1998, 1999, respectively, representing increases of
20
$11.3 million, or 181%, from fiscal 1997 to fiscal 1998 and $39.4 million, or
225%, from fiscal 1998 to fiscal 1999. These increases were due primarily to
the increased volume of sales of our TIB products which were introduced during
the second half of fiscal 1998. License revenue was 18%, 33% and 59% of total
revenue in fiscal 1997, 1998 and 1999, respectively. The growth in license
revenue as a percentage of total revenue reflects our strategy of pursuing a
license-driven business model. We believe that license revenue will continue to
grow significantly in absolute dollars and, to a lesser extent, as a percentage
of total revenue in fiscal 2000.
Service and Maintenance Revenue
Service and maintenance revenue was $29.1 million, $35.3 million and $39.5
million in fiscal 1997, 1998 and 1999, respectively, representing increases of
$6.2 million, or 21%, from fiscal 1997 to fiscal 1998 and $4.2 million, or 12%,
from fiscal 1998 to fiscal 1999. These increases resulted primarily from
additional maintenance revenue related to the growth in license revenue.
Service and maintenance revenue was 82%, 67% and 41% of total revenue in fiscal
1997, 1998 and 1999, respectively. We believe service and maintenance revenue
will continue to grow moderately in absolute dollars and will decline modestly
in fiscal 2000 as a percentage of total revenue as license revenue continues to
increase as a percentage of total revenue.
Cost of Revenue
Cost of revenue consists primarily of salaries and third-party contractor and
associated expenses primarily related to providing project implementation
services and, to a lesser extent, the cost of providing maintenance and
customer support services. The majority of our cost of revenue is directly
related to our service revenue. Cost of revenue was $15.8 million, $27.7
million and $36.6 million in fiscal 1997, 1998 and 1999, respectively,
representing increases of $11.8 million, or 75%, from fiscal 1997 to fiscal
1998 and $8.9 million, or 32%, from fiscal 1998 to fiscal 1999. Cost of revenue
was 45%, 52% and 38% of total revenue in fiscal 1997, 1998 and 1999,
respectively. The increase in cost of revenue in fiscal 1998, both in amount
and as a percentage of revenue, was primarily as a result of using third-party
contractors to support our contract with Cedel Global Services and hiring
additional technical staff to support our growing installed base of customers.
The increase in cost of revenue in absolute dollars in fiscal 1999 was a result
of increased service and maintenance revenue and the decrease as a percentage
of total revenue was due primarily to the increase in license revenue as a
percentage of total revenue.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs associated with the development of our TIB products. Research and
development expenses were $9.4 million, $14.8 million and $27.5 million in
fiscal 1997, 1998 and 1999, respectively, representing increases of $5.4
million, or 58%, from fiscal 1997 to fiscal 1998 and $12.7 million, or 86%,
from fiscal 1998 to fiscal 1999. These increases were due primarily to growth
in our development staff as we continued to expand the TIB product offerings
and upgrade the performance of existing products. Research and development
expenses were 27%, 28% and 28% of total revenue in fiscal 1997, 1998 and 1999,
respectively. We believe that continued investment in research and development
is critical to attaining our strategic objectives and, as a result, expect that
spending on research and development will continue to increase in absolute
dollars.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel and related costs
of our direct sales force and marketing staff and the
cost of marketing programs, including advertising, trade shows, promotional
materials and customer conferences. Sales and marketing expenses were $7.0
million, $15.2 million and $33.1 million in fiscal 1997, 1998 and 1999,
respectively, representing increases of $8.2 million, or 117%, from fiscal 1997
to fiscal 1998 and $17.9 million, or 117%, from fiscal
21
1998 to fiscal 1999. These increases resulted primarily from the growth of our
domestic and international direct sales force in order to sell our expanding
family of TIB products, which was released in the second half of fiscal 1998.
Sales and marketing expenses were 20%, 29% and 34% of total revenue in fiscal
1997, 1998, and 1999, respectively. We intend to continue to increase staff in
our direct sales organization and to develop product marketing and branding
campaigns and, accordingly, expect that sales and marketing expenditures will
continue to increase substantially in absolute dollars and increase moderately
as a percentage of total revenue for fiscal 2000.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including executive, legal,
finance, accounting, human resources and information systems. General and
administrative expenses were $3.6 million, $4.0 million and $8.2 million in
fiscal 1997, 1998 and 1999, respectively, representing increases of $460,000,
or 13%, from fiscal 1997 to fiscal 1998 and $4.2 million, or 104%, from fiscal
1998 to fiscal 1999. These increases were primarily a result of increased
staffing and associated operational costs related to building our general and
administrative infrastructure. As we develop our infrastructure to support a
larger, more global organization, we believe that general and administrative
expenses will increase moderately in absolute dollars but remain relatively
stable as a percentage of total revenue for fiscal 2000.
Amortization of Stock-based Compensation
In connection with the grant of stock options to employees and non-employee
directors during fiscal 1997, 1998 and 1999, we recorded aggregate unearned
compensation of $23.2 million, representing the difference
between the deemed fair value of our common stock at the date of grant and the
exercise price of such options. Such amount is presented as a reduction of
stockholders' equity and amortized over the vesting period of the applicable
option. The increase was due primarily to the grant of stock options to
employees prior to our initial public offering in July 1999. We expect to
amortize $4.0 million, $2.3 million, $1.2 million, $0.5 million and $0.1
million of unearned stock-based compensation in fiscal 2000, 2001, 2002, 2003
and 2004, respectively. Stock-based compensation expense related to employees
and non-employee directors was $4.6 million, $4.7 million and $5.8 million in
fiscal 1997, 1998 and 1999, respectively.
Stock-based compensation expense related to stock options granted to
consultants is recognized as earned, using the multiple option method as
prescribed by FASB Interpretation No. 28. At each reporting date, we re-value
the stock-based compensation using the Black-Scholes option pricing model. As a
result, the stock-based compensation expense will fluctuate as the fair market
value of our common stock fluctuates. In connection with the grant of stock
options to consultants, we recorded stock-based compensation expense of
$30,000, $336,000 and $3.5 million in fiscal 1997, 1998 and 1999, respectively.
As of November 30, 1999, we expect to amortize stock-based compensation expense
of $13.6 million, $5.6 million, $1.9 million and $675,000 in fiscal 2000, 2001,
2002 and 2003, respectively, assuming no change in the underlying value of our
common stock.
Acquired In-Process Research and Development
In November 1999, we purchased substantially all the assets of InConcert,
Inc., a subsidiary of Xerox Corporation, for $34.0 million in cash. InConcert
is a developer of business integration solutions for telecommunications
companies. The transaction was recorded under the purchase method of
accounting. The total purchase price of $35.6 million includes cash of $34
million, accrued severance costs reimbursable to Xerox of approximately $1.3
million and acquisition related expenses, consisting of financial advisory,
accounting and legal fees, of approximately $0.3 million. The allocation of the
purchase price was based upon an independent, third-party appraisal and our
estimates and was allocated to net tangible assets acquired of $1.6 million,
in-process
22
research and development of $2.8 million and other acquired intangible assets
and goodwill of $31.2 million. The acquired intangible assets and goodwill are
being amortized over their estimated useful lives of 5 years.
Upon consummation of the acquisition, we immediately charged to expense $2.8
million representing acquired in-process research and development that had not
yet reached technological feasibility and had no alternative future use. See
"Notes to Consolidated Financial Statements". The expensed amount was
determined by estimating the costs to develop the acquired in-process research
and development into commercially viable products, estimating the resulting net
cash flows from such projects and discounting the net cash flows back to their
present value. The costs to develop the acquired in-process research and
development include a core technology charge. The in-process research and
development is expected to be commercially viable in 2000. InConcert's in-
process research and development projects are related to its simplifying its
business integration solution and enhancing the user interface of the product
in order to make it easier to use for non-technical personnel.
Although we believe we are well-positioned to successfully complete the
research and development program, there is risk associated with the completion
of the project and there is no assurance that it will meet with either
technological or commercial success. Our estimate of the net cash flows
resulting from the product enhancements underway at InConcert, which was used
to value the purchased research and development, was based on management's
estimates of revenue, cost of revenue, research and development costs, selling,
general and administrative costs and income taxes from the project. The revenue
projections were based on the potential size of the market for the enhanced
business integration solution in the telecommunications industry, our ability
to gain market acceptance for that product and its life cycle. Estimated
revenue from the acquired in-process product area commences in 2000 and is
estimated to grow for each of the four years thereafter.
The net cash flows generated from the in-process technology are expected to
reflect earnings before interest, taxes and depreciation of approximately 19%
for the sales generated from in-process technology. The discount of the net
cash flows to their present value is based on the weighted average cost of
capital (WACC). The WACC calculation produces the average required rate of
return of an investment in an operating enterprise, based on various required
rates of return from investments in various areas of the enterprise. The
discount rate used to discount the net cash flows from the acquired in-process
technology was 29%. This discount rate reflects the uncertainty surrounding the
successful development of the acquired in-process technology, the useful life
of such technology, the profitability levels of such technology, if any, and
the uncertainty of technological advances, all of which are unknown at this
time. If this project is not successfully developed, our business, operating
results and financial condition may be negatively affected in future periods.
In addition, the value of other intangible assets acquired may become impaired.
To date, our results relating to sales of the InConcert product lines have not
differed significantly from the forecast assumptions. Our research and
development expenditures since this acquisition have not differed materially
from expectations. Nevertheless, the risks associated with the research and
development are still considered high and no assurance can be made that
upcoming products and product enhancements will meet market expectations.
Existing technology relates to the InConcert software solutions that combine
process management and application integration functions by integrating
corporate databases, third-party applications and legacy systems in order to
convert disparate applications into integrated solutions. This technology was
valued at $14 million using the net cash flow expected as a result of the sale
of these products and discounted to the present using a 24% discount rate. The
customer base was also valued using the net cash flow expected as result of the
stream of revenues from existing customers from license fees, professional
services and maintenance support and then discounted to the present using a
23
24% discount rate. The workforce was valued by estimating the cost to replace
the current assembled workforce, considering such costs as recruiting and
training. Finally, the trademark was valued by applying a trademark royalty
rate of 1% to forecasted revenue, and then the net cash flow expected from
these amounts was discounted at a rate of 24% to arrive an estimated fair
market value. There can be no assurance that these assumptions will prove
accurate, or that we will realize the anticipated benefit of this acquisition.
Other Income, Net
Other income, net includes interest and other miscellaneous income and
expense items. Other income, net was $0.5 million, $1.1 million, and $2.1
million in fiscal 1997, 1998 and 1999, respectively. The increase in fiscal
1999 was due primarily to interest income earned from our investments which
increased significantly as a result of the money raised in connection with our
initial public offering in July 1999.
Income Taxes
We have incurred operating losses for all periods. At November 30, 1999, we
had federal and California net operating loss carryforwards of $12.7 million
and $6.7 million respectively, which expire through 2019 and 2006,
respectively. We also have available federal and California tax credit
carryforwards of $1.6 million and $1.2 million respectively, which expire
through 2019. In the event of a change in ownership, as defined under federal
and state tax laws, the utilization of these carryforwards could be subject to
certain limitations in future years.
Liquidity and Capital Resources
Prior to our initial public offering, we funded our operations primarily
through the sale of our capital stock. We raised an aggregate of $26.7 million
from the sale of preferred stock to Cisco Systems and Mayfield venture capital
funds. In July 1999, we completed an initial public offering, in which we sold
27,485,001 shares of our common stock, including 3,285,000 shares purchased by
the underwriters pursuant to their over-allotment option, 1,500,000 shares sold
directly to Sun Microsystems and 800,000 shares sold directly to Yahoo! Inc. at
$5.00 per share. Net proceeds aggregated approximately $123.5 million, net of
underwriters' commission and offering expenses of $13.9 million.
Net cash provided by operating activities in fiscal 1997 was $2.4 million,
resulting primarily from increases in accrued liabilities and receipt of
prepayments on contracts. Net cash used for operating activities in fiscal 1998
and 1999 was $11.8 million and $9.7 million, respectively, resulting primarily
from our net losses.
Net cash used in investing activities was $11.1 million, $8.2 million and
$103.8 million in fiscal 1997, 1998 and 1999, respectively. Net cash used in
investing activities in these periods was related primarily to the purchase of
property and equipment, principally desktop and network hardware and software,
and the investment of surplus funds received from the issuance of our capital
stock. Net cash used for investing activities for fiscal 1999 was also related
to the acquisition of InConcert.
Net cash provided by financing activities for fiscal 1997, 1998 and 1999,
respectively, was $16.7 million, $12.4 million and $126.5 million. Cash
provided by financing activities was primarily the result of net proceeds from
the sale of our common stock in 1999 and of our preferred stock in 1998 and
1997.
At November 30, 1999, we had $89.8 million in cash, cash equivalents and
investments. We anticipate continued growth in our operating expenses for the
foreseeable future, particularly in sales and marketing expenses and, to a
lesser extent, research and development and general and administrative
expenses. As a result, we expect to use our cash resources to fund our
operating expenses and capital expenditures, and additionally, to fund
acquisitions or investments in complementary businesses, technologies or
products. We believe that our current cash, cash equivalents and investments
will be sufficient to meet our anticipated cash requirements for working
capital and capital expenditures for at least the next twelve months.
24
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. In order to distinguish
21st century dates from 20th century dates, the date code field needs to be
expanded to four digits. As a result, many companies' software and computer
systems were upgraded or replaced in order to comply with these year 2000
requirements. The use of software and computer systems that are not year 2000
compliant could have resulted in system failures or miscalculations resulting
in disruptions of operations, including among other things, a temporary
inability to process transactions, send invoices, or engage in normal business
activities.
To date, we have not suffered any disruptions in our computer systems or
software related to the expanded date code field. In addition, to date, we have
not been made aware that any third-party systems we rely on, the manufacturing
systems of our vendors or the systems our customers use to order our services
have suffered disruptions in their systems.
To date, we have spent approximately $200,000 on year 2000 compliance. At
this time, we are not aware of any year 2000-related problems related to our
products, and we do not expect to incur future expenditures relating to year
2000 compliance matters.
Quantitative and Qualitative Disclosures about Market Risk
The Company invests in marketable securities in accordance with its
investment policy. The primary objectives of the Company's investment policy
are to preserve principal, maintain proper liquidity to meet operating needs
and maximize yields. The Company's investment policy specifies credit quality
standards for the Company's investments and limits the amount of credit
exposure to any single issue, issuer or type of investment. The maximum
allowable duration of a single issue is 2.5 years and the maximum allowable
duration of the portfolio is 1.3 years.
At the end of fiscal 1999, the Company had an investment portfolio of fixed
income securities totaling $76.1 million, excluding those classified as cash
and cash equivalents. The Company's investments consist primarily of bank and
finance notes, various government obligations and asset-backed securities.
These securities are classified as available-for-sale and are recorded on the
balance sheet at fair market value with unrealized gains or losses reported as
a separate component of stockholders' equity. Unrealized losses are charged
against income when a decline in fair market value is determined to be other
than temporary. The specific identification method is used to determine the
cost of securities sold. Gains and losses on marketable securities are included
in net interest income when realized.
The investment portfolio is subject to interest rate risk and will fall in
value in the event market interest rates increase. If market interest rates
were to increase immediately and uniformly by 50 basis points (approximately
8.3% of current rates in the portfolio) from levels as of November 30, 1999,
the fair market value of the portfolio would decline by approximately $350,000.
We develop products in the United States and sell in North America, South
America, Asia and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. A majority of sales are currently made in U.S.
dollars, and a strengthening of the dollar could make our products less
competitive in foreign markets.
Recent Accounting Pronouncements
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP 98-1 will have a material impact on our financial statements.
25
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. To date we have engaged in limited derivative and hedging
activities, and accordingly, we do not believe that the adoption of SFAS No.
133 will have a material impact on our financial reporting and related
disclosures. We will adopt SFAS No. 133 as required by SFAS 137, "Deferral of
the Effective Date of the FASB Statement No. 133," beginning with the fourth
quarter of fiscal 2000.
26
BUSINESS
We are a leading provider of eBusiness infrastructure software products that
enable business-to-business, business-to-consumer and business-to-employee
solutions. Our software products allow businesses to link internal operations,
business partners and customer channels in real-time by enabling multiple
distinct applications, web sites, databases and other content sources to be
integrated and managed within a common framework. Our products also enable
enterprises to extend their information technology infrastructures and business
processes across the Internet. This allows our customers to conduct all forms
of electronic business using the Internet--business-to-business, business-to-
consumer and business-to-employee. Our core technology, known as The
Information Bus or the TIB, is an integration platform that enables enterprises
and users to automatically transmit, receive, filter and personalize digital
information in real-time. The Information Bus also facilitates real-time, two-
way communications between distributed computer networks and mobile information
devices such as hand-held computers, pagers and digital cellular phones. Our
products are currently in use by over 300 companies in diverse markets such as
telecommunications, manufacturing, energy, financial services and Internet
portals.
Industry Background
Driven by accelerating competition and the increasing demands of customers,
many enterprises today are seeking to expand and improve the scope, speed and
efficiency of their business processes by using the Internet to become
eBusinesses. An eBusiness is a company that integrates its disparate
applications and information sources, connects with customers, partners and
employees using the Internet and engages in commerce with business-to-business,
or B2B, business-to-consumer, or B2C, and business-to-employee, or B2E,
communities. Just as markets are becoming increasingly global and corporate
relationships become increasingly complex, the business environment today
demands a more tightly integrated network of supplier, customer and partner
relationships. Emerging challenges and opportunities are forcing businesses to
become more efficient, in many cases by adjusting their operations and
strategies in real-time. The timely exchange of information across intranets
and the Internet provides opportunities to leverage management resources,
create manufacturing efficiencies and improve customer service. For example,
real-time business process integration and information exchange with suppliers
and customers over the Internet expedites order fulfillment, decreases
inventory carrying costs, and provides enhanced sales opportunities through
direct customer interaction.
Enabling a real-time eBusiness through technology is a complex undertaking.
The range of computing environments and software applications utilized across
the typical business organization is vast and growing, involving mainframe,
minicomputer and client/server environments. Many organizations are
incorporating powerful new software applications that operate on an enterprise-
wide basis and serve as interfaces to customers and suppliers. At the same
time, enterprises are seeking to better exploit their existing information
systems and take advantage of their prior technology investments by integrating
previously independent legacy applications and databases. In addition to
purchasing applications from independent software vendors, many organizations
continue to run customized, internally-developed application solutions.
Moreover, in recent years, many organizations have extended operations overseas
and acquired new businesses. In the process, they have adopted applications
that address the specific needs of local markets and have inherited
applications from acquired businesses. All of these applications must be
integrated in order to manage and grow the extended enterprise with its network
of customer and business partner relationships.
The emergence of Internet-based business models has also increased the
importance of
27
an enterprise's ability to integrate existing applications and business
processes and to conduct business in real-time. The core product of many
emerging Internet businesses is information itself, which increases in value
with timeliness and comprehensiveness. Many businesses are expanding their use
of portals--Internet-based platforms for providing access to services and
content--to include the dissemination of internal corporate information to
employees and business partners.
The integration of business information and processes requires technology
that can coordinate multiple distinct computer applications and platforms and
distribute information about business events to where the information is
needed--both within and outside of the organization--as the events occur.
We believe that many application integration and process automation
solutions fail to address all of the needs of enterprises in today's real-
time, Internet-driven business environment due to one or more of the following
factors:
. Lack of Comprehensiveness. Existing middleware, integration and process
automation software products generally provide only a portion of the
overall solution, creating an environment that is difficult and costly to
maintain. This forces companies to integrate multiple, incompatible
technologies to address the total business problem.
. Lack of Modularity. Existing solutions generally are not modular and do
not provide enterprises with flexibility in meeting business needs. As a
result, enterprises are required to use all or none of a technology.
. Passive Model of Information Distribution. Existing solutions generally
employ a request/reply model of information dissemination that requires
specific requests to be made before information can be distributed. This
means an application must know that information exists before it can ask
for it. The intervals between successive requests to, and replies from,
the database for information represent unnecessary, and potentially
costly, delays in the business processes of the enterprise.
. Lack of Scalability. Existing solutions generally do not scale either in
terms of transaction volumes or geography, often because they are based
on an oversimplified "hub and spoke" model that forces all transactions
through one central server or software component.
. Excessive Use of Network Capacity. The request/reply model requires that
multiple users often make multiple requests for the same information,
crowding the network with inquiries that convey no new information. As a
result, solutions employing the request/reply model use network capacity
unnecessarily.
IDC (International Data Corporation) estimates that corporate spending for
Internet software will grow from approximately $1.7 billion in 1998 to nearly
$14 billion in 2002. Based on this estimate, we believe the market for
infrastructure software for eBusiness is substantial.
The TIBCO Software Solution
Our solution allows multiple computer applications and platforms to
communicate in real-time across the Internet and intranets. The TIB technology
facilitates the distribution of information and the integration of business
processes by connecting each application to the network through a single
interface, instead of linking each application directly to all others. The
benefits of the TIB technology are realized through our integrated suite of
software products. These products provide support for a broad range of key
eBusiness technologies such as eXtensible Markup Language, or XML, an emerging
standard for sharing data over the Internet, and related XML eCommerce
frameworks, such as RosettaNet. The primary benefits of our products are set
forth below:
Comprehensive Solution
The TIB products provide a comprehensive solution for the facilitation of
eBusiness. TIB
28
products permit the integration of diverse applications, databases and content
sources to allow both internal linkages among systems and external linkages
with partners, suppliers and customers. By establishing these linkages, TIB
products facilitate the real-time flow of information and transactions within
and beyond the boundaries of the enterprise, and enable the integration of
business processes, regardless of the location or compatibility of the
enterprise's diverse applications and platforms. Finally, TIB products provide
the means to monitor and administer applications within an enterprise's overall
computing environment, facilitating continuous and reliable operation.
Real-time Information Distribution
TIB products are based on a real-time communications and information
distribution model using our publish/subscribe communications technology. This
technology delivers information to users automatically as it becomes available,
based on a user's specification of the type of information desired. With TIB
technology, a business can create a real-time information technology
environment that eliminates the delay inherent in most business activities as
information is requested, located and delivered. In addition, the TIB
technology can support traditional point-to-point transactional systems, and
can also store information for later delivery.
Personalized Information Delivery
Our technology enables users or subscribers to identify and receive only the
information they desire or need. The technology allows users to "tune in" to
information on a given subject in much the same way that users of broadcast
media like television or radio are able to selectively receive information
being distributed to a diverse audience. As new information meeting the user's
criteria is distributed, or published, across the network, the subscriber
automatically receives it as soon as it becomes available. In this way, our
technology minimizes the need for recipients to sift through routine
information to access desired content, thereby permitting more efficient
business processes.
Modular and Flexible
Our TIB software products can be used together, deployed as independent
components or integrated with an enterprise's existing infrastructure or
middleware components. The modularity of TIB products enables enterprises to
leverage their existing technology investments or to start with a limited TIB
implementation that the enterprise can expand as its information distribution
and integration needs grow.
Efficient Use of Network Capacity
The TIB technology is designed to make efficient use of an enterprise's
available network bandwidth while scaling with the capabilities of the network.
With TIB products, information destined for multiple users is sent only once,
rather than as separate messages for each user. In this way, several
subscribers can receive the content they need simultaneously with one message,
reducing the complexity and cost of information distribution within the
enterprise. In addition, because TIB products utilize the same fundamental
networking standard that underlies the Internet, we can efficiently incorporate
the Internet as part of our solution.
Employed in Demanding, High-Performance Environments
The TIB technology is currently in use in financial trading operations in
hundreds of financial institutions. The technology has also been deployed in
other demanding, high-performance environments including multi-billion dollar
semiconductor fabrication plants, telecommunications and energy companies and
Internet portals. We have continually updated and expanded the TIB technology
to incorporate the knowledge gained from operating in these environments.
29
Strategy
Our objective is to establish the TIB technology as the leading software
solution for eBusiness infrastructure. The core elements of our strategy
include:
Promote the Widespread Adoption of Our Technology
Because the market for enterprise infrastructure software is relatively new
and evolving, we believe that an opportunity exists to establish the TIB
technology as a widely-accepted standard in the field. To this end, we seek to
strengthen and expand our strategic relationships with key technology vendors
in an effort to embed our software into their networking equipment and database
offerings. For example, Cisco embeds our technology in its Internetworking
Operating System, facilitating our sale of TIB products and solutions to
enterprises that use Cisco's Internet routers. Cisco has also made a
substantial equity investment in our company and owned approximately 7.2% of
our common stock as of November 30, 1999. We also have strategic relationships
with Ariba, 3Com, i2 Technologies, mySAP.com and Sybase that provide for the
resale of our products or the embedding of our technology into products offered
by these companies.
Enhance Our Position as a Provider of Portal Infrastructure
We are expanding our presence in the Internet portal markets through a
targeted product and service offering we call TIBCO.net and our recently
introduced TIB/PortalBuilder product. TIBCO.net facilitates the automated
presentation and flow of Internet-based data and the integration of this data
with diverse applications within the enterprise. In addition to our software
solutions, we provide Internet-hosting solutions for Internet portals.
TIBCO.net currently provides the infrastructure through which Internet portals
such as Yahoo! and Netscape deliver financial and other information to their
users. We are also developing relationships to expand our access to sources of
information on finance, travel, sports and weather. Our TIB/PortalBuilder
product allows personalized views of an Internet portal to be created and
stored for each portal user.
Pursue a License-Driven Business Strategy
Our business strategy focuses on licensing products rather than on providing
integration and support services. To support this strategy, we augment our
direct sales force and our professional services group though our relationships
with systems integrators and professional services firms including Deloitte
Consulting, EDS, Ernst & Young and KPMG. We believe that these partners provide
us with broad technical knowledge as well as domain expertise in vertical
markets.
Leverage Vertical Market Expertise
Our sales strategy is to leverage our expertise in vertical markets in an
attempt to shorten our sales and implementation cycles in those markets. As we
gain experience in a vertical market, we create an industry-specific template
for our technology. These templates modify the TIB products to capitalize on
their core, cross-industry benefits while tailoring solutions to meet the
specific needs of companies in particular industries. This template approach
allows us to reduce our implementation times and rapidly expand our initial
points of success in a given vertical market. We have created customized TIB
technology templates in the telecommunications, manufacturing and energy
industries, and we seek to extend this expertise into new markets as
appropriate.
Capitalize on the Presence of Reuters in the Financial Services Industry
We have a close relationship with Reuters, our major stockholder and a
leading global news and information group. We sell our products in the
financial services industry primarily through Reuters. We believe that the
established presence and expertise of Reuters in the financial services
industry provides us with sales and marketing advantages in that market.
Through Reuters, we can also assist our customers in securing access to a
wealth of real-time information, including news and financial data, in
conjunction with our TIBCO.net Internet product and service offerings.
30
Expand International Market Presence
We are currently expanding our sales and marketing capabilities to accelerate
our penetration of the worldwide market for our products. We are expanding our
presence in Europe through our vertical market focus in the communications and
energy sectors. We have also developed a strong presence in Taiwan through our
solutions for the semiconductor manufacturing market and in Australia through
our solutions for the electric utility market. For fiscal 1999, revenue from
sales of our products and services outside the United States accounted for 51%
of our total revenue. We intend to continue increasing our global sales
coverage by adding direct sales staff and sales offices internationally, as
well as by expanding our relationships with resellers and systems integrators
outside the United States.
Continue to Enhance Our Technology and Products
We plan to continue to extend the functionality and enhance the capabilities
of our TIB products, as well as increase the number of leading enterprise
applications we support by developing standard adapters to connect them to the
TIB. We have established relationships with enterprise application vendors,
including SAP, Oracle, Siebel Systems, i2 Technologies and PeopleSoft, that
provide for the marketing of our products and the promotion of the
interoperability of our software. We continue to develop new TIB technology
components and to upgrade our existing products to incorporate new
technological advances.
Products
TIB Products
TIB products can be deployed individually or as an integrated solution.
Support for eBusiness protocols and standards such as XML, along with XML
eCommerce frameworks such as RosettaNet, is incorporated throughout our
products. Our products provide the following key elements of eBusiness
infrastructure:
. Messaging--enables the movement of information and facilitates
transactions between applications, databases and portals.
. Connectivity--integrates various legacy and third party applications by
connecting them to a common eBusiness infrastructure.
. Information Transformation and Flow Management --manages the conversion
and translation of data and controls the flow of information and the
interaction of business processes within and between enterprises.
. Monitoring and Management--provides the means for the enterprise to
administer its applications environment and ensure reliable operations.
. Content Aggregation--manages the aggregation of diverse data sources and
provides the display console through which users are notified of and view
business event information.
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TIB Environment
Our products provide enterprise users with the functionality depicted in the
following diagram:
[Set forth here under the heading "TIBCO's software provides critical Internet
infrastructure for eBusiness by tying together data, applications and business
processes in real-time" is a visual representation of how TIBCO's eBusiness
infrastructure enables Business-to-Business, Business-to-Consumer and
Business-to-Employee solutions using the Internet]
Messaging (Events, Data & Transactions)
Our messaging products are the foundation of our product suite. These
products simplify the problem of integrating diverse computer applications by
connecting each application to the network with a single interface, instead of
linking each application directly to all others. Our products support a wide
range of communication models, including the use of XML-based messages. Our
three complementary messaging products are described below:
. TIB/Rendezvous is our flagship messaging product. TIB/Rendezvous supports
publish/subscribe as well as request/reply messaging, and facilitates
personalized information delivery. TIB/Rendezvous leverages the
networking protocols of the Internet to offer a range of service levels
in the delivery of information and the execution of transactions.
TIB/Rendezvous provides efficient, reliable information delivery and high
scalability, and can be embedded in an enterprise's existing information
system.
. TIB/ETX is a transaction-based messaging system designed for use in
environments that require a greater degree of transaction management and
control than is provided by a standard messaging solution. TIB/ETX
provides a transactional form of publish/ subscribe messaging similar to
traditional computer transaction models.
32
. TIB/ObjectBus is our object request broker, or ORB. ORBs enable computer
systems to operate more efficiently by employing reusable, self-contained
pieces of software code known as objects. TIB/ObjectBus allows our TIB
products to integrate with CORBA 2.0, a major programming standard for
object-oriented applications. TIB/ObjectBus can be fully integrated with
our messaging software, combining the efficiency of an object oriented
computing model with the scalability, performance and ease of use
benefits of TIB/Rendezvous.
Connectivity
TIB/Adapters are our software components that link applications to the TIB
environment, thus enabling these applications to communicate with each other.
We take an innovative approach to application integration by using a
TIB/Adapter as the single point of integration for the application. Our
TIB/Adapter products connect leading enterprise applications and complementary
middleware products to the TIB environment. We offer a series of standard
TIB/Adapters designed to link applications and other software developed by SAP,
Siebel Systems, PeopleSoft, IBM and Oracle, among others, to the TIB. We also
have a software toolkit, the TIB/Adapter SDK, that allows our customers and
systems integrators to build custom TIB/Adapters to link applications to the
TIB environment. The TIB/Adapter SDK product provides a common framework for
the rapid development of new TIB/Adapters.
Information Transformation and Flow Management
In order to facilitate the efficient movement of information across
enterprise applications, a solution must have the ability to translate content
from one format to another--including XML and proprietary message types--and to
effectively govern the manner in which information flows between applications.
Our transformation and process flow management products translate data from
each application into a format that is understood by other applications as
described below:
. TIB/MessageBroker is our scalable message routing and transformation
system. TIB/MessageBroker combines and transforms data from applications
into formats that can be understood by other applications, and routes
data according to pre-defined rules. TIB/MessageBroker also allows an
enterprise to conduct transactions and exchange information with
customers and business partners. Unlike many competing technologies,
TIB/MessageBroker requires no independent database or third-party
messaging system. competing technologies, TIB/MessageBroker requires no
independent database or third-party messaging system.
. TIB/IntegrationManager controls the flow of information and system-to-
system communication among applications and components in the TIB
environment. TIB/IntegrationManager allows the enterprise to define
business rules that govern information processing between applications
and where information should go and under what conditions.
TIB/Integration-Manager coordinates the message transport and
transformation functions of the TIB products for internal process
automation and B2B trading systems.
. TIB/InConcert allows the definition of document-oriented process
workflow, as specified through graphical user interfaces.
TIB/IntegrationManager manages and executes automated system-to-system
processes, while TIB/InConcert manages and executes the document-oriented
workflows that involve human and computer processes. Together
TIB/InConcert and TIB/IntegrationManager span the full range of
requirements for process and workflow automation and execution within and
between enterprises.
. TIB/BusinessConnect, scheduled for release in the second quarter of
fiscal
33
2000, is a server software product built around TIB/IntegrationManager
and TIB/MessageBroker that will enhance our capabilities for B2B trading
activities and simplify the implementation of B2B solutions.
TIB/BusinessConnect is used to define trading relationships through a
graphical user interface and then execute the resulting transactions
between trading partners. TIB/BusinessConnect supports the core
technologies and standards for B2B eCommerce.
Content Aggregation
To conduct business in real-time, an enterprise must have the ability to
provide a simple display tool for users to access and view business event
information. Our products in this area are designed to combine information
from the TIB environment with content from external sources, such as web
pages, to create an integrated display that can be personalized to the
specific needs of the end-user. Our content display products are described
below:
. TIB/ContentBroker aggregates information from enterprise applications,
corporate web sites and other content sources based on an enterprise's
preferences, and delivers the requested information directly to users'
desktops as soon as it becomes available. TIB/ContentBroker reduces the
need for enterprises to support multiple end-user interfaces when users
request information from various sources.
. TIB/EventConsole is a display for users to view the content aggregated by
TIB/ContentBroker. TIB/EventConsole provides personalized notifications
from enterprise information sources, including databases, document
servers, web servers, enterprise resource planning systems and legacy
systems, directly to the desktop computers of the appropriate users.
TIB/EventConsole also enables users to receive up-to-date information
remotely.
Monitoring and Management
TIB/Hawk is our product for monitoring and managing applications. Through an
intuitive graphical user interface, TIB/Hawk can be configured to monitor
systems and applications in a local or wide area network and act autonomously
when pre-defined conditions occur.
34
TIB Products
Our TIB products are depicted in the following diagram:
[Set forth on this page is a visual representation of the eBusiness
functionality of the TIBCO product offerings.]
. Allows multiple distinct applications, web sites, databases and other
content sources to be integrated and managed in real-time.
. Facilitates the distribution of information and integration of business
processes by connecting each application through patented technology called
The Information Bus or the TIB.
. Enables enterprises to extend their information infrastructures across
the Internet and includes support XML and XML-based B2B frameworks.]
TIBCO.NET and TIBCO Portal Products
TIBCO.net
As part of our strategy to extend the reach of our products, TIBCO.net
provides a solution for the creation, monitoring and administration of
demanding, high-performance platforms for eBusiness services, such as Internet
or enterprise portals or corporate web sites. Using our TIB products we can
create real-time, scalable information systems for our customers, such as the
financial information system we created for Yahoo!. TIBCO.net allows our
customers to combine internal business systems with external content, such as
news or market pricing data. Our customers in turn can bundle this information
for real-time delivery to their customers, suppliers, partners and employees.
In addition, TIBCO.net provides our customers with the ability to integrate and
deliver business information in real-time across the Internet through our
reliable multicast technology.
TIBCO.net represents a further evolution of the TIB products for use in
Internet-enabled businesses. TIBCO.net is offered to our customers either as a
TIBCO-hosted service, providing time-to-market advantages, or as a package of
products and services for implementation at the customer's site.
TIBCO.net, through its implementation of the TIB products, supports a broad
range of communications methods and protocols enabling the delivery of
information through a wide range of devices and presentation technologies,
including Internet browsers, pagers, hand-held computers and digital cellular
phones.
TIB/PortalBuilder
TIB/PortalBuilder, released in November 1999, provides the tools to create
and build
35
eBusiness portals. TIB/PortalBuilder provides portal users with the ability to
determine which content sources and services are delivered through a portal and
to configure how the content is displayed to portal users. TIB/PortalBuilder
can also work in conjunction with our TIB products to create and manage the
integration of content and services within a portal. TIB/PortalBuilder allows
personalized views of the portal to be created and stored for each portal user.
A graphical user interface is provided to business users to make it easy to
configure and define the content and services of a portal. The first customer
of TIB/PortalBuilder was mySAP.com.
TIB/PortalPacks
TIB/PortalPacks are packaged software components for connecting content
sources, such as financial data, news, weather and sports, to a portal through
TIB/PortalBuilder. TIB/PortalPacks are designed to reduce the time-to-market
and effort for portal creation.
Services
Professional Services
Our professional services offerings include a wide range of consulting
services such as systems planning, architecture and design, custom development
and systems integration for the rapid deployment of our TIB products. We offer
professional services with the initial deployment of our products, as well as
on an ongoing basis to address the continuing needs of our customers. Our
professional services staff is primarily located in Palo Alto, Virginia, London
and Sydney, enabling us to perform installations and respond to customer
demands rapidly across the Americas, Europe and Asia. As of November 30, 1999,
our professional services group consisted of 115 employees, including
individuals with domain expertise in the telecommunications, energy and other
industries. Many of our professional services employees have advanced degrees
and/or substantial industry expertise in systems architecture and design. We
expect that the number of service professionals and the scope of the services
offered will increase as we continue to address the expanding eBusiness
infrastructure needs of large organizations.
We have relationships with resellers, professional service organizations and
system integrators, including Deloitte Consulting, EDS, Ernst & Young, KPMG,
and Sapient, to cooperate in the deployment of our products to clients. These
relationships help promote our TIB products and provide additional technical
expertise to enable us to provide the full range of professional services our
customers require to deploy our products.
Maintenance and Support
We offer an array of software maintenance and support services to our
customers. Our support organization provides services seven days a week,
twenty-four hours a day. We have a worldwide support organization with key
operations centers in Palo Alto, London and Sydney to ensure global coverage
for our customers. These centers provide the infrastructure for our around-the-
clock call centers and hotline support.
We offer a range of support packages that allow our customers to choose the
level of support that fits the needs and budgets of their organizations.
Customers also have access to on-site support which is charged on a time and
materials basis.
Training
We provide training for customer personnel at our main office as well as at
customer locations. We also provide training for our professional services
partners to enhance their effectiveness in integrating our products. In
addition, we develop custom education programs to address the specific needs of
individual customers and partners.
36
Users of TIBCO Software Products
TIBCO Software's customer base includes businesses from many industries,
including telecommunications, manufacturing and energy, as well as
pharmaceuticals, retail, general manufacturing and the Internet. The following
is a partial list of current users of our TIB products. Each of these
companies, other than the financial services companies, accounted for at least
$500,000 of our revenue during the period from January 1997 through November
1999. Each of the financial services companies accounted for at least $200,000
of our revenue during that period. We believe that the amount and type of
products purchased by these customers is representative of our client
relationships generally.
Telecom Energy
BellSouth Chevron
Cisco Systems Marubeni
Ericsson Mobil
Level 3 Pacific Power
Telia
Internet and Other Financial Services
Manufacturing
AltaVista Banque Nationale de
3Com Bechtel Paris
Addidas Delta Air Lines Cedel Global
Compaq Digital Impact Services
Gateway Financial Times Fidelity
Hyundai Intuit First National Bank
Intel SAP of South Africa
Lucent Technologies Yahoo! Goldman Sachs
Motorola The Nasdaq Stock
NEC Electronics Market
Philips Medical Systems National Westminster
Procter & Gamble Bank
Seagate Unibank
TSMC
UMC
Under the terms of our license agreement with Reuters, we are generally
required to sell our products to companies in the financial services market
through third-party distributors and systems integrators. Reuters is the
preferred distributor of our products in that market. Reuters pays us a product
fee when it sells our products to financial services companies, but this
product fee is lower than the amount of revenue we would recognize if we sold
our products directly to these companies. See "Relationship with Reuters and
Certain Transactions--Intercompany Agreements--License, Maintenance and
Distribution Agreement with Reuters" beginning on page 54 for a detailed
description of our distribution relationship with Reuters. All financial
services companies listed in the above table other than Cedel Global Services
purchased our products through Reuters.
Our contract with Cedel Global Services, a company that provides services to
the financial industry, was assigned to us by Reuters effective January 1,
1998, and we sell our products and consulting services directly to Cedel Global
Services pursuant to an exception in our license agreement with Reuters. In
fiscal 1998 and 1999, Cedel Global Services accounted for 17% and 8% of our
revenue. Our contract with Cedel Global Services expires in December 2000. In
addition, in fiscal 1997, NEC Electronics accounted for 17% of our revenue. No
other trade customer accounted for more than 10% of our revenue in fiscal 1997,
1998 or 1999.
37
Sales and Marketing
Sales
We currently market our software and services primarily through a direct
sales organization, complemented by indirect sales channels. As of November 30,
1999, our direct sales force included 40 commissioned sales representatives
located in 11 U.S. cities and in 12 locations internationally across North
America, Europe and Asia. We have established distribution and licensing
relationships with several strategic hardware vendors, database providers,
software and toolset developers, systems integrators and implementation
consultants. We have also developed alliances with key solution providers to
target vertical industry sectors, including energy, telecommunications,
manufacturing and Internet portals.
Under the terms of our license agreement with Reuters, we generally cannot
sell our products directly into the financial services market. Accordingly, we
generally sell our products to companies in the financial services industry
through third-party distributors and systems integrators. Reuters is the
preferred distributor of our products in that market. See "Relationship with
Reuters and Certain Transactions--Intercompany Agreements--License, Maintenance
and Distribution Agreement with Reuters" beginning on page 52 for a detailed
description of our distribution relationship with Reuters. We believe that our
distribution relationship with Reuters, a global news and information group,
has strengthened the penetration of our products in the financial services
industry. Product fees from Reuters on its sales of our products in the
financial services industry accounted for 16% of our revenue in fiscal 1999, 6%
of our revenue in fiscal 1998 and less than 1% of our revenue in fiscal 1997.
Marketing
We utilize a wide variety of marketing programs which are intended to attract
potential customers and to promote TIBCO Software and its brand names. We use a
mix of market research, analyst updates, seminars, direct mail, print
advertising, trade shows, speaking engagements, public relations, customer
newsletters, and web site marketing in order to achieve these goals. Our
marketing department also produces collateral material for distribution to
potential customers including presentation materials, white papers, brochures,
and fact sheets. We also host annual user conferences for our customers and
provide support to our channel partners with a variety of programs and training
and product marketing support materials.
Information Technology Advisory Council
We have assembled an Information Technology Advisory Council composed
primarily of chief information officers from leading Fortune 500 manufacturing
and financial companies. The Information Technology Advisory Council meets at
least semiannually to review our design plans and products and to provide us
with specific feedback on our technology applications and market focus.
Product Development
We have been granted a perpetual, royalty-free license to the underlying TIB
messaging technology as it existed on December 31, 1996. See "Relationship with
Reuters and Certain Transactions--Intercompany Agreements--License, Maintenance
and Distribution Agreement with Reuters" beginning on page 54 for a more
detailed description of this license. We have concentrated our product
development efforts since then both on enhancing this licensed technology and
on developing new products. We expect that most of our enhancements to existing
products and new products will be developed internally. However, we will
evaluate on an ongoing basis the acquisition of externally developed
technologies for integration into our product lines.
We expect that a substantial majority of our research and development
activities will be enhancing and extending our TIB products. Historically, our
product development efforts were focused on creating our core product
solutions. Our development focus has now
38
shifted to expanding the number of available TIB/Adapters and developing
additional packaged integration solutions for specific markets.
As of November 30, 1999, there were 149 employees in our research and
development organization. We expect that we will continue to commit significant
resources to product development in the future. To date, all product
development costs have been expensed as incurred.
Competition
The market for our products and services is extremely competitive and subject
to rapid change. In addition, we compete with various providers of single
components of application integration solutions, including IBM, New Era of
Networks, Iona and BEA with respect to messaging components and Vitria,
CrossWorlds, STC and Active Software with respect to other components. We also
compete in certain product areas with niche eBusiness connectivity companies
such as WebMethods and other emerging companies. We believe that of these
companies, IBM has the potential to offer the most complete set of products for
application integration. We also face competition for certain aspects of our
product and service offerings from major systems integrators. We expect
additional competition from other established and emerging companies. In
addition, we may face pricing pressures from our current competitors and new
market entrants in the future. We believe that the competitive factors
affecting the market for our products and services include product
functionality and features; quality of professional services offerings; product
quality, performance and price; ease of product implementation; quality of
customer support services; customer training and documentation; and vendor and
product reputation. The relative importance of each of these factors depends
upon the specific customer environment. Although we believe that our products
and services currently compete favorably with respect to such factors, we may
not be able to maintain our competitive position against current and potential
competitors.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and harm our business and operating results. If we
are not successful in developing enhancements to existing products and new
products in a timely manner, achieving customer acceptance or generating higher
average selling prices, our gross margins may decline, and our business and
operating results may suffer.
Our license agreement with Reuters does not prohibit Reuters from providing
enterprise infrastructure software products and services in competition with
us. Reuters currently sells our products to financial services companies and
creates products based on the TIB technology specifically for financial
services companies. In addition, pursuant to the license agreement, Reuters has
access to the source code for our products. Although Reuters currently does not
create TIB-based products designed for general use in all markets, if Reuters
were to decide to begin providing information integration products and services
in our markets, we would face additional competition for such customers.
Proprietary Technology
Our success is dependent upon our proprietary software technology. We license
the patents for the TIB technology underlying some of our TIB products,
including TIB/Rendezvous and TIB/ETX, from Reuters. Consequently, we can assert
infringement of these products only through Reuters or with the consent of
Reuters. While we have pending patent applications, we do not currently have
any issued patents and rely principally on trade secret, copyright and
trademark laws, nondisclosure and other
39
contractual agreements to protect our technology. We also believe that factors
such as the technological and creative skills of our personnel, product
enhancements and new product developments are essential to establishing and
maintaining a technology leadership position. We enter into confidentiality
and/or license agreements with our employees, distributors and customers, and
limit access to and distribution of our software, documentation and other
proprietary information. Nevertheless, the steps we have taken may fail to
prevent misappropriation of our technology, and the protections we have may not
prevent our competitors from developing products with functionality or features
similar to our products. Furthermore, third parties might independently develop
competing technologies that are substantially equivalent or superior to our
technologies. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. If we fail to protect
our proprietary technology, our business could be seriously harmed.
Although we do not believe our products infringe the proprietary rights of
any third parties, third parties may nevertheless assert infringement claims
against us or our customers in the future. Furthermore, we may initiate claims
or litigation against third parties for infringement of our proprietary rights
or to establish the validity of our proprietary rights. Litigation, whether
resolved in our favor or not, would cause us to incur substantial costs and
divert our management resources from productive tasks, which could harm our
business. Parties making claims against us could secure substantial damages, as
well as injunctive or other equitable relief which could effectively block our
ability to license our products in the United States or abroad. Such a judgment
could seriously harm our business. If it appears necessary or desirable, we may
seek licenses to intellectual property if we believe that our technology
potentially infringes on such technology. We may not, however, be able to
obtain such licenses on commercially reasonable terms or at all, and the terms
of any offered licenses might not be acceptable to us. The failure to obtain
necessary licenses or other rights could seriously harm our business. As the
number of software products in our industry increases and the functionality of
those products further overlaps, we believe that software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, would probably be time consuming and expensive to defend, and could
seriously harm our business. We are not aware of any currently pending claims
that our products, trademarks or other proprietary rights infringe upon the
proprietary rights of third parties.
"TIBCO", "The Information Bus", "TIB" and the names of our products are our
trademarks or tradenames.
Employees
As of November 30, 1999, we employed 490 persons, including 120 in sales and
marketing, 149 in research and development, 63 in finance and administration
and 158 in client services and technical support. Of our 490 employees, 62 were
located in Europe, and 37 in Australia and Asia. We believe that our
relationship with our employees is good.
Legal Proceedings
From time to time we have been subject to legal proceedings and claims in the
ordinary course of business. We are not now involved in any material legal
proceedings.
Executive Offices and Web Site
Our principal executive office is located at 3165 Porter Drive, Palo Alto,
California 94304, and our telephone number at that address is (650) 846-1000.
We maintain a web site at www.tibco.com. Information contained on our site is
not part of this prospectus.
Facilities
We lease approximately 93,000 square feet for our headquarters in an office
building in Palo Alto, California. We also lease office space in various cities
in the United States and internationally to support our sales and marketing
personnel worldwide. We believe that our existing facilities are adequate to
meet our current and foreseeable requirements, or that suitable additional
space will be available on commercially reasonable terms.
40
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to our
executive officers and directors as of November 30, 1999.
Executive Officers and Directors
Name Age Position(s)
------------------------- --- -----------------------------------------------
Vivek Y. Ranadive 41 President, Chief Executive Officer and Chairman
of the Board
Paul G. Hansen 49 Executive Vice President, Finance and Chief
Financial Officer
Rajesh U. Mashruwala 47 Executive Vice President, Sales and Marketing
Robert P. Stefanski 37 Executive Vice President, General Counsel and
Secretary
Richard M. Tavan 50 Executive Vice President, Engineering and
Operations
Christopher G. O'Meara 41 Vice President, Finance
Douglas M. Atkin 36 Director
Yogen K. Dalal 49 Director
Edward R. Kozel 43 Director
Donald J. Listwin 40 Director
Larry W. Sonsini 58 Director
John G. Taysom 45 Director
Phillip E. White 56 Director
Philip K. Wood 44 Director
Vivek Y. Ranadive has served as President, Chief Executive Officer and
Chairman of the Board of TIBCO Software since its inception in January 1997.
From 1985 to 1997, Mr. Ranadive served as the Chairman and CEO of Teknekron. In
addition, Mr. Ranadive served as President, Chief Executive Officer and
Chairman of the Board of TFT from its inception until December 1998.
Mr. Ranadive received his B.S. in electrical engineering and computer science
and his M.S. in engineering from the Massachusetts Institute of Technology and
his M.B.A. from Harvard University.
Paul G. Hansen has served as Executive Vice President and Chief Financial
Officer of TIBCO Software since July 1998. From 1984 to July 1998, Mr. Hansen
held various positions at Adaptec, Inc., a publicly-traded supplier of
bandwidth management solutions, including Vice President, Finance, Chief
Financial Officer and Assistant Secretary from 1988 to July 1998. Mr. Hansen
received his B.S. in business from the State University of New York.
Rajesh U. Mashruwala has served as Executive Vice President, Sales and
Marketing of TIBCO Software since March 1997. From February 1995 to March 1997,
Mr. Mashruwala held various positions at TIBCO Software and TIBCO Inc.,
including Vice President, Enterprise Business Applications of TIBCO Software.
From October 1993 to February 1995, Mr. Mashruwala was President of Media
Computer Technology, Inc., a provider of magnetic and optical media products.
Mr. Mashruwala received his degree in engineering from the Indian Institute of
Technology, Bombay and his M.S. in engineering from the University of
California, Berkeley.
Robert P. Stefanski has served as Executive Vice President, General Counsel
of TIBCO Software since May 1998 and as Secretary of TIBCO Software since May
1997. From November 1996 to March 1998, Mr. Stefanski was the Director of
Intellectual Property for Reuters America, Inc., an affiliate of ours. From
September 1989 to November 1996, Mr. Stefanski was an associate with the law
firm of Weil, Gotshal & Manges. Mr. Stefanski received his B.S. in mathematics
from Northern Michigan University and his M.S. in engineering and his J.D. from
the University of Michigan.
Richard M. Tavan has served as Executive Vice President, Engineering and
41
Operations of TIBCO Software since January 1997. From November 1986 to January
1997, Mr. Tavan held various positions at TIBCO Inc., including Vice President,
Engineering. From June 1983 to November 1986, Mr. Tavan was Director of
Engineering for 3Com Corporation. Mr. Tavan received his B.S. in electrical
engineering and computer science from the Massachusetts Institute of
Technology.
Christopher G. O'Meara has served as Vice President, Finance, of TIBCO
Software since August 1998. From June 1992 to July 1998, Mr. O'Meara was
Corporate Vice President and Treasurer at Adaptec. Mr. O'Meara received his
B.A. in economics from Stanford University and his M.B.A. from Northwestern
University.
Douglas M. Atkin was appointed a director of TIBCO Software in July 1999.
Since 1998, Mr. Atkin has been Chief Executive Officer of Instinet Corporation,
a subsidiary of Reuters. From 1992 to 1998, Mr. Atkin was CEO of Instinet
International, a subsidiary of Reuters. Mr. Atkin received his B.A. in
economics from Tufts University.
Yogen K. Dalal has been a director of TIBCO Software since December 1997.
Since September 1991, Mr. Dalal has been a Partner of Mayfield Fund, a venture
capital firm. Mr. Dalal is a director of BroadVision, Inc., a supplier of
Internet business applications, and several privately-held companies. Mr. Dalal
received his B.S. in electrical engineering from the Indian Institute of
Technology, Bombay and his M.S. and Ph.D. in electrical engineering from
Stanford University.
Edward R. Kozel has been a director of TIBCO Software since May 1997. Mr.
Kozel is a director of Cisco Systems, and served in various capacities at Cisco
from 1989 through April 1998, most recently as Chief Technology Officer and
Senior Vice President Business Development.
Donald J. Listwin has been a director of TIBCO Software since October 1998.
Since February 1990, Mr. Listwin has been with Cisco Systems, Inc., where he
has held a variety of positions and is currently an Executive Vice President.
Mr. Listwin also serves on the board of directors of Software.com and E-Tek
Dynamics. Mr. Listwin received his B.S. in electrical engineering from the
University of Saskatchewan, Canada.
Larry W. Sonsini has been a director of TIBCO Software since May 1997. Mr.
Sonsini has been an attorney with the law firm of Wilson Sonsini Goodrich &
Rosati since 1966 and currently serves as the Chairman of the firm's Executive
Committee. Mr. Sonsini also serves as a director of Lattice Semiconductor
Corporation, Novell, Inc. and Pixar. Mr. Sonsini received A.B. and L.L.B.
degrees from the University of California, Berkeley.
John G. Taysom was appointed a director of TIBCO Software in July 1999. Since
1982, Mr. Taysom has been employed by Reuters and is currently the Managing
Director of Reuters Greenhouse Fund, a venture capital fund. Mr. Taysom is
currently a director of Digimarc Corporation, a maker of electronic anti-
counterfeiting products, and several other privately held companies. Mr. Taysom
received his B.Sc. in economics from Bath University.
Phillip E. White has been a director of TIBCO Software since May 1997. Since
August 1997, Mr. White has been President of Marketing Consultants. From
January 1989 to July 1997, Mr. White was the Chief Executive Officer of
Informix Software, Inc., a provider of innovative database products. Mr. White
currently serves on the board of directors of Legato Systems, a storage
management software provider, Adaptec and several privately held companies. Mr.
White received his B.A. in business from Illinois Wesleyan University and his
M.B.A. from Illinois State University.
Philip K. Wood has been a director of TIBCO Software since our inception.
Since September 1990, Mr. Wood has been employed by Reuters and currently
serves as Deputy Finance Director. Prior to joining Reuters in September 1990,
Mr. Wood was a partner at Price Waterhouse. Mr. Wood is currently a director of
Instinet Corporation and several other subsidiaries of Reuters.
42
Mr. Wood received his M.A. in physics from Balliol College, Oxford University.
Pursuant to a stockholders' agreement among us, Reuters and certain of our
other stockholders, Messrs. Atkin, Taysom and Wood were selected to serve on
our board of directors by Reuters; Messrs. Kozel and Listwin were selected by
Cisco; and Messrs. Dalal, Sonsini and White were selected by Mr. Ranadive.
In February 2000, our board of directors increased its size by one seat, and
nominated Matthew J. Szulik to serve as a director. Mr. Szulik has served as
Chief Executive Officer of Red Hat, Inc. since November 1999, as its President
since November 1998 and as a director of Red Hat since April 1999. Prior to
that, he served as Red Hat's Chief Operating Officer from November 1998 to
April 1999. Our stockholders will vote on the election of Mr. Szulik to our
board of directors at our 2000 Annual Meeting of Stockholders, which is
scheduled to occur on April 12, 2000.
The service of some of our directors as directors, officers or employees of
Reuters could create or appear to create potential conflicts of interest when
these directors are faced with decisions that could have different implications
for us and Reuters. Such decisions may be required in connection with potential
acquisitions or financing transactions or other corporate opportunities that
may be suitable for both us and Reuters. None of our significant corporate
stockholders, including Reuters, is prohibited from competing with us. See
"Risk Factors -- Our licensing and distribution relationship with Reuters
places limitations on our ability to conduct our business" beginning on page 7
for more information on the potential for competition between us and Reuters.
Directors of a corporation owe fiduciary duties to all of the stockholders of
that corporation, and Delaware law governs situations where a potential or
actual conflict of interest may arise.
Reuters has the right under a stockholders agreement to nominate four of our
ten directors so long as it holds 40% or more of our outstanding shares of
voting stock. If Reuters holds less than 40% but at least 25% of our voting
shares, Reuters will have the right to nominate three directors. If Reuters
holds less than 25% but at least 10% of the issues and outstanding voting
shares, Reuters will have the right to nominate two directors. If the total
number of our directors is increased, and if Reuters then holds more than 40%,
between 25% and 40%, or between 10% and 25% of our outstanding shares of voting
stock, Reuters will have the right to nominate the lowest number of directors
such that Reuters-nominated directors constitute at least one-third, two-ninths
or one-ninth of our board of directors, respectively. See "Relationship with
Reuters and Certain Transactions--Stockholders Agreement" beginning on page 57
for a more detailed description of these arrangements.
Each officer serves at the discretion of our board of directors. There are no
family relationships among any of our directors or officers.
Director Compensation
Our Director Stock Option Plan provides for automatic grants of options to
purchase common stock to our directors who are not also our employees. See "--
Stock Plans--TIBCO Software 1998 Director Option Plan" beginning on page 52 for
a more detailed description of this plan. Additionally, in June 1999, we
granted to Reuters an option to purchase 450,000 shares of our common stock at
an exercise price of $2.00 per share under our director stock option plan.
Reuters has the right to transfer this option to the Reuters-nominated
directors. Directors do not receive any cash compensation for serving on our
board of directors.
Committees of the Board of Directors
Our board of directors has had standing audit and compensation committees,
which assist the board of directors in the discharge of
its responsibilities.
The audit committee reports to our board of directors regarding the
appointment of our independent public accountants, the scope and
43
fees of prospective annual audits and the results thereof, compliance with our
accounting and financial policies and management's procedures and policies
relative to the adequacy of our internal accounting controls. Members of the
audit committee are elected by the board and serve for one-year terms. The
audit committee currently consists of Messrs. Dalal, Wood and Kozel.
The compensation committee reviews and approves the annual salary and bonus
for each executive officer consistent with the terms of any applicable
employment agreement, reviews, approves and recommends terms and conditions for
all employee benefit plans, and administers our stock option plan. Stock option
grants are approved by the stock option sub-committee of the compensation
committee. Pursuant to the stockholders agreement, Reuters has the right to
nominate one member of our compensation committee. Members of our compensation
committee other than the Reuters representative are appointed by the board of
directors and serve one-year terms. The compensation committee currently
consists of Messrs. Listwin, Wood and Dalal. The stock option subcommittee
currently consists of Messrs. Listwin and Dalal.
Compensation Committee Interlocks and Insider Participation
During fiscal 1998, our compensation committee consisted of Messrs. Listwin
and White and Simon Yencken, one of our former directors. Neither Mr. Listwin
nor Mr. Yencken were our employees or employees of our subsidiaries during
fiscal 1998 or at any time prior to fiscal 1998. In fiscal 1997, we paid
$79,000 to Mr. White and granted him options to purchase 600,000 shares of our
common stock for consulting services rendered. In fiscal 1998, we paid $314,000
to Mr. White and granted him options to purchase 450,000 shares of our common
stock for consulting services rendered and granted to Mr. White options to
purchase 150,000 shares of common stock for serving as a director. In fiscal
1999, we paid to Mr. White $219,250 for consulting services rendered and we
also granted to him options to purchase 60,000 shares of common stock for
serving as a director.
Mr. Listwin is Executive Vice President of Cisco Systems, Inc. Another of our
directors, Mr. Kozel, was an executive officer at Cisco during part of fiscal
1998 and is currently a member of Cisco's board of directors. In March 1999, we
granted Cisco a license to embed our TIB/Rendezvous product and multicasting
technology in its Internetworking Operating System and Cisco Networking
Services for Active Directory, or CNS/AD, products in exchange for a license
fee of $1.5 million, plus ongoing maintenance fees of $405,000 annually. In
November 1999, we granted Cisco an expanded license to embed our TIB/Rendezvous
and TIB/Hawk products in all of Cisco's products. This expanded license was
granted in exchange for an additional license fee of $2.8 million, plus ongoing
annual maintenance fees of $390,000 during the first year and $450,000 per year
for each year thereafter during which Cisco purchases maintenance, and ongoing
service fees on a time and materials basis. The terms of these transactions
were the result of arm's-length negotiations between Cisco and us and were
approved by a majority of our board of directors, including a majority of our
independent and disinterested directors. We believe that the terms of the
technology licensing agreements with Cisco are no less favorable to us than we
could have negotiated with an unaffiliated third party.
During fiscal 1998, Mr. Ranadive, our President, Chief Executive Officer and
Chairman, served as President, Chief Executive Officer and Chairman of TFT.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director for monetary damages for
breach of his or her fiduciary duties as a director, except for liability for:
. any breach of the duty of loyalty to the corporation or its stockholders;
44
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporate
Law; or
. any transaction from which the director derived an improper personal
benefit. See "Description of Capital Stock--Limitation of Liability;
Indemnification" beginning on page 64 for a more detailed description of
our obligation to indemnify our directors.
Our bylaws provide that we must indemnify our directors and officers and may
indemnify our employees and agents to the fullest extent permitted by Delaware
law.
We have entered into agreements to indemnify our directors and officers in
addition to the indemnification provided for in our certificate of
incorporation and bylaws. Under these agreements, we are obligated, among other
things, to indemnify our directors and officers for attorneys' fees, other
expenses, judgments, fines and settlement amounts incurred by any such person
in any action or proceeding, including any action by or in the right of us,
arising out of such person's services as our director or officer, any
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified individuals to serve as directors and
officers.
At present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for such indemnification.
45
Executive Compensation and Employment Agreements
The following table sets forth information concerning the compensation
received for services rendered to us during fiscal 1998 and 1999 by our current
Chief Executive Officer and our four other most highly compensated executive
officers whose salary and bonus for fiscal 1998 and/or 1999 equaled or exceeded
$100,000, whom we refer to as the named executive officers. Amounts under the
"Bonus" column include bonuses earned during the fiscal year indicated, but
deferred until a later year. In determining the amount of bonuses paid to our
named executive officers, the compensation committee considered the financial
performance of our company and the performance of the executives as compared to
the performance of comparable companies and compensation data from such
companies.
Summary Compensation Table
Long-Term
Annual Compensation
Compensation Awards
-------------------- ------------
Securities
Name and Principal Underlying All Other
Positions Year Salary Bonus Options Compensation
------------------ ---- -------- -------- ------------ ------------
Vivek Y. Ranadive........ 1999 $345,833 $231,708 -- $ --
President, Chief
Executive Officer and 1998 455,000(1) 200,000 697,500 --
Director
Paul G. Hansen........... 1999 258,333 140,000 112,497 4,818(2)
Executive Vice President
and Chief 1998 88,141(3) 40,000 1,349,997 --
Financial Officer
Rajesh U. Mashruwala..... 1999 217,000 240,000 149,997 --
Executive Vice
President, Sales and 1998 213,333 85,000 187,500 --
Marketing
Robert P. Stefanski...... 1999 241,667 140,000 180,000(5) --
Executive Vice
President, General 1998 159,375(4) 75,000 54,000 41,430(6)
Counsel and Secretary
Richard M. Tavan......... 1999 231,333 140,000 42,000 --
Executive Vice
President, 1998 234,000 66,000 108,000 --
Engineering and
Operations
- --------
(1) We were reimbursed $226,450 of this amount by Reuters for the time Mr.
Ranadive spent working on matters for TFT.
(2) Represents amount reimbursed for executive financial planning services.
(3) Mr. Hansen began his employment with us as Executive Vice President and
Chief Financial Officer in July 1998.
(4) Mr. Stefanski began his employment with us as Executive Vice President and
General Counsel in March 1998.
(5) Represents an option to purchase 180,000 shares of our common stock granted
in connection with Mr. Stefanski's surrender of an option to purchase
210,000 shares of our common stock which was granted to him by Reuters
pursuant to the Reuters/TFT Employee Stock Purchase arrangements described
under "Relationship with Reuters and Certain Transactions--TFT Stock Option
Plan" on page 59.
(6) Represents amount reimbursed for relocation expenses.
46
The following table sets forth information as to stock options granted to all
named executive officers during the fiscal year ended November 30, 1999. These
options were granted under our 1996 Stock Option Plan and, unless otherwise
indicated, provide for vesting as to 20% of the underlying common stock one
year after the date of grant, then ratably over a period of 48 months
thereafter. Options were granted at an exercise price equal to 100% of the fair
market value of our common stock on the date of grant, as determined by our
board of directors. The amounts under "Potential Realizable Value at Assumed
Annual Rate of Stock Appreciation for Option Term" represent the hypothetical
gains of the options granted based on assumed annual compound stock
appreciation rates of 5% and 10% over the initial public offering price per
share of $5.00 for the full ten-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
Option Grants in Last Fiscal Year
Potential Realizable
Percent Value at Assumed
Number of Total Annual Rate
Securities Options of Stock Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ---------------------
Name Granted(#) in Fiscal Year Share Date 5% 10%
---- ---------- -------------- --------- ---------- ---------- ----------
Vivek Y. Ranadive....... -- --% $ -- -- $ -- $ --
Paul G. Hansen.......... 112,497 1.10 2.00 2/15/09 691,235 1,233,947
Rajesh U. Mashruwala.... 149,997 1.46 2.00 2/15/09 921,653 1,645,274
Robert P. Stefanski..... 37,500 0.37 2.00 2/15/09 230,418 411,327
180,000(1) 1.76 2.00 5/3/09 1,106,005 1,974,368
Richard M. Tavan........ 42,000 0.41 2.00 2/15/09 258,068 460,686
- --------
(1) Represents an option to purchase 180,000 shares of our common stock granted
in connection with Mr. Stefanski's surrender of an option to purchase
210,000 shares of our common stock which was granted to him by Reuters
pursuant to the Reuters/TFT Employee Stock Purchase arrangements described
under "Relationship with Reuters and Certain Transactions--TFT Stock Option
Plan" on page 59.
47
The following table sets forth information with respect to unexercised
options held by the named executive officers as of November 30, 1999. Amounts
under "Unexercisable" in the table below include unvested options
notwithstanding the fact that they are immediately exercisable upon grant
because such unvested shares are subject to repurchase by us at the original
exercise price upon the employee's cessation of service. The amounts under
"Value of Unexercised In-the-Money Options" were calculated by determining the
difference between the exercise price and the price of our common stock as of
November 30, 1999, which was $32.33.
Aggregate Stock Option Exercises In Fiscal 1999 and Fiscal Year-End Values
Number of Securities
Underlying
Shares Unexercised Options Value of Unexercised
Acquired at November 30, 1999 In-the-Money Options
on Exercise Value ------------------------- --------------------------
Name (#) Shares Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------- ----------- ------------- ------------ -------------
Vivek Y. Ranadive....... 300,000 $ 250,020 10,875,874 271,625 $349,425,052 $ 8,691,104
Paul G. Hansen.......... -- -- 312,767 1,034,344 9,840,682 32,416,383
Rajesh U. Mashruwala.... 862,494 1,070,008 -- -- -- --
Robert P. Stefanski..... 90,000 162,000 178,347 573,150 5,569,765 18,081,141
Richard M. Tavan........ 4,500 12,000 29,700 115,800 950,302 3,635,216
All of our executive officers are employed at-will. However, Mr. Ranadive's
employment may only be terminated upon 120 days written notice and Mr.
Stefanski's employment may only be terminated upon six months written notice
pursuant to agreements entered into with us. Each of our other executive
officers may be terminated without cause or with cause at any time upon (i) two
weeks written notice or (ii) pay equal to two weeks of such officer's salary in
lieu of such notice.
Each of our executive officers is a party to our standard non-disclosure
agreement. Under the non-disclosure agreements, for one year following their
termination, our employees agree not to solicit any other employee to leave the
company. The employees also agree not to disclose any confidential information
that they obtained during their employment to any third parties at any time
during or subsequent to their employment. In addition, any inventions,
discoveries or improvements created by the employees during their employment
belong to us.
48
Stock Plans
TIBCO Software 1996 Stock Option Plan
Our 1996 Stock Option Plan, as amended and restated, provides for the grant
to employees of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, for the grant to employees,
officers, directors and consultants of nonstatutory stock options and provides
eligible employees with the right to participate in a salary deferral employee
stock purchase program, or "ESPP", intended to qualify under Section 423 of the
Internal Revenue Code. The amended and restated 1996 plan has been approved by
our board of directors and our stockholders. Unless terminated sooner, the 1996
plan will terminate automatically in May of 2009. A total of 45,677,454 shares
of common stock has been reserved for issuance pursuant to the 1996 plan, plus
annual increases equal to the lesser of (1) 60,000,000 shares, or (2) 5.0% of
the outstanding shares on the first day of each fiscal year. An individual may
be granted options to purchase a maximum of 2,250,000 shares of common stock
each year, in addition to an option to purchase up to 2,250,000 shares in
connection with that individual's commencement of service. As of November 30,
1999, there were options to purchase approximately 30,211,000 shares of common
stock outstanding under the 1996 plan, approximately 28,371,000 of which are
exercisable, but 5,959,456 of which would be subject to repurchase by us if
exercised on that date. The outstanding options have exercise prices ranging
from $0.20 per share to $40.33 per share, and a weighted average exercise price
of $1.10 per share.
The 1996 plan is administered by the compensation committee of our board of
directors, which, in the case of options intended to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Internal
Revenue Code, consists of two or more "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code. The committee has the power to
determine the terms of the options granted, including, but not limited to, the
participants who will be granted options, the exercise price, the number of
shares subject to each option, the exercisability thereof and the form of
consideration payable upon such exercise. The board has the authority to amend,
suspend or terminate the 1996 plan, subject to shareholder approval when
required by applicable law, provided that no such action may adversely affect
any share of common stock previously issued and sold or any option previously
granted under the 1996 plan.
Options granted under the 1996 plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1996 plan must generally be
exercised within three months of the Optionee's separation of service from us,
or within twelve months if such optionee's termination is due to the optionee's
death or disability, but in no event later than the expiration of the option's
ten year term. The exercise price of all incentive stock options granted under
the 1996 plan must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of nonstatutory stock options
granted under the 1996 plan is determined by the committee, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price must at least be equal to the fair market value of the
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value of the common stock
on the date of grant and the term of any incentive stock option must not exceed
five years. The term of all other options granted under the 1996 plan may not
exceed ten years.
The 1996 plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, each outstanding
option shall be assumed or an equivalent option substituted by the successor
49
corporation. If an option is not assumed or substituted as described in the
preceding sentence, each such option shall become fully vested and exercisable,
including shares that would not otherwise be vested or exercisable, for a
period of 15 days from the date of such notice, and the option will terminate
upon the expiration of such period.
The ESPP permits participants to purchase common stock through payroll
deductions of up to 10% of the participant's "compensation". The maximum number
of shares a participant may purchase during a single purchase period is 3,000
shares.
Employees are eligible to participate in the ESPP if they are customarily
employed by the Company or any participating subsidiary for at least 20 hours
per week and more than five months in any calendar year. However, any employee
who
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for
each calendar year
may not be granted a right to purchase stock under the ESPP.
The ESPP provides for consecutive, overlapping, twenty-four month offering
periods. The offering periods generally start on the first trading day on or
after January 1 and July 1 of each year, except for the first such offering
period which commenced on July 14, 1999 and ends on the last trading day on or
before June 30, 2001. Each offering period includes four six-month purchase
periods.
Amounts deducted and accumulated by participants are used to purchase shares
of common stock at the end of each purchase period. The price of stock
purchased under the ESPP is generally 85% of the lower of the fair market value
of our common stock (1) at the beginning of the offering period or (2) at the
end of the purchase period. In the event the fair market value at the end of a
purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
period following exercise and automatically re-enrolled in a new offering
period. The new offering period will use the lower fair market value as of the
first date of the new offering period to determine the purchase price for
future purchase periods.
Participants may end their participation in the ESPP at any time during an
offering period, at which time they will be refunded their payroll deductions
to date. Participation ends automatically upon termination of employment with
us.
Rights granted pursuant to the ESPP are not transferable by a participant
other than by will, or the laws of descent and distribution. The ESPP provides
that, in the event of our merger with or into another corporation or a sale of
substantially all of our assets, each outstanding right may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding rights, the offering period
then in progress will be shortened and a new exercise date will be set.
The board has the authority to amend or terminate the ESPP, except that no
such action may adversely affect any outstanding rights to purchase stock under
the ESPP. Notwithstanding the previous sentence, the board may terminate an
offering period on any exercise date if the board determines that the
termination of the offering period is in our best interests and those of our
stockholders. Notwithstanding anything to the contrary, the board may in its
sole discretion amend the ESPP to the extent necessary and desirable to avoid
unfavorable financial accounting consequences by altering the purchase price
for any offering period, shortening any offering period or allocating remaining
shares among the participants.
TIBCO Software 1998 Director Option Plan
Our 1998 Director Option Plan, as amended and restated, provides that each
50
director is eligible to participate in the director plan. The director plan was
adopted by our board of directors and stockholders in June 1999. The director
plan has a term of ten years from June 1999, but may be terminated sooner by
the board. A total of 2,475,000 shares of our common stock have been reserved
for issuance under the director plan. As of November 30, 1999 there were
options to purchase 1,230,000 shares of common stock outstanding under the
director plan, all of which are exercisable. These outstanding options have
exercise prices ranging from $0.33 to $3.00 per share and a weighted average
exercise price of $1.65 per share.
The director plan provides for discretionary grant of options to employee
directors and for non-discretionary grants of options to each non-employee
director. Each non-employee director will receive an annual automatic grant of
60,000 shares of common stock at the time of each annual meeting of our
stockholders, beginning with our 2000 Annual Meeting of Stockholders in April
1999. In addition, in June 1999, Reuters was granted an initial option to
purchase 450,000 shares of common stock.
Each option will be fully vested on the date of grant and have a term of 10
years. The exercise price of all options shall be 100% of the fair market value
per share of our common stock on the date of grant, generally determined with
reference to the closing price of the common stock as reported on The Nasdaq
National Market.
Options granted under the director plan are not generally transferable by the
director. However, the option to purchase 450,000 shares held by Reuters may be
transferred by Reuters to the Reuters-nominated directors. Options granted
under the director plan must generally be exercised within three months of the
date that director ceases to be a director or within twelve months if such
termination is due to the optionee's death or disability. The option to
purchase 450,000 shares of our common stock granted to Reuters under the
director plan is not affected by the termination, death or disability of any of
the Reuters-nominated directors.
If it is determined that automatic annual option grants to non-employee
directors that are subject to vesting will not result in unfavorable accounting
consequences to us, then the director plan will be amended to change the
quarterly automatic options grants that are fully vested to automatic annual
option grants that are subject to vesting.
51
RELATIONSHIP WITH REUTERS AND CERTAIN TRANSACTIONS
Relationship with Reuters
We are the successor to a portion of the business of Teknekron Software
Systems, Inc., which was acquired by Reuters in 1994. Teknekron subsequently
changed its name to TIBCO Inc., and in January 1997, we were established as an
entity separate from TIBCO Inc. In connection with our formation as a separate
entity, we issued and sold 57,000,000 shares of our common stock and 60,000,000
shares of our Series A preferred stock to an affiliate of Reuters for $10.0
million plus the net book value of the assets transferred to us. We were formed
to create and market software solutions for use in the integration of business
information, processes and applications in all industries outside of the
financial services market.
TIBCO Inc. subsequently changed its name to TIBCO Finance Technology, Inc.
and focuses its business on providing TIB-based software and custom solutions
to the financial services and insurance industries. Under our license agreement
with Reuters, Reuters, through TFT, is the exclusive distributor of our
products in the financial services market for a term of five years, subject to
the limited exceptions described below.
As of November 30, 1999, assuming our issuance of 4,025,750 shares of common
stock in this offering, Reuters owned approximately 62.1% of our outstanding
shares of common stock, or approximately 53.5% if all of the options under
TFT's stock option plan had been exercised, but has agreed to limit its voting
rights. See "--Stockholders Agreement" beginning on page 57 for a description
of this voting limitation.
Intercompany Agreements
License, Maintenance and Distribution Agreement with Reuters
On December 31,1996, we entered into a license, maintenance and distribution
agreement with Reuters and its wholly-owned subsidiary, TFT. The agreement was
amended in May 1999. The license agreement provides for the license of
technology and proprietary rights from Reuters to us, the license of technology
from us to Reuters, the maintenance of the licensed technology, the right of
Reuters to distribute our products and the related distribution fees and
limitations on our business in the financial services industry, all as further
described below. Reuters may exercise its rights under the license agreement
through its affiliates. Revenue from Reuters and TFT under the license,
maintenance and distribution agreement, consisting primarily of product fees on
sales by TFT of our products to financial services companies, was $0.8 million
in fiscal 1997, $3.7 million in fiscal 1998 and $14.2 million in fiscal 1999.
Ownership of Intellectual Property Used in Our Products. Reuters owns the
underlying TIB intellectual property and technology, including the basic
publish/subscribe technology, that was in existence on December 31, 1996 and
that is incorporated into some of our TIB products including TIB/Rendezvous,
TIB/Hawk and TIB/ETX. We own all technology and related intellectual property
rights, including patents, copyrights, trade secrets, trademarks and other
similar rights, independently developed by us since our formation on January 1,
1997. This includes both enhancements and improvements to the licensed TIB
technology and new technology unrelated to the licensed TIB technology. We also
own our trademarks and tradenames, including TIBCO, TIB, The Information Bus
and the names of our products. We license these marks back to Reuters royalty-
free for use in TFT's trade name and in connection with the sale and marketing
of our products and services and those of Reuters.
Reuters License of the TIB Technology to Us. Under the terms of the license
agreement, Reuters granted us a perpetual, royalty-free license to the
underlying TIB messaging technology in existence on December 31, 1996 in
exchange for a one-time license fee of $10.0 million. The license includes
rights to use the TIB technology to develop and maintain
52
products, to provide services to customers relating to the licensed technology,
and to sell, sublicense and distribute products utilizing the licensed
technology both directly and indirectly. The license may not be unilaterally
terminated, and Reuters may not grant to any non-affiliated third party a
license to the TIB technology of substantially the same or broader scope than
that granted to us. We may not assign or transfer our rights under the license
without the consent of Reuters.
License of Our Technology to Reuters. Since the effectiveness of the license
agreement, we have substantially enhanced and further developed the licensed
TIB technology and products. We have also created several new products and new
technologies. The license agreement provides Reuters with a perpetual, royalty-
free license to use and exploit the technology developed by us through December
2011 internally for the purpose of developing, providing, maintaining and
enhancing any Reuters' products or services and through embedding the
technology or any technology derived therefrom in Reuters', or any of its
affiliates', products or services. Although TFT is not authorized under the
license agreement to sell our products to non-financial services customers
unless they are embedded into TFT's financial products, Reuters and its other
affiliates are authorized to do so.
Limitations on Our Use of the Licensed Technology in the Financial Services
Market. The license agreement prohibits us from using the technology we license
from Reuters to create products which contain functionality or features
specifically designed for use by financial services companies, or to assist
third parties in doing so. Financial services companies include entities
engaged in commercial banking, investment banking, insurance and other
financial services. Further, subject to the exceptions described below, the
license agreement prevents us from selling products and services based on the
technology we license from Reuters directly to financial services companies and
major competitors of Reuters, and from providing consulting or other services
related to such products directly to such companies.
Exclusive Right of Reuters to Distribute Our Products in the Financial
Services Market. Reuters is the preferred distributor of our products in the
financial services market, and we have agreed not to appoint any other third
party reseller to sell our products principally in this market. In addition,
for a term of five years, Reuters has the exclusive right to distribute our
products to customers in the financial services market segment, subject to the
exceptions described below. During this exclusivity period, and subject to the
exceptions described below, we are prevented from providing any products or
consulting services to financial services companies, including products and
services unrelated to or not incorporating the licensed TIB technology. When
Reuters sells licenses to and maintenance contracts for our products, it must
pay us 40% of its revenue from such sales, except with respect to products
embedded in Reuters or TFT products. However, if Reuters sells licenses to and
maintenance contracts for our products through an unaffiliated third-party,
then Reuters must pay us 50% of its revenue from such sales. We believe that
the product fees paid by Reuters to us reflects commercially reasonable terms.
Reuters Minimum Guaranteed Product Fees. In the license agreement Reuters
agreed to pay us minimum guaranteed product fees of $16 million payable in
calendar 1999, $18 million payable in calendar 2000 and $20 million payable in
calendar 2001. On an annual basis beginning in 2002, Reuters may elect to
extend the payment of minimum guarantees on an annual basis with minimum
guarantees of at least $20 million in each of 2002 and 2003 and at least 110%
of the prior year's minimum guaranteed product fees in each year thereafter. If
Reuters does not extend the payment of minimum guarantees, the restrictions
against our direct sales to financial services customers will be removed with
respect to our non-financial software products that are sold as an off-the-
shelf, stand-alone product pursuant to an industry standard shrink wrap or
click wrap license and that are intended by us to be used by the end-user
without the requirement for additional customization, or consulting services,
which we call commodity products, and the product fee rate Reuters
53
must pay will decrease to 35%. We believe that the product fee rate paid by
Reuters to us reflects commercially reasonable terms.
Adjustment of Reuters Products Fees. If the license agreement is materially
breached by us, or if the financial services market restrictions or exclusive
distribution terms are determined to be invalid by a court, or if after the
expiration of our exclusive distribution relationship with Reuters we sell
products or provide services directly to companies in the financial services
market, Reuters may elect to cease paying minimum guaranteed product fees and
the product fee rates paid to us by Reuters will decrease to 30%. In addition,
in the event we materially breach the license agreement, we thereafter will be
prohibited from selling or distributing to financial services companies
commodity products, or, after the expiration of the five-year exclusive
distribution relationship with Reuters, Commodity Products that are based on
the technology we license from Reuters, even though Reuters no longer pays us
minimum guaranteed product fees.
Exceptions Permitting Us to Sell Directly to Financial Services Companies. We
are permitted under the license agreement to license our TIBCO.net
Internet/Intranet hosting services directly to all customers, including
financial services market customers. We must pay Reuters a fee equal to 10% of
our revenue from the sale of TIBCO.net services to financial services market
customers. We have agreed in the license agreement that we will not include as
part of the TIBCO.net Internet/Intranet hosting services any products
specifically designed for use by financial services companies or services that
use such products, except that we may include software for hosting stock quotes
and other financial market data in the hosting services.
In addition, we have an agreement with Cedel Global Services providing for an
enterprise license to all of our products and for consulting and development
services. Cedel provides settlement and clearing technology and services to
banks in Europe and other countries. The Cedel agreement was assigned to us by
TFT in consideration for our assumption of the obligations of TFT under the
agreement. The Cedel agreement is deemed to be an exception from the
restrictions on the sale of our products and services to financial services
market customers.
Finally, if we acquire a company that sells products or services to financial
services companies, we can continue to provide such products and services to
such companies after the acquisition. We are prohibited, however, from
providing the acquired company's products or services to financial services
companies with any of our products that are based on the licensed TIB
technology.
Exceptions Permitting Us to Use Third Party Distributors in the Financial
Services Market. Although Reuters is our exclusive distributor in the financial
services market, we are permitted under the license agreement to use other
distributors and resellers to distribute and sell our products to financial
services market customers, provided that we do not appoint these distributors
to sell primarily into the financial services market. When we realize revenue
from sales by our third-party distributors of our products to financial
services companies, we must pay Reuters 50% of such revenue. Our third party
distributors may also provide substantial consulting services in connection
with the sale of our products. We have agreed to assist Reuters in establishing
distribution relationships directly with any of our third-party distributors
that sell our products in the financial services market. We are not required to
pay any product fees to Reuters on sales of our products in the financial
services market by original equipment manufacturers who have embedded or
bundled our products with their own.
Our Obligation to Provide Maintenance Services for Reuters and its Customers.
We have agreed to provide maintenance and support to Reuters for its customers
that acquire our products and have purchased maintenance. Reuters must pay us a
fee for maintenance of our products at the same rate it pays on sales of our
products. So long as Reuters is required to pay us a minimum guarantee, we must
maintain, at no charge to Reuters, at least ten full-time employees for
54
maintenance, marketing and technical support for our products sold by Reuters.
The terms of the License Agreement were the result of negotiations between
Reuters, TFT and us and were approved by a majority of our board of directors,
including a majority of our independent and disinterested directors.
Stockholders Agreement
We entered into an amended and restated stockholders agreement with Reuters,
Cisco Systems, Mayfield and Vivek Ranadive on July 13, 1999.
Reuters Voting Limitations. Under the stockholders agreement, Reuters agreed
to limit its right to vote its shares of our stock such that the votes cast by
Reuters will not represent more than 49% of the total votes eligible to be cast
in any matter submitted to a vote of our stockholders. In accordance with the
terms of the stockholders agreement, any shares held by Reuters that exceed 49%
of our outstanding stock will be voted by us in the same proportion as all
shares held by stockholders other than Reuters.
Reuters Right to Nominate Directors. Reuters has the right under the
stockholders agreement to nominate four of our ten directors so long as it
holds 40% or more of our outstanding shares of voting stock. If Reuters holds
less than 40% but at least 25% of our voting shares, Reuters will have the
right to nominate three directors. If Reuters holds less than 25% but at least
10% of our issued and outstanding voting shares, Reuters will have the right to
nominate two directors. If the total number of our directors is increased, and
if Reuters then holds more than 40%, between 25% and 40%, or between 10% and
25% of our outstanding shares of voting stock, Reuters will have the right to
nominate the lowest number of directors such that Reuters-nominated directors
constitute at least one-third, two-ninths or one-ninth of our board of
directors, respectively. So long as Reuters has the right to nominate at least
one director, we have agreed that Reuters will also have the right to nominate
one member of our compensation committee.
Reuters Right to Approve Fundamental Decisions. In addition, under the
stockholders agreement, so long as Reuters owns 30% or more of our voting
shares, we will be required to obtain the consent of Reuters in order to
consummate any of the following transactions:
. The issuance of our equity securities or securities convertible into,
exchangeable for, or options or rights to acquire our equity securities
in any calendar year in excess of 5% of our outstanding capital stock on
December 31 of the prior year, or in any three-year period in excess of
10% of our outstanding capital stock at the beginning of the period. This
limitation will not apply to securities issued under our equity
compensation plans or securities issued in acquisitions permitted under
the stockholders agreement without the consent of Reuters.
. Any merger, consolidation, share exchange, any sale, lease, exchange or
other dissolution of all or any substantial part of our assets.
. Any acquisition by us, whether by merger, stock purchase, asset purchase
or otherwise, of any business or entity where the value of the
acquisition is in excess of either 15% of our market capitalization or
15% of our total revenues in the last four, full fiscal quarters,
provided that in each case such amount exceeds $75 million.
Registration Rights. Under the stockholders agreement, the holders of
approximately 137,130,000 shares of common stock as of November 30, 1999 or
their permitted transferees are entitled to rights with respect to registration
of all of their shares under the Securities Act. Because these shares can be
registered under the stockholders agreement, we call them registrable
securities. Under these registration rights, beginning nine months following
the closing of our initial public offering on July 19, 1999, certain holders of
a majority of the then outstanding registrable securities may require that we
register their shares for public resale, provided that the anticipated
aggregate
55
offering price of the securities to be registered is at least $10 million (a
"demand registration"). We are not obligated to register these shares after we
have effected two such demand registrations. However, Reuters is entitled to
six additional demand registrations for its shares of our common stock
beginning six months after the closing of our initial public offering on
July 19, 1999, provided that the anticipated aggregate offering price of the
securities to be registered is at least $25 million and provided further that
we are not required to effect more than one such registration during each six-
month period.
Additionally, holders of a majority of the then outstanding registrable
securities may require us to register their shares for public resale on Form S-
3 or similar short-form registration statement, provided that we are not
obligated to effect more than one such registration in any twelve month period
and provided further that the anticipated aggregate offering price of the
securities to be registered is at least $5.0 million. We will be responsible
for all expenses in connection with the first two demand registrations, the
first four additional demand registrations of Reuters and the first two
registrations on Form S-3 or similar short form registration statement (other
than underwriting discounts and commissions).
Furthermore, in the event we elect to register any of our shares of common
stock for purposes of effecting any public offering for cash for our own
account or for the account of Reuters, the holders of registrable securities
are entitled to include their shares of common stock in such registration,
subject to the right of the managing underwriter to reduce the number of shares
proposed to be registered in view of market conditions. We will be responsible
for all expenses, other than underwriting discounts and commissions, in
connection with any such registration. All registration rights provided to
holders of registrable securities will terminate upon the date ten years after
July 19, 1999, the closing date of our initial public offering, or at such time
holder is entitled to sell all of its shares in any three months period under
Rule 144 under the Securities Act.
We have also agreed to cooperate in effecting the registration on an
appropriate form of shares of our common stock sold by Reuters to TFT employees
and consultants upon the exercise by such employees and consultants of purchase
rights granted to them by Reuters. We have agreed to pay all expenses, other
than any underwriting discounts and commissions, in connection with any such
registration. See "--TFT Stock Option Plan " on page 59 for a description of
these rights.
Reuters Information Rights. We are required under the stockholders agreement
to deliver monthly, quarterly and annual financial statements and quarterly and
annual operating budgets and projections to Reuters so long as Reuters holds
20% or more of our voting shares. We are also required to use our best efforts
to allow the independent accountants of Reuters to have access to our audit
work papers and to assist in any review undertaken by our independent
accountants, and if such access is denied, we are required to reimburse Reuters
for the costs of any extra audit work undertaken by Reuters.
Amendment and Termination of Reuters Voting Limitations, Reuters Right to
Approve Certain Fundamental Decisions and Reuters Right to Nominate Directors.
The provisions of the stockholders agreement relating to the agreement of
Reuters to limit its right to vote our shares may not be amended by any party
and will automatically terminate once Reuters beneficially owns less than a 49%
of our outstanding common stock. The provisions of the stockholders agreement
relating to the right of Reuters to approve major issuances of equity
securities, mergers and acquisitions can only be amended with the consent of
Reuters so long as Reuters holds at least 30% of our outstanding common stock.
Additionally, the provisions relating to the right of Reuters to nominate
directors can only be amended with the consent of Reuters so long as Reuters
holds at least 10% of our common stock.
The terms of the stockholders agreement were the result of negotiations
between the parties thereto and were approved by a majority
56
of our board of directors, including a majority of our independent and
disinterested directors.
Intercompany Services
We recorded expenses of $1.9 million in fiscal 1997, $2.9 million in fiscal
1998 and $2.3 million in fiscal 1999 for administrative and various other
services provided to us by TFT. In addition, we incurred rent expense of $1.4
million in fiscal 1997, $1.6 million in fiscal 1998 and $1.0 million in fiscal
1999 relating to our sub-lease of office space from TFT and our rental of
certain furniture and fixtures from TFT. We do not anticipate that Reuters or
TFT will provide us with any material administrative or other services in
fiscal 2000.
We believe that the terms of the intercompany services provided by TFT during
fiscal 1999 were on terms no less favorable to us than we could have negotiated
with an unaffiliated third party.
TFT Stock Option Plan
The TFT Option Plan relates to an aggregate of up to 20,250,000 shares of
TIBCO Software common stock held by Reuters. Rights to purchase 14,183,733
shares of our common stock from Reuters remained outstanding as of November 30,
1999. Upon exercise of one of these rights, Reuters is required to transfer
shares of our common stock owned by it to the employee or consultant, thereby
reducing Reuters' ownership of our common stock. We are not required to issue
any shares of our common stock and do not receive any proceeds when one of
these rights is exercised. If rights to purchase 14,183,733 shares of our
common stock were exercised, Reuters' percentage ownership of our common stock
would decrease from 62.1% to 53.5%.
Transactions with Cisco Systems
In March 1999, we granted Cisco a three-year license to embed our
TIB/Rendezvous product and multicasting technology in its Internetworking
Operating System and Cisco Networking Services for Active Directory products in
exchange for a license fee of $1.5 million, plus ongoing maintenance fees of
$405,000 annually. In November 1999, we granted Cisco an expanded license to
embed our TIB/Rendezvous and TIB/Hawk products in all of Cisco's products. This
expanded license was granted in exchange for an additional license fee of $2.8
million, plus ongoing annual maintenance fees of $390,000 during the first year
and $450,000 for each year thereafter during which Cisco purchases maintenance,
and ongoing service fees on a time and materials basis. The terms of these
transactions were the result of arm's-length negotiations between Cisco and us
and were approved by a majority of our board of directors, including a majority
of our independent and disinterested directors. We believe that the terms of
the technology licensing agreements with Cisco are no less favorable to us than
we could have negotiated with an unaffiliated third party.
Other Transactions
Since August 1997, Mr. White, one of our directors, has provided consulting
services to us. In connection with these consulting services, we paid $314,000
to Mr. White and granted him options to purchase 450,000 shares of our common
stock in fiscal 1998. In addition, we granted to Mr. White options to purchase
150,000 shares of common stock for serving as a director. In fiscal 1997, we
paid $79,000 to Mr. White and granted him options to purchase 600,000 shares of
our common stock for consulting services rendered. The compensation expense
related to these consulting services is based upon the fair value of the
underlying common shares at the end of each financial reporting period.
In June 1999, we granted to Reuters an option to purchase 450,000 shares of
our common stock under our director stock option plan. This option vested
immediately upon grant, has an exercise price of $2.00 per share and may be
transferred by Reuters to the Reuters-nominated directors. The option is not
affected by the termination, death or disability of any of the Reuters-
nominated directors.
57
We agreed to reimburse Reuters for $2.1 million of expenses incurred by it in
connection with our initial public offering.
Since our formation, we have from time to time entered into arrangements with
TFT regarding the sharing of employees on various customer projects. For
services we provided to TFT under these arrangements, we recognized revenue of
approximately $4.0 million in fiscal 1997, $2.2 million in fiscal 1998 and
$310,000 in fiscal 1999. For services TFT provided to us under these
arrangements, we recorded expenses of approximately $1.6 million in fiscal
1997, $5.8 million in fiscal 1998 and $2.3 million in fiscal 1999.
We engage the law firm of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, to handle legal matters. Larry W. Sonsini, one of our directors,
is a member of Wilson Sonsini. Our payments to Wilson Sonsini did not exceed
five percent of Wilson Sonsini's gross revenues in its last fiscal year.
All future transactions, including loans, between us and our officers,
directors and principal stockholders and their affiliates will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested directors, and these transactions will be on terms no less
favorable to us than we could have obtained from unaffiliated third parties.
58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of November 30, 1999, of:
. each person or entity who is known by us to beneficially own five percent
or more of the outstanding shares of our common stock,
. each director,
. our chief executive officer and our four other most highly compensated
executive officers during fiscal 1999, and
. all of our directors and executive officers as a group.
Selling stockholders who have purchased options granted under TFT's stock
option plan are listed in Appendix A.
Beneficial ownership is determined in accordance with the rules of the
Commission. 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 currently exercisable or exercisable
within 60 days of November 30, 1999 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. In computing the number of shares
beneficially owned by a person, shares of common stock that are subject to our
right of repurchase at the original exercise price paid per share, or such
shares that are subject to exercisable but unvested options, are not included.
Unvested options are immediately exercisable upon grant, provided that upon the
optionee's cessation of service, any unvested shares are subject to repurchase
by us at the original exercise price paid per share.
The address of each individual listed in the table is TIBCO Software Inc.,
3165 Porter Drive, Palo Alto, CA 94304. As of November 30, 1999, we had 607
stockholders of record and 60,404,959 shares of our common stock outstanding.
Except as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has had sole
voting and investment power with respect to the shares set forth opposite such
stockholder's name.
Shares
Beneficially Percent of
Name Owned Ownership
---- ------------ ----------
Reuters Group PLC and related entities (1)
85 Fleet Street
London, EC4P 4AJ..................................... 113,301,936 62.5%
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134................................... 13,095,000 7.2
Mayfield Fund (2)
2800 Sand Hill Road
Menlo Park, CA 94025................................. 8,583,948 4.7
Vivek Y. Ranadive (3)................................. 12,474,123 6.5
Paul G. Hansen (4).................................... 456,222 *
Robert P. Stefanski (5)............................... 416,565 *
Richard M. Tavan (6).................................. 542,631 *
Rajesh U. Mashruwala (7).............................. 366,456 *
Douglas M. Atkin...................................... -- --
Yogen K. Dalal (8).................................... 8,633,946 4.8
Edward R. Kozel (9)................................... 13,195,002 7.3
Donald J. Listwin (10)................................ 13,145,001 7.3
Larry W. Sonsini (11)................................. 99,999 *
John G. Taysom........................................ -- --
Phillip E. White (12)................................. 527,490 *
Philip K. Wood ....................................... -- --
All directors and executive officers as a group
(15 persons) (13).................................... 49,777,510 26.9
59
- --------
* Less than one percent.
(1) Represents shares held by Reuters Nederland B.V. Includes 14,168,370
shares reserved for sale to employees and consultants of TFT pursuant to
the exercise by such employees and consultants of purchase rights granted
or to be granted to them by Reuters. Subsequent to May 31, 1999, we
granted Reuters an option to purchase 450,000 shares of our common stock
under our director stock option plan. Reuters has agreed to limit its
voting power such that the votes cast by Reuters will not represent more
than 49% of the total votes eligible to be cast in any matter submitted to
a vote of our stockholders.
(2) Includes 8,154,750 shares held by Mayfield IX and 429,198 shares held by
Mayfield Associates Fund III.
(3) Includes 10,939,125 shares subject to options exercisable within 60 days
of November 30, 1999. Excludes 65,000 shares subject to our right of
repurchase and 258,375 shares that are subject to options that are
unvested but exercisable within 60 days of November 30, 1999.
(4) Includes 346,524 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 2,019 shares subject to our right of
repurchase and 1,001,421 shares that are subject to options that are
unvested but exercisable within 60 days of November 30, 1999.
(5) Includes 128,064 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 383,850 shares that are subject to options
that are unvested but exercisable within 60 days of November 30, 1999.
(6) Includes 34,134 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 360,000 shares subject to our right of
repurchase and 112,200 shares subject to options that are unvested but
exercisable within 60 days of November 30, 1999.
(7) Includes 834 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 11,872 shares subject to our right of
repurchase exercisable within 60 days of November 30, 1999.
(8) Includes 50,000 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 8,154,750 shares held by Mayfield IX and
429,198 shares held by Mayfield Associates Fund III. Mr. Dalal disclaims
beneficial ownership of all shares except to the extent of his pecuniary
interest in the partnerships.
(9) Includes 100,000 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 13,095,000 shares held by Cisco Systems,
Inc. Mr. Kozel, one of our directors, is a member of the board of
directors of Cisco Systems and disclaims beneficial ownership of all
shares held by Cisco Systems.
(10) Includes 50,000 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 13,095,000 shares held by Cisco Systems,
Inc. Mr. Listwin, one of our directors, is an executive officer of Cisco
Systems and disclaims beneficial ownership of all shares held by Cisco
Systems.
(11) Represents 99,999 shares subject to options exercisable within 60 days of
November 30, 1999.
(12) Includes 205,797 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 278,688 shares subject to our right of
repurchase and 378,816 shares subject to options that are unvested but
exercisable with 60 days of November 30, 1999.
(13) Includes 12,147,016 shares subject to options exercisable within 60 days
of November 30, 1999. Excludes 1,255,932 shares subject to our right of
repurchase and 2,857,554 options that are unvested but exercisable within
60 days of November 30, 1999.
60
DESCRIPTION OF CAPITAL STOCK
Pursuant to our Certificate of Incorporation, we have authority to issue
300,000,000 shares of common stock, and 25,000,000 shares of preferred stock,
par value $0.001 per share.
Set forth below is a description of our common stock and the preferred stock
that may be issued under our Certificate of Incorporation.
Common Stock
The holders of our common stock other than Reuters are entitled to one vote
per share on all matters to be voted upon by the stockholders. Reuters has
agreed that it will limit its right to vote its shares of our common stock so
that the votes cast by Reuters will not represent more than 49% of the total
votes eligible to be cast in any matter submitted to a vote of our
stockholders. The holders of common stock are entitled to receive ratably those
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for dividends. We have never declared
dividends in the past and do not intend to do so in the foreseeable future. In
the event of our liquidation, dissolution or winding-up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock then
outstanding, if any. Our common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable.
Preferred Stock
Our Certificate of Incorporation authorizes 25,000,000 shares of undesignated
preferred stock, although no shares are outstanding. Our board of directors has
the authority to issue preferred stock in one or more series and to establish
the rights, preferences, privileges and restrictions granted to or imposed on
any unissued shares of preferred stock and to fix the number of shares
constituting any series and the designations of such series, without any
further vote or action by the stockholders. Our board of directors will have
the authority, without approval of the stockholders other than Reuters as
provided in the stockholders agreement, to issue preferred stock that has
voting and conversion rights superior to the common stock which may affect the
voting power of the holders of common stock and could have the effect of
delaying, deferring or preventing a change in control. We have no plans to
issue any shares of preferred stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover 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. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. For purposes of Section 203, an
"interested stockholder" is defined to include any person that is
. the owner of 15% or more of the outstanding voting stock of the
corporation,
. an affiliate or associate of that corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date, and
. an affiliate or associate of the persons described above.
Section 203 of the Delaware General Corporation Law may make it more difficult
for an "interested stockholder" to effect various
61
business combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither our Certificate of
Incorporation nor our Bylaws exempt us from the restrictions imposed under
Section 203. We anticipate that the provisions of Section 203 may encourage
companies interested in acquiring us to negotiate in advance with our board of
directors because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business
combination or the transaction that results in the stockholder becoming an
interested stockholder.
So long as Reuters owns at least 30% of our outstanding voting shares, we
will be required to obtain its consent in order to consummate certain
significant corporate transactions, including equity issuances, mergers,
consolidations, sales of assets or certain acquisitions. See "Relationship with
Reuters and Certain Transactions--Intercompany Agreements--Stockholders
Agreement" beginning on page 57.
Annual meetings of stockholders shall be held to elect our board of directors
and transact such other business as may be properly brought before the meeting.
Special meetings of stockholders may be called by the Chairman, the President,
any vice president or any one member of the board of directors. Our Certificate
of Incorporation and Bylaws provide that any action required or permitted to be
taken by our stockholders may be effected at a duly called annual or special
meeting of the stockholders. In addition, our Certificate of Incorporation and
Bylaws provide for an advance notice procedure for nomination by stockholders
of candidates for election of directors as well as other stockholder proposals
to be considered at annual stockholders' meetings.
Our Certificate of Incorporation may be amended with the approval of a
majority of the board of directors and the holders of a majority of our
outstanding voting securities.
The number of directors shall be fixed by resolution of the board of
directors. The size of the board of directors is currently fixed at ten
members. Reuters has the right under a stockholders agreement to nominate four
of our ten directors so long as it holds 40% or more of our outstanding shares
of voting stock. If Reuters holds less than 40% but at least 25% of our voting
shares, Reuters will have the right to nominate three directors. If Reuters
holds less than 25% but at least 10% of the issued and outstanding voting
shares, Reuters will have the right to nominate two directors. If the total
number of our directors is increased, pursuant to the stockholders agreement,
and if Reuters then holds more than 40%, between 25% and 40%, or between 10%
and 25% of our outstanding shares of voting stock, Reuters will have the right
to nominate the lowest number of directors such that Reuters-nominated
directors constitute at least one-third, two-ninths or one-ninth of our board
of directors, respectively.
Our directors shall be elected at the annual meeting of the stockholders,
except for filling vacancies. Directors may be removed with the approval of the
holders of a majority of the voting power present and entitled to vote at a
meeting of stockholders. Vacancies and newly-created directorships resulting
from any increase in the number of directors may, subject to the right of
Reuters to nominate directors as described above, be filled by a majority of
the directors then in office (although less than a quorum of the full board), a
sole remaining director, or the holders of a majority of the voting power
present and entitled to vote at a meeting of stockholders.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote generally shall
constitute a quorum for stockholder action at any meeting.
Limitation of Liability; Indemnification
Our Certificate of Incorporation contains provisions permitted under Delaware
law relating
62
to the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty,
except in certain circumstances involving certain wrongful acts, including
. for any breach of the director's duty of loyalty to us or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. under Section 174 of the Delaware General Corporation Law, or
. for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder rights
to seek non-monetary relief, such as an injunction or rescission, in the event
of a breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. Our Bylaws also contain
provisions indemnifying our directors and officers to the fullest extent
permitted by Delaware law. We believe that these provisions are necessary to
attract and retain qualified individuals to serve as directors and officers.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is BankBoston, N.A.
63
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict the effect, if any, that sales of shares of our common
stock in the public market or the availability of shares for sale in the public
market will have on the market price of our common stock prevailing from time
to time. Nevertheless, sales of a significant number of shares of our common
stock in the public market, or the perception that such sales may occur, could
adversely affect the prevailing market price of our common stock.
As of November 30, 1999, we had 181,215,000 shares of common stock
outstanding. The 25,185,000 shares of common stock sold in our initial public
offering in July 1999, and subject to the lock-up agreements described below,
the 2,300,001 shares of common stock sold concurrently with our initial public
offering to Yahoo and Sun Microsystems, the 242,973 shares of common stock
issued after our initial public offering upon the exercise of options granted
under our stock plans, and the 80,991 shares of common stock sold by Reuters to
TFT employees after our initial public offering upon the exercise by such
employees of rights to purchase shares of our common stock from Reuters, along
with the 5,000,000 shares that are being sold in this offering, are freely
tradeable without restriction under the Securities Act, except for shares
purchased by our "affiliates", as that term is defined in Rule 144 under the
Securities Act. As of November 30, 1999, the remaining 152,431,706 shares of
common stock held by existing stockholders were "restricted shares", as that
term is defined in Rule 144, of which 5,959,456 were issued upon the exercise
of options and remained subject to our right of repurchase at the original
purchase price upon the employee's cessation of service. All of these
restricted shares are eligible for sale in the public market, except for those
shares subject to the lock-up arrangements with the underwriters described
below. The holders of approximately 137,130,000 shares of common stock are
entitled to rights with respect to registration of these shares as more fully
described under "Relationship with Reuters and Certain Transactions" beginning
on page 54.
In general, under Rule 144 as currently in effect, holders of restricted
securities who have beneficially owned these securities for at least one year
will be entitled to sell a number of shares of common stock within any three-
month period equal to the greater of (1) 1% of the then outstanding shares of
the common stock, which is approximately 1.9 million shares, or (2) the average
weekly reported volume of trading of the common stock on The Nasdaq National
Market during the four calendar weeks preceding such sale. Additionally, these
"sales" are subject to manner of sale and notice requirements and requirements
as to the availability of current public information concerning the company.
As of November 30, 1999, there were vested options to purchase approximately
3,312,764 shares of common stock outstanding. In addition, as of November 30,
1999, TFT employees and consultants held vested rights to purchase
approximately 2,501,337 shares of our common stock from Reuters. In July 1999,
we filed a Registration Statement on Form S-1 all options granted under the TFT
purchase rights plan, and in October 1999 we filed a registration statement on
Form S-8 covering shares issuable upon resale of all options granted under our
1996 Stock Option Plan. Shares of common stock registered under the TFT S-1 and
the S-8 are, subject to rule 144 volume limitations applicable to affiliates,
available for sale in the open market, except where such shares are subject to
vesting restrictions with us or the lock-up agreements described below. See
"Management--Stock Plans" beginning on page 51 for a description of these
plans.
In connection with this offering, each of TIBCO Software, the selling
stockholders, Cisco, Reuters and its affiliates, our executive officers and
directors and certain of our employees of our company has agreed that, without
the prior written consent of the representatives of the underwriters of this
offering, during the period ending 90 days after the date of the final
prospectus for this offering, it will not directly or indirectly offer, sell,
contract
64
to sell or otherwise dispose of, any shares of common stock or any securities
substantially similar to our common stock, including but not limited to any
securities convertible into or exchangeable for, or that represent the right
to receive, common stock or any such substantially similar securities.
The above restrictions do not apply to the following:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance by us of options to purchase common stock pursuant to our
existing stock plans, or the issuance by us of shares of common stock
upon the exercise of any option granted under our existing stock plans;
. the provision by Reuters of rights to purchase its shares of our common
stock to employees and consultants of TFT pursuant to a pre-existing
arrangement to provide such rights, and the sale by Reuters of its shares
of common stock pursuant to the exercise of such rights;
. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after
completion of this offering; and
. with respect to individuals, transfers by gift, will or intestate
succession; with respect to partnerships, transfers to partners; with
respect to trusts, transfers to beneficiaries; and with respect to
corporations, transfers to stockholders and majority-owned subsidiaries;
provided that in each case the transferee agrees to be bound by the
agreement imposing a similar lock-up restriction.
PLAN OF DISTRIBUTION
This prospectus covers shares of our common stock to be sold by TFT to its
employees and consultants upon the exercise of options granted under TFT's
stock option plan. This prospectus also covers shares of our common stock
previously sold by TFT to its employees and consultants upon the exercise of
options and permits the resale by them as selling stockholders. We will not
receive any proceeds from the sale of shares by TFT or the selling
stockholders.
The shares to be sold by TFT to its employees and consultants pursuant to
its stock option plan will be sold at pre-determined prices in accordance with
the related stock option agreements entered into between TFT and such
employees and consultants. TFT has the right to obtain such shares from
Reuters Nederland B.V. pursuant to a Stock Contribution Agreement between the
parties.
The shares to be sold by the selling stockholders will be sold at market
prices either directly to purchasers or through dealers or agents, which may
receive compensation in the form of commissions from the selling stockholders
and/or the purchasers for whom they act as a dealer or agent.
The selling stockholders and any dealers or agents that participate in the
distribution may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profits and commissions or discounts received by them
may be considered to be underwriting compensation under the Securities Act.
The selling stockholders may also dispose of shares by writing options on the
shares or by settling short sales of the shares. The selling stockholders may
sell shares of our common stock from time to time at varying prices determined
at the time of sale. They may also sell shares of our common stock pursuant to
Rule 144 under the Securities Act.
65
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Larry W. Sonsini, a member of Wilson Sonsini, is one of our
directors. As of November 30, 1999, Mr. Sonsini beneficially owned 99,999
shares of our common stock.
EXPERTS
The financial statements of TIBCO Software Inc. as of November 30, 1998 and
1999 and for the eleven months ended November 30, 1997 and for the year ended
November 30, 1998 and 1999 and the financial statements of InConcert, Inc. as
of December 31, 1997 and 1998 and for the years then ended, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1 under
the Securities Act of 1933 with respect to the shares of common stock offered
hereby. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules thereto. For further
information with respect to us and the common stock offered hereby, reference
is made to the registration statement and the exhibits and schedules filed
therewith. All contracts that are material to the registrant, and all the
material terms of these contracts, have been disclosed in this prospectus.
However, statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement. A copy of the
registration statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and
at the Commission's regional offices located at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment
of the fees prescribed by the Commission. The public may obtain information on
the operations of the public reference facilities in Washington, D.C. by
calling the SEC at 1-800-SEC-0330. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
66
TIBCO SOFTWARE INC.
INDEX TO FINANCIAL STATEMENTS
TIBCO Software Inc.
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Unaudited Pro Forma Combined Financial Information......................... F-24
InConcert, Inc.
Report of Independent Accountants.......................................... F-26
Balance Sheet.............................................................. F-27
Statement of Operations.................................................... F-28
Statement of Stockholders' Equity (Deficit)................................ F-29
Statement of Cash Flows.................................................... F-30
Notes to Financial Statements.............................................. F-31
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of TIBCO Software Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of TIBCO
Software Inc. and its subsidiaries at November 30, 1998 and 1999, and the
results of their operations and their cash flows for the eleven months ended
November 30, 1997 and for each of the two years in the period ended November
30, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
December 15, 1999, except for Notes 7 and 11
which are dated as of January 24, 2000
F-2
TIBCO SOFTWARE INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
November 30,
------------------
1998 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 547 $ 13,681
Short-term investments................................... -- 76,126
Deposits held by Reuters................................. 15,423 --
Accounts receivable, net................................. 13,234 42,199
Due from related parties................................. 1,829 286
Other current assets..................................... 1,853 5,031
-------- --------
Total current assets................................... 32,886 137,323
Property and equipment, net................................ 3,171 10,423
Other assets............................................... 232 1,171
Goodwill and acquired intangibles, net..................... -- 30,721
-------- --------
$ 36,289 $179,638
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 3,190 $ 7,501
Accrued liabilities...................................... 7,834 21,128
Deferred revenue......................................... 3,561 13,091
-------- --------
Total current liabilities.............................. 14,585 41,720
-------- --------
Commitments (Note 7)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 25,000
shares authorized; 81,678 and no shares issued and
outstanding, respectively............................... 82 --
Common stock, $0.001 par value; 300,000 shares
authorized; 67,131 and 181,215 shares issued and
outstanding, respectively............................... 67 181
Additional paid-in capital............................... 46,399 182,939
Unearned stock-based compensation........................ (7,230) (8,083)
Accumulated other comprehensive loss..................... -- (24)
Accumulated deficit...................................... (17,614) (37,095)
-------- --------
Total stockholders' equity............................. 21,704 137,918
-------- --------
$ 36,289 $179,638
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Eleven Months
Ended Year Ended November 30,
November 30, ------------------------
1997 1998 1999
------------- ----------- -----------
License revenue:
Non-related parties.................. $ 6,062 $ 14,511 $ 39,680
Related parties...................... 157 2,984 17,236
------- ----------- -----------
Total license revenue.............. 6,219 17,495 56,916
------- ----------- -----------
Service and maintenance revenue:
Non-related parties.................. 19,648 30,577 36,601
Related parties...................... 9,407 4,685 2,923
------- ----------- -----------
Total service and maintenance
revenue........................... 29,055 35,262 39,524
------- ----------- -----------
Total revenue.................... 35,274 52,757 96,440
------- ----------- -----------
Cost of revenue:
Cost of license revenue.............. 366 984 2,402
Cost of service and maintenance
revenue............................. 15,481 26,698 34,210
------- ----------- -----------
Total cost of revenue.............. 15,847 27,682 36,612
------- ----------- -----------
Gross profit........................... 19,427 25,075 59,828
------- ----------- -----------
Operating expenses:
Research and development............. 9,385 14,787 27,478
Sales and marketing.................. 7,008 15,242 33,130
General and administrative........... 3,565 4,025 8,229
Amortization of stock-based
compensation........................ 4,672 5,064 9,252
Acquired in-process research and
development......................... -- -- 2,800
Amortization of goodwill and acquired
intangibles......................... -- -- 521
------- ----------- -----------
Total operating expenses........... 24,630 39,118 81,410
------- ----------- -----------
Loss from operations................... (5,203) (14,043) (21,582)
Interest income........................ 527 1,394 2,707
Other income (expense), net............ 13 (302) (606)
------- ----------- -----------
Net loss............................... $(4,663) $ (12,951) $ (19,481)
======= =========== ===========
Net loss per share--basic and diluted.. $ (0.08) $ (0.22) $ ( 0.19)
======= =========== ===========
Weighted average common shares
outstanding........................... 57,606 60,033 104,112
======= =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Convertible
Preferred
Stock Common Stock
--------------- --------------
Accumulated
Additional Unearned Other
Paid-in Stock-based Comprehensive Accumulated
Shares Amount Shares Amount Capital Compensation Income (Loss) Deficit Total
------- ------ ------- ------ ---------- ------------ ------------- ----------- --------
Balance at January 1,
1997.................... -- $-- -- $-- $ -- $ -- $-- $ -- $ --
Capitalization from
Reuters................. -- -- -- -- 451 -- -- -- 451
Net loss................ -- -- -- -- -- -- -- (4,663) (4,663)
Issuance of series A
preferred stock to
Reuters................. 60,000 60 -- -- 9,883 -- -- -- 9,943
Issuance of common stock
to Reuters (Note 5)..... -- -- 57,000 57 -- -- -- -- 57
Return of capital to
Reuters................. -- -- -- -- (10,000) -- -- -- (10,000)
Issuance of series B
preferred stock, net.... 13,095 13 -- -- 15,693 -- -- -- 15,706
Exercise of common stock
options................. -- -- 5,004 5 996 -- -- -- 1,001
Unearned stock-based
compensation, net....... -- -- -- -- 9,439 (4,767) -- -- 4,672
------- ---- ------- ---- -------- ------- ---- -------- --------
Balance at November 30,
1997.................... 73,095 73 62,004 62 26,462 (4,767) -- (4,663) 17,167
Net loss................ -- -- -- -- -- -- -- (12,951) (12,951)
Issuance of series C
preferred stock, net.... 8,583 9 -- -- 10,989 -- -- -- 10,998
Exercise of common stock
options, net............ -- -- 5,127 5 1,421 -- -- -- 1,426
Unearned stock-based
compensation, net....... -- -- -- -- 7,527 (2,463) -- -- 5,064
------- ---- ------- ---- -------- ------- ---- -------- --------
Balance at November 30,
1998.................... 81,678 82 67,131 67 46,399 (7,230) -- (17,614) 21,704
--------
Net loss................ -- -- -- -- -- -- -- (19,481) (19,481)
Translation
adjustments............. -- -- -- -- -- -- 178 -- 178
Unrealized loss on
investments............. -- -- -- -- -- -- (202) -- (202)
--------
Comprehensive income... (19,505)
--------
Issuance of common stock
in public offering, net
of issuance costs of
$13,933................. -- -- 27,486 27 123,470 -- -- -- 123,497
Conversion of
convertible preferred
stock in connection with
IPO..................... (81,678) (82) 81,678 82 -- -- -- -- --
Exercise of common stock
options, net............ -- -- 4,920 5 2,965 -- -- -- 2,970
Unearned stock-based
compensation, net....... -- -- -- -- 10,105 (853) -- -- 9,252
------- ---- ------- ---- -------- ------- ---- -------- --------
Balance at November 30,
1999.................... -- $-- 181,215 $181 $182,939 $(8,083) $(24) $(37,095) $137,918
======= ==== ======= ==== ======== ======= ==== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Eleven Months Year Ended
Ended November 30,
November 30, -------------------
1997 1998 1999
------------- -------- ---------
Cash flows from operating activities:
Net loss................................... $ (4,663) $(12,951) $ (19,481)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation and amortization.............. 924 1,073 2,110
Write-off of in-process research and
development............................... -- -- 2,800
Amortization of goodwill and other
intangibles............................... -- -- 521
Amortization of unearned compensation...... 4,672 5,064 9,252
Changes in assets and liabilities:
Accounts receivable....................... 1,083 (5,996) (26,119)
Due from related parties.................. (3,192) 1,339 1,543
Other assets.............................. 253 (1,017) (3,005)
Accounts payable.......................... 659 2,240 4,019
Accrued liabilities....................... 1,342 1,618 10,279
Deferred revenue.......................... 1,333 (3,152) 8,406
-------- -------- ---------
Net cash provided by (used for) operating
activities.............................. 2,411 (11,782) (9,675)
-------- -------- ---------
Cash flows from investing activities:
Deposits held by Reuters................... (10,259) (5,164) 15,423
Purchases of investments................... -- -- (198,325)
Sales and maturities of investments........ -- -- 121,997
Purchases of property and equipment, net... (800) (2,990) (8,931)
Acquisition of InConcert, Inc. ............ -- -- (34,000)
-------- -------- ---------
Net cash used for investing activities... (11,059) (8,154) (103,836)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock..... 1,039 1,426 126,467
Proceeds from issuance of preferred stock.. 25,668 10,998 --
Return of capital to Reuters............... (10,000) -- --
Borrowings from Reuters.................... 3,000 -- --
Repayment of borrowings from Reuters....... (3,000) -- --
-------- -------- ---------
Net cash provided by financing
activities.............................. 16,707 12,424 126,467
-------- -------- ---------
Effect of exchange rate changes on cash..... -- -- 178
-------- -------- ---------
Net change in cash and cash equivalents..... 8,059 (7,512) 13,134
Cash and cash equivalents at beginning of
period..................................... -- 8,059 547
-------- -------- ---------
Cash and cash equivalents at end of period.. $ 8,059 $ 547 $ 13,681
======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999
1. THE COMPANY
TIBCO Software Inc. ("TIBCO Software" or the "Company") is the successor to a
portion of the business of Teknekron Software Systems, Inc. ("Teknekron").
Teknekron was founded in 1985 and pioneered the development of "publish and
subscribe" computing by creating the software infrastructure for the
integration and delivery of market data (e.g., stock quotes, news and other
financial information) in the trading rooms of large banks and financial
institutions. This publish and subscribe technology, know as The Information
Bus or "TIB," permitted the integration of disparate information from various
data sources and its distribution across a variety of networks and platforms
within these banks, financial institutions and stock exchanges.
Teknekron was acquired by a subsidiary of Reuters Group PLC ("Reuters"), the
global news and information group, in 1994, and the underlying technology
rights owned by Teknekron were assigned to Reuters. In November 1996, TIBCO
Software was incorporated in Delaware as a separate entity from Teknekron and
was formed to create and market software solutions for use in the integration
of business information, processes and applications in diverse industries
outside the financial services market. Through a license and distribution
agreement, Reuters is the exclusive distributor of TIBCO Software products in
the financial services market, subject to limited exceptions.
Effective as of January 1, 1997, the Company's capital structure was
established, and the transfer to TIBCO Software of certain assets, liabilities
and customer contracts previously owned by Reuters was substantially completed.
Prior to January 1, 1997, operations were conducted by Reuters and its
subsidiaries.
In July 1999, the Company completed its initial public offering ("IPO"), of
approximately 27,485,001 shares of common stock (including 3,285,000 shares
purchased by the underwriters over-allotment option, 1,500,000 shares sold
directly to Sun Microsystems, and 800,001 shares sold directly to Yahoo! Inc.)
at $5.00 per share. Net proceeds aggregated approximately $123.5 million. At
the closing of the offering, all issued and outstanding shares of the Company's
preferred stock were converted into an aggregate of 81,678,945 shares of common
stock. At November 30, 1999, Reuters still owned a majority of the Company's
common stock.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Change in Year End
Effective January 1, 1997, the Company changed its fiscal year end to
November 30th from December 31st.
Stock Splits
In June 1999, the Company's Board of Directors approved a one-for-two reverse
stock split of Company's outstanding shares which became effective on July 13,
1999. All share and per share information included in these financial
statements have been retroactively adjusted to reflect this split.
F-7
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company's wholly-owned foreign subsidiaries
are the local currencies. Assets and liabilities of these subsidiaries are
translated into U.S. dollars at exchange rates as of at the balance sheet date.
Income and expense items are translated at average exchange rates for the
period. Accumulated translation adjustments are recorded as a component of
accumulated other comprehensive loss in stockholders' equity. Foreign exchange
transaction gains and losses were not material in all periods presented.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of marketable securities at the time
of purchase and evaluates such designation as of each balance sheet date. To
date, all marketable securities have been classified as available-for-sale and
are carried at fair value with unrealized gains and losses, if any, included in
stockholders' equity. Interest, dividends and realized gains and losses are
included in interest income. Realized gains and losses are recognized based on
the specific identification method.
Investments consist of the following at November 30, 1999 (in thousands):
Money funds......................................................... $ 414
Government debt issues.............................................. 13,353
U.S. treasury notes................................................. 15,473
U.S. agency notes................................................... 12,040
Asset-backed securities............................................. 15,668
Finance notes....................................................... 20,642
Bank notes.......................................................... 6,227
-------
Total available-for-sale securities............................... 83,817
Less: Amounts classified as cash equivalents........................ (7,691)
-------
$76,126
=======
As of November 30, 1999, short-term investments with contractual maturities
of one year or less and one year through three years were $26.0 million and
$50.1 million, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, and accounts receivable.
Cash, cash equivalents and investments are deposited with financial
institutions that management believes are creditworthy. The Company's
F-8
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
accounts receivable is derived from revenue earned from customers located
primarily in the United States, Australia, Europe and Taiwan. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful account receivable based upon the expected
collectibility of accounts receivable.
Capitalized Software Development Costs
The Company has not capitalized any software development costs to date and is
in compliance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." Capitalization of software development costs begins upon the
establishment of technological feasibility of the product. After technological
feasibility is established, material software development costs are
capitalized. The capitalized cost is then amortized on a straight-line basis
over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. To date, the period between
achieving technological feasibility, which the Company has defined as the
establishment of a working model which typically occurs when beta testing
commences, and the general availability of such software has been short, and as
such, software development costs qualifying for capitalization have been
insignificant.
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally computed
using the straight-line method over the estimated useful lives of the assets as
follows:
Equipment............... 2--5 years
Furniture and fixtures.. 5--10 years
Leasehold improvements.. Shorter of the lease term or the estimated useful life
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Revenue Recognition
Effective in fiscal 1999, the Company adopted Statement of Position ("SOP")
97-2, "Software Revenue Recognition" and its related amendments. SOP 97-2
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supercedes the previous
guidance provided by SOP 91-1. The adoption of SOP 97-2 did not have a material
impact on the Company's consolidated financial position or results of
operations.
License revenue consists principally of revenue earned under software license
agreements. License revenue is generally recognized when a signed contract or
other persuasive evidence of an arrangement exists, the software has been
shipped or electronically delivered, the license fee is fixed or determinable,
and collection of the resulting receivable is probable. When contracts contain
F-9
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
multiple elements wherein vendor specific objective evidence exists for all
undelivered elements, the Company accounts for the delivered elements in
accordance with the "Residual Method" prescribed by SOP 98-9. Any maintenance
revenue included in these arrangements is recognized ratably over the term of
the arrangement. Revenue from subscription license agreements, which include
software, rights to future products and maintenance, is recognized ratably over
the term of the subscription period. Revenue on shipments to resellers, which
is generally subject to certain rights of return and price protection, is
recognized when the products are sold by the resellers to the end-user
customer.
Service revenue consists primarily of revenue received for performing product
development, implementation of system solutions, on-site support, consulting
and training. Service revenue is generally recognized as the services are
performed or on the percentage-of-completion method of accounting, depending on
the nature of the project. Under the percentage-of-completion method, revenue
recognized is that portion of the total contract price equal to the ratio of
costs expended to date to the anticipated final total costs, based on current
estimates of the costs to complete the project. To the extent that these
arrangements include license fees, such fees are recorded as license revenue
based on the percentage-of-completion ratio. If the total estimated costs to
complete a project exceed the total contract amount, indicating a loss, the
entire anticipated loss would be recognized currently.
Maintenance revenue consists of fees for providing software updates and
technical support for software products (post-contract support or "PCS").
Maintenance revenue is recognized ratably over the term of the agreement.
Payments received in advance of services performed are recorded as deferred
revenue. Allowances for estimated future returns and discounts are provided for
upon recognition of revenue.
Advertising Expense
Advertising costs are expensed as incurred and totaled approximately less
than $100,000, $1.6 million, and $0.7 million for the eleven months ended
November 30, 1997, and for the years ended November 30, 1998 and 1999,
respectively.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Stock-based compensation expense is amortized, using the
multiple option method prescribed by FASB Interpretation No. 28, over the
option's vesting period.
Comprehensive Income (Loss)
Effective in fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No.130 establishes standards for reporting
comprehensive income (loss) and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during the period from non-owner sources. The Company has reported the
components of comprehensive income (loss) on its Consolidated Statement of
Stockholders' Equity.
F-10
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
Net Loss per Share
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weight average number of common and potential common shares outstanding during
the period if their effect is dilutive. Potential common shares are comprised
of common stock subject to repurchase and incremental shares of common stock
issuable upon the exercise of stock options and upon the conversion of
convertible preferred stock.
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
Eleven Year Ended
Months Ended November 30,
November 30, ------------------
1997 1998 1999
------------ -------- --------
Net loss...................................... $(4,663) $(12,951) $(19,481)
======= ======== ========
Basic and diluted:
Weighted average common shares outstanding.. 58,452 65,175 110,313
Weighted average common shares subject to
repurchase................................. (846) (5,142) (6,201)
------- -------- --------
Weighted average common shares used to com-
pute basic and diluted net loss per share.. 57,607 60,033 104,112
======= ======== ========
Net loss per share--basic and diluted......... $ (0.08) $ (0.22) $ (0.19)
======= ======== ========
The following table sets forth potential common shares that are not included
in the diluted net loss per share calculation above because to do so would be
anti-dilutive as of the periods indicated (in thousands):
November 30,
---------------------
1997 1998 1999
------ ------- ------
Preferred stock........................................... 73,095 81,678 --
Common stock subject to repurchase........................ 4,014 5,475 5,965
Stock options............................................. 20,676 27,258 31,440
------ ------- ------
97,785 114,411 37,405
====== ======= ======
Derivative Financial Instruments
The Company enters into foreign currency forward exchange contracts ("forward
contracts") to manage exposure related to accounts receivable denominated in
foreign currencies. The Company does not enter into derivative financial
instruments for trading purposes. All outstanding forward contracts at the end
of the period are marked-to-market, with unrealized gains and losses included
in net income as a component of other income (expense), net. The Company had
outstanding forward contracts with notional amounts totaling approximately $1.6
million and $477,000 at November 30, 1998 and 1999, respectively. The open
contracts at November 30, 1999 mature at various dates
F-11
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
through January 2000 and are hedges of certain foreign currency transaction
exposures in the Australian dollar and British pound. The estimated fair value
at November 30, 1999 was negligible.
Recent Accounting Pronouncements
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP 98-1 will have a material impact on its financial
statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. The Company, to date, has engaged in limited derivative and
hedging activities, and accordingly, does not believe that the adoption of SFAS
No. 133 will have a material impact on the financial reporting and related
disclosures of the Company. The Company will adopt SFAS No. 133 as required by
SFAS 137, "Deferral of the Effective Date of the FASB Statement No. 133,"
beginning with the fourth quarter of fiscal 2000.
3. BALANCE SHEET COMPONENTS
November 30,
----------------
1998 1999
------- -------
(in thousands)
Accounts receivable, net:
Accounts receivable........................................ $11,024 $39,119
Unbilled fees and services................................. 3,904 5,313
------- -------
14,928 44,432
Less: Allowances for doubtful accounts, returns and
discounts................................................. (1,694) (2,233)
------- -------
$13,234 $42,199
======= =======
Property and equipment, net:
Equipment.................................................. $ 4,973 $ 8,141
Furniture and fixtures..................................... 146 515
Leasehold improvements..................................... 49 4,420
------- -------
5,168 13,076
Less: Accumulated depreciation and amortization............ (1,997) (2,653)
------- -------
$ 3,171 $10,423
======= =======
Accrued liabilities:
Compensation and employee related.......................... $ 5,810 $13,201
Expenses................................................... 2,024 7,927
------- -------
$ 7,834 $21,128
======= =======
F-12
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
4. ALLOWANCES FOR DOUBTFUL ACCOUNTS, RETURNS AND DISCOUNTS
Balance at Charged Balance
Beginning against Charged to at End
of Period Revenue Expenses Deduction of Period
---------- ------- ---------- --------- ---------
(in thousands)
Eleven Months Ended November
30, 1997................... $1,548 $1,576 $ 16 $ (472) $2,668
Year Ended November 30,
1998....................... 2,668 1,133 194 (2,301) 1,694
Year Ended November 30,
1999....................... 1,694 230 1,321 (1,012) 2,233
5. RELATED PARTY TRANSACTIONS
Reuters
The Company has significant transactions with Reuters, including licensing
arrangements, development contracts and shared functions and services. The
following is a summary of the transactions for the periods indicated (in
thousands):
Eleven
Months Ended Year Ended
November 30, November 30,
------------ ---------------
1997 1998 1999
------------ ------ --------
License fees...................................... $ 157 $2,984 $ 15,289
------ ------ --------
Service and maintenance Revenue:
Subscription agreement.......................... 3,896 354 --
Maintenance agreement........................... 688 750 1,168
Services contracts.............................. 796 485 843
Shared personnel................................ 4,027 2,202 307
Development reimbursement....................... -- 894 365
------ ------ --------
Total service and maintenance................. 9,407 4,685 2,683
------ ------ --------
$9,564 $7,669 $ 17,972
====== ====== ========
With the formation of TIBCO Software in January 1997, the Company entered
into a license, maintenance and distribution agreement (the "License
Agreement") with Reuters. Under the terms of the License Agreement, the Company
was granted a perpetual, royalty-free license to the underlying TIB messaging
technology in existence on December 31, 1996. The licensed TIB technology
includes technology underlying some of the Company's current products. The
license includes rights to use the TIB technology to develop and maintain
products, to provide services to customers relating to the licensed technology,
and to sell, sublicense and distribute products utilizing the licensed
technology both directly and through third party distributors, resellers and
original equipment manufacturers. In consideration of the License Agreement,
the Company paid to Reuters $10.0 million, which was accounted for as a return
of capital.
Reuters is the preferred distributor of the Company's TIB/ActiveEnterprise
products to customers in the financial services market segment. As such, the
Company receives a product fee from Reuters, which is computed as a percentage
of sales of product licenses and maintenance, which has been recorded as
license revenue in the accompanying Financial Statements. For the nine months
ending December 31, 1999 and the years ending December 31, 2000 and 2001,
Reuters has guaranteed minimum product fees of $16.0 million, $18.0 million and
$20.0 million, respectively.
F-13
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
These amounts will be recognized ratably over the corresponding period. In any
period where actual product fees earned exceed the minimum guaranteed product
fees, the difference between the actual product fees and cumulative minimum
product fees recognized to date will be recognized as revenue currently.
For calendar 1997, Reuters paid the Company a one-time fee of approximately
$4.3 million for the purposes of developing middleware infrastructure software
and products. As Reuters was entitled to receive unspecified future
enhancements, if and when available, the fee was accounted for as a
subscription and taken to service revenue ratably over the period (see
"subscription agreement" in the preceding table). Beginning in January 1997,
the Company received an annual maintenance fee of approximately $0.7 million,
which is accounted for ratably over the year. Beginning in 1999, this
maintenance fee will be included in the minimum guarantee. There were various
miscellaneous consulting projects during the eleven months ended November 30,
1997, and the years ended November 30, 1998 and 1999 in which the Company
recognized approximately $0.8 million, $0.5 million, and $1.0 million,
respectively.
Since its formation in January 1997, Reuters and TIBCO Software agreed to
certain intercompany rates for the sharing of employees on various customer
projects. For the services provided by TIBCO Software personnel to Reuters,
TIBCO Software recognized service revenue of approximately $4.0 million, $2.2
million, and $0.3 million for the eleven months ended November 30, 1997, and
years ended November 30, 1998 and 1999, respectively. For the services received
by TIBCO Software from Reuters personnel, TIBCO Software recorded, in cost of
service revenue, expenses of approximately $1.2 million, $5.8 million, and $2.3
million for the eleven months ended November 30, 1997, and the years ended
November 30, 1998 and 1999, respectively, and, in research and development,
expenses of approximately $0.4 million in the eleven months ended November 30,
1997.
In 1998, TIBCO Software was reimbursed for approximately $0.9 million for the
development of certain enhancements for Reuters.
Intercompany Services
Through mid 1999, Reuters provided TIBCO Software with shared functions and
services such as cash management, accounting, legal and insurance. The cost of
these functions and services has been directly charged and/or allocated to the
Company using methods that the Company management believes are reasonable. Such
charges and allocations are not necessarily indicative of the costs that would
have been incurred if the Company had been a separate entity. Neither party has
a financial obligation to the other in relation to any shared costs except as
may be agreed in writing in advance.
Administrative Services. Through mid 1999, Reuters provided limited
administrative services to the Company, including certain facilities, human
resources, information technology and finance functions. The expenses related
to these functions have been charged to the Company based on actual costs
incurred. Management believes that such costs are reasonable. Such charges for
these services amounted to approximately $1.6 million in the eleven months
ended November 30, 1997, $2.7 million in the year ended November 30, 1998, and
$573,000 in the year ended November 30, 1999 and are allocated to operating
costs and expenses based on respective salaries.
F-14
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
Operating Leases and Furniture & Fixtures Rental. The Company shared its
corporate headquarters in Palo Alto, California through June 1999, and certain
foreign offices with Reuters. In June 1999, the Company assumed the lease for
the headquarters building from Reuters. In addition, the Company rented certain
furniture and fixtures and computer equipment from Reuters, primarily related
to its corporate headquarters. The Company incurred rent expense of $1.4
million in the eleven months ended November 30, 1997, $1.6 million in the year
ended November 30, 1998, and $1.0 million in the year ended November 30, 1999.
In August 1999, the Company purchased $4.6 million in fixed assets from Reuters
in connection with the assumption of the lease for the corporate headquarters
facility. This amount was comprised of $4.2 million in leasehold improvements
and $0.4 million of furniture and fixtures.
Insurance and Legal. The Company participated in an insurance purchasing
agreement with Reuters through April 1999. Under the terms of this arrangement,
Reuters purchased insurance on behalf of the Company and charged the Company
for this insurance on an annual basis. Additionally, a portion of the Company's
legal services were provided by Reuters to the Company until March 1998.
Amounts incurred for legal and insurance expenses were approximately $0.3
million for the period from January 1, 1997 to November 30, 1999.
Employee Benefit Programs. The Company participated in various employee
benefit programs with Reuters. These programs included medical, dental, life
insurance and pension plans. The Company paid the service providers directly
for these services rendered since January 1997. Until August 1999, the Company
also reimbursed Reuters for its proportionate cost of certain other benefits
provided to TIBCO Software employees based on its historical experience and
relative headcount. The Company recorded expenses related to the reimbursement
of these costs of approximately $0.4 million for the period from January 1,
1997 to November 30, 1999.
Intercompany Deposits. Prior to July 1999, the Company participated in
Reuters cash management program, investing surplus funds with Reuters Group
Treasury Department. These deposits earned interest at one-month dollar London
inter bank offered rate ("LIBOR"). The Company recorded interest income on
these deposits of approximately $0.3 million, $1.1 million, and $0.3 million
for the eleven months ended November 30, 1997, and for the years ended November
30, 1998 and 1999, respectively. Effective with the Company's IPO, the Company
began to manage its own cash and investments.
Cisco Systems, Inc.
As of November 30, 1999, Cisco Systems, Inc. ("Cisco") owned approximately 7%
of the outstanding common stock and had 2 representatives on the Company's
Board of Directors. The Company recorded license revenue from Cisco of $1.9
million and service revenue of $240,000 for the year ended November 30, 1999.
F-15
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
6. INCOME TAXES
No provision for income taxes was recorded due to the net losses incurred to
date. The provision for income taxes was at rates other than the U.S. Federal
statutory tax rate for the following reasons:
Eleven Year Ended
Months Ended November
November 30, 30,
------------ -------------
1997 1998 1999
------------ ----- -----
U.S. Federal statutory rate........................ (34.0)% (34.0)% (34.0)%
State taxes........................................ (5.9) (5.4) (5.7)
R & D credits...................................... (5.8) (3.9) (9.8)
Change in valuation allowance...................... 48.1 44.1 47.9
Other.............................................. (2.4) (0.8) 1.6
----- ----- -----
0.0 % 0.0 % 0.0 %
===== ===== =====
The components of the Company's deferred tax assets are as follows (in
thousands):
November 30,
------------------
1998 1999
-------- --------
Net operating loss carryforward............................. $ 3,430 $ 4,364
Stock option compensation................................... 4,424 6,657
Reserves and accruals....................................... 1,445 3,237
Credit carryforwards........................................ 759 2,608
Depreciation and amortization............................... 694 1,523
Other....................................................... (9) 83
-------- --------
10,743 18,472
Less: Valuation allowance................................... (10,743) (18,472)
-------- --------
$ -- $ --
======== ========
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded.
At November 30, 1999, the Company has net operating loss carryforwards of
$12.7 million and $6.7 million for federal and California, respectively, which
expire through 2019 and 2006. The Company also has available tax credit
carryforwards of $1.6 million and $1.2 million for federal and California,
respectively, which expire through 2019. In the event of a change in ownership,
as defined under federal and state tax laws, the utilization of these
carryforwards could be subject to certain limitations in future years.
7. COMMITMENTS
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through December 2010. Rental expense was
approximately $1.7 million, $2.2 million, and $4.1 million for the
eleven months ended November 30, 1997 and the years ended November 30, 1999 and
1998, respectively.
F-16
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
Future minimum lease payments under non-cancelable operating leases,
including lease commitments entered into subsequent to November 30, 1999 (Note
11), are as follows (in thousands):
Year Ending November 30,
------------------------
2000............................................................ $ 5,281
2001............................................................ 8,410
2002............................................................ 8,603
2003............................................................ 8,371
2004............................................................ 8,412
Thereafter...................................................... 47,134
-------
$86,211
=======
8. STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 25.0 million shares of $0.001 par value preferred stock.
Effective as of January 1, 1997, the Company's initial capital structure was
established by issuing 60.0 million shares of series A convertible preferred
stock and 57.0 million shares of common stock to Reuters in exchange for $10.0
million and the transfer of certain assets and liabilities assumed. In
connection with its formation, the Company signed a perpetual, non-exclusive
license agreement for certain technology with Reuters and paid $10.0 million as
consideration (Note 5). This payment was treated as a return of capital in the
accompanying Statement of Stockholders' Equity.
In May 1997, the Company issued approximately 13.2 million shares of series B
convertible preferred stock at $1.20 per share for net proceeds of
approximately $15.7 million. In December 1997, the Company issued approximately
8.7 million shares of series C convertible preferred stock at $1.29 per share
for net proceeds of approximately $11.0 million. At the closing of the
offering, all issued and outstanding shares of the Company's preferred stock
were converted into an aggregate of 81,678,945 shares of common stock.
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 300.0 million shares of $0.001 par value common stock. A
portion of the shares issued are subject to a right of repurchase by the
Company subject to vesting, which is generally over a five year period from the
grant date or employee hire date, as applicable, until vesting is complete.
Shares are subject to repurchase at the original exercise price. As of November
30, 1999, shares of common stock subject to a repurchase option held by the
Company totaled 5.9 million shares at a weighted average price of $0.49 per
share.
Benefit Plans
1996 Stock Option Plan. In 1996, the Company adopted the 1996 Stock Option
Plan (the "1996 Plan"). The 1996 Plan provides for the granting of stock
options to employees and consultants of the Company. Options granted under the
1996 Plan may be either incentive stock options or nonqualified
F-17
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
stock options. Incentive stock options may be granted only to employees
(including officers and directors who are employees). Nonqualified stock
options may be granted to Company employees and consultants. Options under the
1996 Plan may be granted for terms not to exceed ten years. Options granted
before the IPO are exercisable immediately upon grant and generally vest over
five years. Options granted after the IPO generally vest over four years.
Shares of common stock issued upon the exercise of options granted prior to the
IPO are subject to repurchase until vested. The 1996 Plan provides for an
automatic increase to the number of shares of common stock reserved for
issuance (to be added on the first day of each fiscal year beginning in 2000)
equal to the lesser of (i) 15 million shares, (ii) 3.5% of the outstanding
shares of the Company's common stock, or (iii) a lesser amount determined by
the Board of Directors. As of November 30, 1999, aggregate shares of common
stock reserved for issuance under the 1996 Plan was approximately 45,677,000
shares.
1998 Advisory Council Option Sub-plan. In October 1998, the Company adopted
the 1998 Advisory Council Option plan (the "Advisory Plan") as a sub-plan to
the 1996 Plan for the purpose of attracting and retaining personnel for service
on an information technology advisory council. The Advisory Plan provides for
an initial grant of 15,000 shares to each advisory council member
(30,000 shares to the chairman). Options are granted at an exercise price not
less than fair market value of the Common Stock on the date of grant, have a
term not to exceed ten years and become exercisable over a two-year period with
half of the shares vesting annually.
1998 Employee Stock Purchase Sub-plan. In June 1999, the Company adopted the
Employee Stock Purchase Plan (the "ESP Plan") as a sub-plan to the 1996 Plan.
The ESP Plan became effective on July 13, 1999, the first business day on which
price quotations for the Company's common stock were available on the Nasdaq
National Market. Employees are generally eligible to participate in the ESP
Plan if they are customarily employed by the Company for more than 20 hours per
week and more than 5 months in a calendar year and are not (and would not
become as a result of being granted an option under the ESP Plan) 5%
stockholders of the Company. Under the ESP Plan, eligible employees may select
a rate of payroll deduction up to 10% of their eligible compensation subject to
certain maximum purchase limitations. Each offering period has a maximum
duration of two years (the "Offering Period") and consists of four six-month
Purchase Periods (each, a "Purchase Period"), with the exception of the first
Offering Period, which began on July 13, 1999 and will end on or before June
30, 2001. Offering Periods and Purchase Periods thereafter will begin on
January 1 and July 1 of each year. The price at which the common stock is
purchased under the ESP Plan is 85% of the lesser of the fair market value of
the Company's common stock on the first day of the applicable Offering Period
or on the last day of that Purchase Period. The ESP Plan will terminate after a
period of ten years unless terminated earlier as permitted by the ESP Plan.
1998 Director Option Plan. In February 1998, the Company adopted the 1998
Director Option Plan (the "Director Plan") and reserved 2,475,000 shares of
Common Stock for issuance under the Director Plan. The Director Plan provides
for an automatic initial grant of 150,000 shares to members of the Board who
are not employees of the Company or Reuters ("External Directors"). Any
External Director with over one-year of consecutive service prior to the
effective date of the Director Plan received an initial grant of 450,000
shares. At any subsequent annual re-election, each External Director shall be
granted an option to purchase 60,000 additional shares. Options are granted at
an exercise price not less than the fair market value of the stock on the date
of grant, have a term not to exceed ten years and become exercisable over a
three year period with a third of the shares vesting annually.
F-18
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
The activity under all stock options plans are summarized as follows (in
thousands, except per share data):
Eleven Months
Ended
November 30, Year Ended November 30,
----------------- -----------------------------------
1997 1998 1999
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at beginning
of period.............. -- $ -- 20,676 $ 0.20 27,258 $ 0.39
Granted................ 26,316 0.20 13,122 0.64 10,614 2.77
Exercised.............. (5,007) 0.20 (5,499) 0.27 (5,235) 0.59
Forfeited.............. (633) 0.20 (1,041) 0.27 (1,197) 1.34
------- ------ ------
Outstanding at end of
period................. 20,676 0.20 27,258 0.39 31,440 1.12
======= ====== ======
Options exercisable at
period end............. 20,676 0.20 27,258 0.39 29,601 0.81
======= ====== ======
The following table summarizes information about stock options outstanding at
November 30, 1999 (in thousands, except per share data):
Options
Options Outstanding Exercisable
----------------------------------------- ------------------
Weighted
Weighted Average Weighted Average
Number of Remaining Average Number of Exercise
Range of Exercise Price Options Contractual Life Exercise Price Options Price
- ----------------------- --------- ---------------- -------------- --------- --------
$0.20 to $0.33 16,860 7.3 years $ 0.22 16,662 $0.22
$0.86 to $2.00 12,780 9.0 years 1.49 12,348 1.49
$3.00 to $10.75 1,446 9.7 years 5.29 591 3.29
$10.92 to $40.33 354 9.9 years 13.80 -- --
------ ------
$0.20 to $40.33 31,440 8.1 Years 1.12 29,601 0.81
====== ======
At November 30, 1999, the Company had reserved the 416,000 and 1,245,000
shares of authorized but unissued common stock for future grant under the 1996
Plan and the Director Plan, respectively.
401(k) Plan. The Company's employee savings and retirement plan is qualified
under Section 401 of the Internal Revenue Code. Employees may elect to reduce
their current compensation by up to the statutory prescribed annual limit and
have the amount of such reduction contributed to the 401(k) Plan. The Company
provides matches to employee contributions up to 4% of an employee's base pay
and an additional 50% match on employee contributions of the next 2% of base
pay.
Stock-based compensation
In connection with certain stock option grants to employees and External
Directors, the Company recognized approximately $9.4 million, $7.2 million and
$6.6 million of unearned stock compensation for the excess of the deemed fair
market value over the exercise price at the date of grant for the eleven months
ended November 30, 1997 and for the years ended November 30, 1998 and 1999,
respectively. Stock-based compensation expense is being recognized, using the
multiple option
F-19
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
method as prescribed by FASB Interpretation No.28, over the option vesting
period of generally five years. As a result, amortization of stock-based
compensation for employees and External Directors as of November 30, 1999 is
expected to be $4.0 million in 2000, $2.3 million in 2001, $1.2 million in
2002, $489,000 in 2003 and $81,000 in 2004.
Stock-based compensation expense related to stock options granted to
consultants is recognized as earned, using the multiple option method as
prescribed by FASB Interpretation No. 28. At each reporting date, the Company
re-values the stock-based compensation using the Black-Scholes option pricing
model. As a result, the stock-based compensation expense will fluctuate as the
fair market value of the Company's common stock fluctuates. In connection with
the grant of stock options to consultants, the Company recorded stock-based
compensation expense of $30,000, $336,000 and $3.5 million for the eleven
months ended November 30, 1997 and for the years ended November 30, 1998 and
1999, respectively. As of November 30, 1999, the Company expects to amortize
stock-based compensation expense of $13.6 million in 2000, $5.6 million in
2001, $1.8 million in 2002 and $675,000 in 2003, assuming no change in the
underlying value of the Company's common stock.
Fair Value Disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have increased
to the pro forma amounts indicated below:
Eleven Months
Ended Year Ended
November 30, November 30,
------------- ------------------
1997 1998 1999
------------- -------- --------
Net loss:
As reported................................ $(4,663) $(12,951) $(19,481)
Pro forma.................................. (4,778) (13,344) (22,023)
Net loss per share--basic and diluted:
As reported................................ $ (0.08) $ (0.22) $ (0.19)
Pro forma.................................. (0.08) (0.22) (0.21)
The Company calculated the value of each option grant on the date of the
grant using a Black-Scholes option pricing model with the following
assumptions:
Stock Option
ESP Plan Plans
-------- -------------------
1999 1997 1998 1999
-------- ---- ---- -------
Risk free interest rates.......................... 4.6% 4.7% 4.7% 4.6%
Expected lives (in years)......................... 0.5 3.0 3.0 3.0
Dividend yield.................................... 0.0 0.0 0.0 0.0
Expected volatility............................... 92% 0.0 0.0 0 or 92%
These pro forma amounts may not be representative of the effects on reported
net loss for future years as options vest over several years and additional
awards are generally made each year. The weighted average fair value of options
granted was $0.38, $0.63 and $1.44 for the eleven months ended November 30,
1997 and for the years ended November 30, 1998 and 1999, respectively.
F-20
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
9. SEGMENT INFORMATION
The Company operates primarily in one industry segment: the development and
marketing of a suite of software products that enables businesses to link
internal operations, business partners and customer channels through the real-
time distribution of information. Revenue by geographic area is as follows (in
thousands):
Eleven Months Year Ended
Ended November 30,
November 30, ---------------
1997 1998 1999
------------- ------- -------
Domestic.......................................... $19,426 $25,049 $47,706
------- ------- -------
Europe:
United Kingdom.................................. 9,564 7,882 20,216
Luxembourg...................................... -- 8,973 7,585
Sweden.......................................... 2,130 2,512 3,532
Other........................................... 2,387 2,167 9,517
------- ------- -------
Total Europe.................................. 14,081 21,534 40,850
------- ------- -------
Pacific Rim:
Australia....................................... 1,047 2,351 2,451
Taiwan.......................................... 489 2,539 2,570
Other........................................... 231 1,284 2,863
------- ------- -------
Total Pacific Rim............................. 1,767 6,174 7,884
------- ------- -------
$35,274 $52,757 $96,440
======= ======= =======
Revenue from Reuters accounted for 27%, 15% and 19% of total revenue for the
eleven months ended November 30, 1997, and the years ended November 30, 1998
and 1999, respectively. Revenue from Cedel Global Services accounted for 17% of
total revenue in fiscal 1998, and NEC Electronics accounted for 17% of total
revenue for fiscal 1997. Customers with balances in excess of 10% of net
accounts receivable at November 30, 1999 included Reuters and Procter and
Gamble, which represented 13% and 15%, respectively. Long lived assets outside
the United States at either November 30, 1998 or 1999 were not material.
10. BUSINESS COMBINATION
In September 1999, the Company entered into an agreement to acquire
substantially all the assets of InConcert, Inc., a subsidiary of Xerox
Corporation and a developer of business integration solutions for
telecommunications companies. The acquisition was consummated on November 4,
1999 and was accounted for under the purchase method of accounting. The results
of operations of InConcert, Inc. and the estimated fair value of the assets
acquired and liabilities assumed are included in the Company's financial
statements from the date of acquisition.
F-21
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
The purchase price of $35.6 million includes cash of $34 million, accrued
severance costs reimbursable to Xerox of approximately $1.3 million and
acquisition related expenses, consisting of financial advisory, accounting and
legal fees, of approximately $0.3 million. The allocation of the purchase price
to intangibles was based upon an independent, third-party appraisal and
management's estimates and was as follows (in thousands):
Net tangible assets received..................................... $ 1,515
In-process research and development.............................. 2,800
Existing technology.............................................. 14,000
Customer base.................................................... 2,900
Workforce........................................................ 3,100
Trademarks....................................................... 1,200
Goodwill......................................................... 10,042
-------
Net assets acquired............................................ $35,557
=======
The intangible assets and goodwill acquired have estimated useful lives of 5
years and had related amortization expense of $521,000 for the year ended
November 30, 1999.
Management estimates that $2.8 million of the purchase price represents
acquired in-process research and development that has not yet reached
technological feasibility and has no alternative future use. Accordingly, this
amount was immediately charged to expense upon consummation of the acquisition.
The value assigned to acquired in-process research and development was
determined by identifying research projects in areas for which technological
feasibility has not been established. The value was determined by estimating
the costs to develop the acquired in-process technology into commercially
viable products, estimating the resulting net cash flows from such projects and
discounting the net cash flows back to their present value. The costs to
develop the acquired in-process research and development include a core
technology charge. The discount rate of 29% includes a factor that takes into
account the uncertainty surrounding the successful development of the acquired
in-process research and development. If these projects are not successfully
developed, future revenue and profitability of the Company may be adversely
affected. Additionally, the value of other intangible assets acquired may
become impaired.
Existing technology relates to the InConcert software solutions that combine
process management and application integration that integrates corporate
databases, third-party applications and legacy systems in order to convert
disparate applications into integrated solutions. This technology was valued
using the net cash flow expected as a result of the sale of these products and
discounted to the present using a 24% discount rate. The customer base was also
valued using the net cash flow expected as result of the stream of revenues
from existing customers from license fees, professional services and
maintenance support and then discounted to the present using a 24% discount
rate. The workforce was valued by estimating the cost to replace the current
assembled workforce, considering such costs as recruiting and training.
Finally, the trademark was valued by applying a trademark royalty rate of 1% to
forecasted revenue, and then the net cash flow expected from these amounts was
discounted at a rate of 24% to arrive an estimated fair market value.
F-22
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 30, 1999
The following unaudited pro forma information shows the results of operations
for the combined companies as if the transaction had consummated as of December
1, 1997 (in thousands, except for per share data):
Year Ended
November 30,
------------------
1998 1999
-------- --------
Revenue................................................. $ 61,506 $104,735
Net loss................................................ (28,063) (34,101)
Basic and diluted net loss per share.................... $ (0.47) $ (0.33)
The pro forma results for 1999 combine the Company's results for the year
ended November 30, 1999 with the results of InConcert, Inc. for the period from
January 1, 1999 through the date of acquisition and includes the $2.8 million
write-off discussed above. The pro forma results for 1998 combine the Company's
results for the year ended November 30, 1998 with the results of InConcert,
Inc. for the year ended December 31, 1998. On a combined basis, there were no
material transactions between the Company and InConcert, Inc. during the
periods presented. The results are not necessarily indicative of what would
have occurred had the acquisition actually been made as of December 1, 1997 or
of future operations of the combined companies.
11. SUBSEQUENT EVENTS
Building Leases
In December 1999, the Company entered into a lease for approximately 282,000
square feet of office space to be constructed in Palo Alto, California. The
lease commences on January 1, 2001 and provides for aggregate payments of
$189.7 million through December 31, 2013. This lease is contingent upon design
approval by local regulatory agencies.
In addition, in January 2000, the Company entered into a lease for
approximately 97,000 square feet of office space in Palo Alto, California,
commencing on April 1, 2000 and expiring on December 31, 2010. The lease
provides for aggregate payments of $71.4 million to be paid over the term of
the lease. The Company was required to establish an irrevocable standby letter
of credit in the amount of $4,500.000. The Letter of Credit expires on January
31, 2001 but will automatically extended up to January 31, 2011.
Amendment to The 1996 Stock Option Plan
On January, the stockholders of the Company approved an amendment to the
Company's 1996 Stock Option Plan to increase the number of shares reserved for
issuance by 11,467,542 shares and also modify the provisions relating to the
annual increase in the number of shares reserved for issuance such that the
annual increase will be equal to the lesser of (i) 60,000,000 shares or (ii) 5%
of the outstanding shares of the Company's common stock on such date.
Stock Split
In January 2000, the Company's Board of Directors effected a three-for-one
stock split payable in the form a dividend of two additional shares of the
Company's common stock for every share owned by shareholders. All share and per
share data have been adjusted to retroactively reflect this split and the split
discussed in Note 2.
F-23
TIBCO SOFTWARE INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On November 4, 1999, TIBCO Software Inc. ("TIBCO" or the "Company") acquired
substantially all of the assets of InConcert, Inc. ("InConcert"), a wholly-
owned subsidiary of Xerox, in a transaction accounted for as a purchase
business combination. TIBCO paid $34 million in cash and reimbursed Xerox
approximately $1.3 million for severance costs related to said merger. The
Company also incurred approximately $0.3 million in acquisition related
expenses, which consist primarily of financial advisory, accounting and legal
fees. The allocation of purchase price to intangibles was based upon an
independent, third-party appraisal and management's estimates and was as
follows (in thousands):
Net assets received.................................................. 1,515
In-process technology................................................ 2,800
Existing technology.................................................. 14,000
Customer base........................................................ 2,900
Workforce in place................................................... 3,100
Trademark............................................................ 1,200
Goodwill............................................................. 10,042
-------
$35,557
=======
The net tangible assets consist primarily of accounts receivable, property
and equipment, accounts payable, accrued liabilities, and deferred revenue.
Because the in-process technology had not reached the stage of technological
feasibility at the acquisition date and had no alternative future use, the
amount was immediately charged to operations. The amount allocated to existing
technology, workforce in place, customer base, and trademark is being amortized
over their estimated useful lives of five years. The purchase price in excess
of identified tangible and intangible assets is allocated as goodwill, which is
also being amortized over five years.
The accompanying unaudited pro forma combined statement of operations
presents the results of operations of TIBCO for the year ended November 30,
1999 combined with the statement of operations of InConcert for the period from
January 1, 1999 to November 3, 1999. The unaudited pro forma combined statement
of operations gives effect to this acquisition as if it had occurred as of
December 1, 1998. The unaudited pro forma condensed combined information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
transaction had been consummated at the dates indicated, nor is it necessarily
indicative of future operating results or the financial position of the
combined companies.
F-24
TIBCO SOFTWARE INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
TIBCO InConcert
------------ -----------
Period from
January 1,
Year Ended 1999 to Pro Forma
November 30, November 3, ----------------------
1999 1999 Adjustments Combined
------------ ----------- ----------- --------
Revenue....................... $ 96,440 $ 8,295 $ -- $104,735
Cost of revenue............... 36,612 2,654 -- 39,266
-------- ------- ------- --------
Gross profit.................. 59,828 5,641 -- 65,469
-------- ------- ------- --------
Operating expenses:
Research and development.... 27,478 2,622 -- 30,100
Sales and marketing......... 33,130 6,920 -- 40,050
General and administrative.. 8,229 3,214 -- 11,443
Amortization of stock-based
compensation............... 9,252 -- -- 9,252
Acquired in-process research
and development............ 2,800 -- -- 2,800
Amortization of goodwill and
acquired intangibles....... 521 -- 5,727 (A) 6,248
-------- ------- ------- --------
Total operating expenses.. 81,410 12,756 5,727 99,893
-------- ------- ------- --------
Loss from operations.......... (21,582) (7,115) (5,727) (34,424)
Other income (expense), net... 2,101 -- (1,778)(B) 323
-------- ------- ------- --------
Net loss...................... $(19,481) $(7,115) $(7,505) $(34,101)
======== ======= ======= ========
Net loss per share:
Basic and diluted........... $ (0.19) $ (0.33)
======== ========
Weighted average shares..... 104,112 104,112
======== ========
- --------
(A) To record amortization of goodwill and acquired intangibles related to the
acquisition of InConcert as if the transaction occurred on December 1,
1998. Goodwill and acquired intangibles of approximately $31.2 million are
being amortized on a straight-line basis over five years.
(B) To record the impact on interest income (expense) as if the transaction and
related $35.6 million cash payments occurred on December 1, 1998.
F-25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of InConcert, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity (deficit) and cash flows present fairly, in
all material respects, the financial position of InConcert, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
F-26
INCONCERT, INC.
BALANCE SHEET
December 31,
September 30, -------------------------
1999 1998 1997
------------- ------------ -----------
ASSETS (unaudited)
Current assets:
Accounts receivable, net of allow-
ances of $937,955, $12,418 and
$182,242, respectively............ $ 2,702,450 $ 2,678,409 $ 954,206
Related party accounts receivable.. 73,708 146,257 412,570
Prepaid expenses and other current
assets............................ 134,209 121,094 134,804
------------ ------------ -----------
Total current assets.............. 2,910,367 2,945,760 1,501,580
Property and equipment, net......... 456,354 573,272 568,918
------------ ------------ -----------
$ 3,366,721 $ 3,519,032 $ 2,070,498
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts payable................... $ 308,381 $ 338,323 $ 136,542
Accrued liabilities................ 902,728 1,369,768 1,786,359
Deferred revenue................... 857,376 899,322 736,237
Due to parent...................... 6,036,962 7,542,201 3,339,415
------------ ------------ -----------
Total current liabilities......... 8,105,447 10,149,614 5,998,553
Long-term deferred revenue.......... 82,206 -- --
------------ ------------ -----------
Total liabilities................. 8,187,653 10,149,614 5,998,553
------------ ------------ -----------
Commitments (Note 6)
Stockholders' equity (deficit):
Convertible Preferred Stock,
24,000,000 shares authorized,
$0.001 par value:
Series A, 16,000,000 shares
designated, issued and outstanding
(liquidation preference of
$23,500,000)...................... 16,000 16,000 16,000
Series B, 2,273,362, 2,273,362 and
0 shares designated, issued and
outstanding (liquidation
preference of $3,339,000) at
September 30, 1999 and December
31, 1998 and 1997, respectively... 2,273 2,273 --
Series C, 5,940,578, 0 and 0 shares
designated, issued and outstanding
(liquidation preference of
$7,542,000) at September 30, 1999
and December 31, 1998 and 1997,
respectively...................... 5,941 -- --
Common Stock, par value $0.001;
30,000,000 shares authorized;
225,448, 176,778, and 5,999 shares
issued and 27,432, 17,169 and
1,000 outstanding at September 30,
1999 and December 31, 1998 and
1997, respectively................ 225 177 6
Treasury Stock, at cost; 198,016,
159,609 and 4,999 shares at
September 30, 1999, and December
31, 1998 and 1997, respectively... (75,576) (60,268) (600)
Additional paid-in capital......... 15,538,766 7,998,687 4,657,833
Accumulated other comprehensive
income............................ 11,000 49,000 18,982
Accumulated deficit................ (20,319,561) (14,636,451) (8,620,276)
------------ ------------ -----------
Total stockholders' equity
(deficit)........................ (4,820,932) (6,630,582) (3,928,055)
------------ ------------ -----------
$ 3,366,721 $ 3,519,032 $ 2,070,498
============ ============ ===========
The accompanying notes are an integral part of these financial statements.
F-27
INCONCERT, INC.
STATEMENT OF OPERATIONS
Nine Months Ended Year Ended
September 30, December 31,
------------------------ ------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(unaudited)
License revenue:
Non-related parties....... $ 3,948,157 $ 1,524,525 $ 4,827,175 $ 5,025,801
Related parties........... 669,203 732,548 1,047,654 729,210
----------- ----------- ----------- -----------
Total license revenue.... 4,617,360 2,257,073 5,874,829 5,755,011
----------- ----------- ----------- -----------
Maintenance and service
revenue:
Non-related parties....... 3,213,039 1,892,773 2,721,255 2,186,597
Related parties........... 40,367 115,964 152,449 89,416
----------- ----------- ----------- -----------
Total maintenance and
service revenue......... 3,253,406 2,008,737 2,873,704 2,276,013
----------- ----------- ----------- -----------
Total revenue............ 7,870,766 4,265,810 8,748,533 8,031,024
----------- ----------- ----------- -----------
Cost of revenue:
License................... 245,227 295,483 528,228 441,426
Maintenance and service... 2,303,452 1,192,025 1,772,539 1,896,301
----------- ----------- ----------- -----------
Total cost of revenue.... 2,548,679 1,487,508 2,300,767 2,337,727
----------- ----------- ----------- -----------
Gross profit............... 5,322,087 2,778,302 6,447,766 5,693,297
----------- ----------- ----------- -----------
Operating expenses:
Research and development.. 2,262,000 2,136,771 2,892,020 3,223,737
Sales and marketing....... 5,969,759 4,730,723 7,012,745 6,649,527
General and
administrative........... 2,773,165 2,037,133 2,555,404 4,440,309
----------- ----------- ----------- -----------
Total operating
expenses................ 11,004,924 8,904,627 12,460,169 14,313,573
----------- ----------- ----------- -----------
Loss from operations....... (5,682,837) (6,126,325) (6,012,403) (8,620,276)
Other income (expense)..... (273) 88 (3,772) --
----------- ----------- ----------- -----------
Net loss................... $(5,683,110) $(6,126,237) $(6,016,175) $(8,620,276)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-28
INCONCERT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Convertible Preferred Stock
----------------------------------------------------
Treasury
Series A Series B Series C Common Stock Stock Stock Additional
------------------ ---------------- ---------------- -------------- ---------------- Subscription Paid-in
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Receivable Capital
---------- ------- --------- ------ --------- ------ ------- ------ ------- -------- ------------ -----------
Balance as of
January 1,
1997............ 16,000,000 $16,000 -- $ -- -- $ -- 1,000 $ 1 -- $ -- $(4,673,788) $ 4,657,788
Translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............
Transfer of
assets from
parent.......... -- -- -- -- -- -- -- -- -- -- 4,673,788 --
Stock options
exercised, net
of shares
repurchased..... -- -- -- -- -- -- 4,999 5 4,999 (600) -- 45
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Balance at
December 31,
1997............ 16,000,000 16,000 -- -- -- -- 5,999 6 4,999 (600) -- 4,657,833
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............
Issuance of
Series B
Preferred
Stock........... -- -- 2,273,362 2,273 -- -- -- -- -- -- -- 3,337,142
Stock options
exercised, net
of shares
repurchased..... -- -- -- -- -- -- 170,779 171 154,610 (59,668) -- 3,712
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Balance at
December 31,
1998............ 16,000,000 16,000 2,273,362 2,273 -- -- 176,778 177 159,609 (60,268) -- 7,998,687
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Translation
adjustment
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss
(unaudited).....
Issuance of
Series C
Preferred Stock
(unaudited)..... -- -- -- -- 5,940,578 5,941 -- -- -- -- -- 7,536,260
Stock options
exercised, net
of shares
repurchased
(unaudited)..... -- -- -- -- -- -- 48,710 48 38,407 (15,308) -- 3,819
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Balance at
September 30,
1999
(unaudited)..... 16,000,000 $16,000 2,273,362 $2,273 5,940,578 $5,941 225,488 $225 198,016 $(75,576) $ -- $15,538,766
========== ======= ========= ====== ========= ====== ======= ==== ======= ======== =========== ===========
Other Accumu- Total
Comprehensive lated Stockholders'
income (Loss) Deficit Equity (Deficit)
------------- ------------- ----------------
Balance as of
January 1,
1997............ $ -- $ -- $ 1
----------------
Translation
adjustment...... 18,982 -- 18,982
Net loss........ -- (8,620,276) (8,620,276)
----------------
Comprehensive
loss............ (8,601,294)
Transfer of
assets from
parent.......... -- -- 4,673,788
Stock options
exercised, net
of shares
repurchased..... -- -- (550)
------------- ------------- ----------------
Balance at
December 31,
1997............ 18,982 (8,620,276) (3,928,055)
------------- ------------- ----------------
Translation
adjustment...... 30,018 -- 30,018
Net loss........ -- (6,016,175) (6,016,175)
----------------
Comprehensive
loss............ (5,986,157)
Issuance of
Series B
Preferred
Stock........... -- -- 3,339,415
Stock options
exercised, net
of shares
repurchased..... -- -- (55,785)
------------- ------------- ----------------
Balance at
December 31,
1998............ 49,000 (14,636,451) (6,630,582)
------------- ------------- ----------------
Translation
adjustment
(unaudited)..... (38,000) -- (38,000)
Net loss
(unaudited)..... -- (5,683,110) (5,683,110)
----------------
Comprehensive
loss
(unaudited)..... (5,721,110)
Issuance of
Series C
Preferred Stock
(unaudited)..... -- -- 7,542,201
Stock options
exercised, net
of shares
repurchased
(unaudited)..... -- -- (11,441)
------------- ------------- ----------------
Balance at
September 30,
1999
(unaudited)..... $ 11,000 $(20,319,561) $(4,820,932)
============= ============= ================
F-29
INCONCERT, INC.
STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, Year Ended December 31,
------------------------ ------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(unaudited)
Cash flows from operating
activities:
Net loss.................. $(5,683,110) $(6,126,237) $(6,016,175) $(8,620,276)
Adjustment to reconcile
net loss to net cash used
for operating activities:
Depreciation and
amortization............ 249,629 281,571 359,498 498,588
Provision for bad debt... (925,537) (169,824) (169,824) (182,242)
Changes in assets and
liabilities:
Accounts receivable..... 974,045 (814,004) (1,288,066) (1,184,534)
Prepaid expenses and
other assets........... (13,115) 126,289 13,710 (134,804)
Accounts payable........ (29,942) 230,367 201,781 136,542
Accrued liabilities..... (467,040) (668,005) (416,591) 1,786,359
Deferred revenue........ 40,260 816,246 163,085 736,237
----------- ----------- ----------- -----------
Net cash used for
operating activities.. (5,854,810) (6,323,597) (7,152,582) (6,964,130)
----------- ----------- ----------- -----------
Cash flows from investing
activities--
Purchases of property and
equipment................ (132,711) (249,890) (363,852) (1,067,506)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Borrowings from parent.... 6,036,962 6,524,746 7,542,201 3,339,416
Proceeds from issuance of
Preferred Stock.......... -- -- -- 4,673,788
Proceeds from issuance of
Common Stock............. 3,867 252 3,883 50
Repurchase of Common
Stock.................... (15,308) (220) (59,668) (600)
----------- ----------- ----------- -----------
Net cash provided by
financing activities.. 6,025,521 6,524,778 7,486,416 8,012,654
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash........... (38,000) 48,709 30,018 18,982
----------- ----------- ----------- -----------
Net change in cash and cash
equivalents............... -- -- -- --
Cash and cash equivalents
at beginning of period.... -- -- -- --
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period.......... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-30
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
InConcert, Inc. (the "Company") is a provider of enterprise-class software
systems. The Company designs, develops, markets, and supports its product,
InConcert, an object oriented client/server application software product family
designed to solve process centric mission critical business problems for large
multinational organizations.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company was first established as a product line within Xerox
Corporation's Xsoft division in 1990. On July 1, 1996, the Company incorporated
under the laws of the State of Delaware as a wholly-owned subsidiary of Xerox.
See Note 4.
On September 30, 1999, the Company entered into an Asset Purchase Agreement
to sell substantially all of the net assets of the Company to TIBCO Software
Inc. for $34 million in cash. The Company expects to close the transaction
during the fourth quarter of fiscal 1999. The transaction will be accounted for
as a purchase acquisition; however, the financial statements presented in this
report do not reflect purchase accounting.
Unaudited Interim Results
The accompanying interim financial statements as of September 30, 1999, and
for the nine months ended September 30, 1999 and 1998, are unaudited. The
unaudited interim financial statements have been prepared on the same basis as
the annual financial statements and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows as of September 30, 1999 and for the nine months ended September 30, 1999
and 1998. The financial information disclosed in these notes to financial
statements related to these periods are unaudited. The results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the report period. Actual
results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of accounts receivable. The Company's accounts
receivable is derived from revenue earned from customers located primarily in
the United States and Europe. The Company performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral from
its customers. The Company maintains an allowance for doubtful accounts
receivable based upon the
F-31
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
expected collectibility of accounts receivable. The following table summarized
revenue from customers in excess of 10% of the total revenue:
Nine Months
Ended
September 30, Year Ended Year Ended
-------------- December 31, December 31,
1999 1998 1998 1997
------ ------ ------------ ------------
(unaudited)
WorldCom................................ 18% N/A N/A 17%
Bell South.............................. 10% N/A 15% N/A
Toshiba................................. N/A N/A 12% N/A
Capitalized Software Development Costs
Research and development costs for internally developed software products and
enhancements to existing software products are expensed when incurred until
technological feasibility is established. Thereafter, software costs are
capitalized until the product is available for general released to customer. To
date, the period between achieving technological feasibility and the general
availability of such software has been short, and software development costs
qualifying for capitalization have been insignificant. Accordingly, no costs
have been capitalized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally computed
using the straight-line method over the estimated useful lives of the assets as
follows:
Furniture and
fixtures..... 10-15 years
Equipment..... 3-5 years
Leasehold
improvements.. Shorter of the lease term or the estimated useful life
Revenue Recognition
Software license revenue is recognized when all of the following criteria
have been met: there is an executed license agreement, software has been
shipped to the customer, no significant vendor obligations remain, the license
fee is fixed and payable within twelve months and collection is deemed
probable. Maintenance revenue is recognized ratably over the term of the
maintenance contract, typically twelve months. Service revenues, generally
training and consulting, are recognized as services are performed.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees," ("APB No. 25") and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Comprehensive Income
Effective December 31, 1997, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. Foreign currency translation is
currently the only item in comprehensive income.
F-32
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Recent Accounting Pronouncements
In June 1988, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
The Company does not expect that the adoption of SFAS No. 133 will have a
material impact on its financial statements.
3. BALANCE SHEET COMPONENTS
December 31,
September 30, ------------------------
1999 1998 1997
------------- ----------- -----------
(unaudited)
Accounts receivable:
Accounts receivable.................. $ 1,471,705 $ 2,152,527 $ 832,679
Unbilled receivables................. 2,168,700 538,300 303,769
----------- ----------- -----------
3,640,405 2,690,827 1,136,448
Less: Allowance for doubtful accounts
and returns.......................... (937,955) (12,418) (182,242)
----------- ----------- -----------
$ 2,702,450 $ 2,678,409 $ 954,206
=========== =========== ===========
Property and equipment, net:
Equipment............................ $ 2,458,157 $ 2,325,988 $ 2,468,535
Furniture and fixtures............... 71,168 57,105 47,569
Leasehold improvements............... 48,046 48,046 29,739
Construction in progress............. 1,830 15,166 6,766
----------- ----------- -----------
2,579,201 2,446,305 2,552,609
Less: accumulated depreciation and
amortization......................... (2,122,847) (1,873,033) (1,983,691)
----------- ----------- -----------
$ 456,354 $ 573,272 $ 568,918
=========== =========== ===========
Accrued liabilities:
Compensation and employee related.... 308,743 677,213 943,206
Other operating expenses............. 593,985 692,555 843,153
----------- ----------- -----------
$ 902,728 $ 1,369,768 $ 1,786,359
=========== =========== ===========
4. RELATED PARTY TRANSACTIONS
The Company has significant transactions with Xerox Corporation, including
licensing arrangements, development contracts and shared functions and
services. Related party revenue is related to the Company licensing its
software product to Xerox Corporation for sub-licensing to Xerox's end-users.
The cost of revenue to related parties has not been separately stated because
it is impracticable to do so. The following is a summary of the transactions
for the periods indicated:
Service Agreement
The Company and Xerox Corporation had a service agreement under which Xerox
provided certain administrative services, human resource and employee benefits
administration, expenditure
F-33
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. RELATED PARTY TRANSACTIONS--(Continued)
processing, and treasury functions. Xerox Corporation charged the Company for
these services on a basis that reflected the Company's share of such costs,
including a fixed fee that was negotiated annually. Management believed this
allocation method was reasonable based upon the Company's use of such services.
The service fee included in general and administrative expenses on the
Statement of Operations was $180,000, $117,000, $157,480 and $212,000 for the
nine months ended September 30, 1999 and 1998 and for the year ended December
31, 1998 and 1997, respectively.
Secured Lending Agreement
The Company and Xerox Corporation entered into a secured lending agreement
where Xerox Corporation extended short-term loans to the Company. This was
administered through maintaining a "sweep" bank account. Xerox Corporation
advanced money or deducted excess funds directly out of the Company's bank
account. In effect, the Company maintained a "zero balance" bank account. No
interest was charged or paid on the balance of the outstanding loans or net
credit. The parties could have agreed to convert all or part of the outstanding
loans to equity or another form of lending. Net amount loaned to the Company
for the nine months ended September 30, 1999 and the years ended December 31,
1998 and 1997 were $6,036,962, $7,542,201 and $3,339,415, respectively. During
the nine months ended September 30, 1999 and for the year ended December 31,
1998, the Company converted $7,542,201 and $3,339,415, respectively, into
Series B and C preferred stock.
5. INCOME TAXES
Xerox files a consolidated tax return which includes the results of the
Company. Under the terms of the Tax Sharing Agreement, the Company will pay to
Xerox amounts determined as if the Company paid taxes as a separate entity.
During 1999, 1998 and 1997, the Company incurred an operating loss for both
financial and tax reporting purposes. Under the Company's agreement with Xerox,
the Company would be reimbursed for its previous tax net operating losses
utilized by Xerox in its consolidated return, in future periods when the
Company generated taxable income. The Company has not generated taxable income
through the date of the acquisition, therefore no deferred tax asset has been
recorded. There are no other significant deferred tax assets or liabilities.
See Note 8.
6. COMMITMENTS
The Company leases office space under a non-cancelable operating lease with
an expiration date of June 2003. Rental expense was approximately $349,000,
$318,000, $435,000 and $344,000 for the nine months ended September 30, 1999
and 1998 and for the years ended December 31, 1998 and 1997, respectively.
Future minimum lease payments under the non-cancelable operating lease, as of
December 31, 1998, are as follows:
1999.............................................................. $ 465,140
2000.............................................................. 465,140
2001.............................................................. 465,140
2002.............................................................. 465,140
2003.............................................................. 116,285
----------
$1,976,845
==========
F-34
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY
As of November 27, 1996, the Company's Articles of Incorporation authorized
the Company to issue 24,000,000 shares of Preferred Stock at $0.001 par value
and 30,000,000 shares of Common Stock at $0.001 par value.
Preferred Stock
Effective as of January 1, 1997, the Company's initial capital structure was
established by issuing 16.0 million shares of Series A Convertible Preferred
Stock ("Series A") and 1,000 shares of Common Stock to Xerox.
In April 1998, the Company issued 2,273,362 shares of Series B Convertible
Preferred Stock ("Series B") at $1.46875 per share for net proceeds of
$3,339,000. In May 1999, the Company issued 5,940,578 share of Series C
Convertible Preferred Stock ("Series C") at $1.2696 per share for net proceeds
of $7,542,000.
The holders of the outstanding Preferred Stock have various rights and
preferences as follows:
Voting Rights. The holders of Series A, Series B and Series C have the right
to one vote for each share of Common Stock into which such shares of Preferred
Stock could be converted.
Dividend Rights. The holders of Series A, Series B and Series C are entitled
to receive noncumulative dividends at the per share annual rate of $0.1175
payable when and if declared by the board of directors. The holders of
Preferred Stock will also be entitled to participate in dividends on Common
Stock, when and if declared by the board of directors, based on the number of
shares of Common Stock held on an as-converted basis. No dividends on Preferred
Stock or Common Stock have been declared by the board from inception through
September 30, 1999.
Liquidation Preference. In the event of any liquidation, dissolution, or
winding-up of the Company, including a merger, acquisition or sale of assets
where the beneficial owners of the Company's Common Stock and Preferred Stock
own less than 50% of the resulting voting power of the surviving entity, the
holders of Series A, Series B and Series C are entitled to receive an amount of
$1.46875, $1.46875 and $1.2696 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of Common Stock.
If the assets and funds distributed to the holders of Preferred Stock are
insufficient to permit the payment to the holders of the full preferential
amount mentioned above, then the entire assets of the Company legally available
for distribution shall be distributed ratably among the holders of Preferred
Stock.
Any assets remaining after the payment of all preferential amounts to the
holders of Preferred Stock, will be shared ratably by the holders of the
Preferred Stock and common stockholders.
Conversion. Each share of Preferred Stock is convertible, at the option of
the holder, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the applicable original issue price for such
series of Preferred Stock. The initial Conversion Price per share for shares of
Preferred Stock is the Original Issue Price. The Conversion Prices for the
Preferred Stock is subject to adjustment.
F-35
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY--(Continued)
Each share of Preferred Stock will automatically be converted into shares of
Common Stock at the applicable Conversion Price at the time in effect for such
series of Preferred Stock immediately upon the earlier of the following two
events: (a) upon the consummation of the sale of the Company's Common Stock in
a bona fide, firm commitment underwriting pursuant to a registration statement
under the Securities Act of 1933, the public offering price of which is not
less than $5.00 per share with aggregate gross proceeds to the Corporation in
excess of $10.0 million, or (b) the date upon such conversion is approved by
holders of a majority of the shares of Preferred Stock.
Common Stock
Voting Rights. The holders of each shares of Common Stock has the right to
one vote, and is entitled to notice of any stockholders' meeting in accordance
with the Bylaws of the Company, and is entitled to vote upon such matters and
in such manner as may be provided by law.
Dividend Rights. Subject to the prior rights of holders of all classes of
stock at the time outstanding having prior rights as to dividends, the holders
of the Common Stock shall be entitled to receive, when and as declared by the
Board, out of any assets of the Company legally available therefore, such
dividends as may be declared from time to time by the Board.
Liquidation Rights. Upon liquidation, dissolution, or winding-up of the
Company, the assets of the Company are distributed as described above for
Preferred Stock liquidation rights.
Stock Option Plan
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"). The
purpose of the Plan is to enable the Company to obtain and retain the services
of the types of employees, consultants, officers and directors who will
contribute to the Company's long range success and to provide incentives which
are linked directly to increases in share value which will inure to the benefit
of all shareholders of the Company. The total number of shares which may be
issued under the Plan is 4,568,340 shares. The Plan is administered by the
Board of Directors or the Committee. The administrator is responsible for
determining the term of each option, the option exercise price, the medium of
payment, the number of shares for which each option is granted and the vesting
rate at which each option is exercisable. To date, options awarded generally
vest ratably over five years and expire upon the earlier of ten years from the
date of grant or 90 days from employee termination.
F-36
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY--(Continued)
The activity under the 1996 Plan, is summarized as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
--------- -------- --------- --------
Outstanding at beginning of year...... 2,125,306 $0.04 274,700 $0.01
Granted............................... 682,500 0.26 2,036,505 0.04
Exercised............................. (170,779) 0.02 (4,999) 0.01
Canceled.............................. (438,859) 0.04 (180,900) 0.08
--------- ---------
Outstanding at end of year............ 2,198,168 0.11 2,125,306 0.04
========= =========
Options vested at end of year......... 1,170,946 669,302
========= =========
Weighted average fair value of options
granted during the year.............. $ 0.17 $ 0.03
========= =========
The following table summarizes information about stock options outstanding at
December 31, 1998 (in thousands, except per share data):
Options Outstanding and Exercisable
--------------------------------------------
Weighted
Average Weighted
Number of Remaining Average
Options Contractual Exercise Options
Range of exercise prices Outstanding Life Price Exercisable
------------------------ ----------- ----------- -------- -----------
$0.01......................... 1,136,169 8.3 years $0.01 757,446
0.12......................... 709,499 8.6 years 0.12 354,750
0.39......................... 352,500 9.5 years 0.39 58,750
--------- --------- ----- ---------
$0.01-$0.39................... 2,198,168 8.8 years $0.11 1,170,946
========= ========= ===== =========
F-37
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY--(Continued)
Pro Forma Information
This information is required to illustrate the financial results of
operations as if the Company accounted for its grants to employee stock options
under the fair value method of SFAS No. 123. The fair value of the Company's
options granted was estimated at the date of grant using a Black-Scholes option
pricing model. The Company calculated the value of each option grant on the
date of grant with the following assumptions:
Nine Months
Ended
September 30, Year Ended Year Ended
-------------- December 31, December 31,
1999 1998 1998 1997
------ ------ ------------ ------------
(unaudited)
Risk free interest rates........... 5.4% 5.5% 5.5% 6.3%
Expected lives (in years).......... 6.0 6.0 6.0 6.0
Dividend yield..................... 0.0% 0.0% 0.0% 0.0%
Expected volatility................ 70.0% 70.0% 70.0% 70.0%
For purposes of pro forma disclosures, the estimated value of the option is
amortized over the options' vesting period. The compensation cost associated
with the Company's stock-based compensation plans, as if the fair value based
method described in SFAS No. 123 had been adopted, would have resulted in a pro
forma loss of $5,789,049, $6,149,930, $6,047,766 and $8,627,173 for the nine
months ended September 30, 1999 and 1998 and for the years ended December 31,
1998 and 1997, respectively.
F-38
APPENDIX A
Selling Stockholders
The following table sets forth the names of the selling stockholders and the
number and percentage of shares of our common stock beneficially owned by each
of the selling stockholders as of March 24, 2000. All selling stockholders are
current or former TFT employees. The number of shares in the following table
represents the number of shares of common stock the person holds plus the
number of shares underlying options to purchase common stock held by the
person. There are 20,250,000 shares authorized under TFT's stock option plan.
13,895,697 shares are reserved for sale to employees and consultants pursuant
to their exercise of purchase rights granted or to be granted to them by TFT as
of December 20, 1999. Assuming the exercise of all of the reserved options,
ownership by Reuters will decrease from 62.1% to 53.5%.
Number of
Shares
Beneficially Percentage
Owned and of
Offered Shares
Selling Stockholders Hereby Outstanding
-------------------- ------------ -----------
Bittman, Thomas .................................... 500 *
Bruell, Ansgar ..................................... 14,250 *
Cheung, Freddie Kam................................. 1,002 *
Chien, Edward ...................................... 12,173 *
Convey, Michael .................................... 49,179 *
Coslett, Peter ..................................... 40,200 *
Duran, Randy ....................................... 133,900 *
Dwyer, William ..................................... 52,500 *
Eckroth, James...................................... 38,625 *
Fenick, William..................................... 12,300 *
Focken, Richard..................................... 16,240 *
Kershaw, Ian........................................ 74,250 *
Ladipo, Jonathan.................................... 23,400 *
Maiuolo, Antonio.................................... 29,475 *
McMahon, John....................................... 23,526 *
Murphy, Lynne....................................... 23,325 *
Saed, Delgir........................................ 35,658 *
Sandrini, Jerome.................................... 62,100 *
Siegler, Norman..................................... 15,000 *
Suzuki, Hiroyuki.................................... 3,000 *
-------
Totals.............................................. 660,603
=======
--------
*Less than one percent.
A-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
Amount To
Be Paid
---------
SEC registration fee............................................... $62,511
Legal fees and expenses............................................ 25,000
Accounting fees and expenses....................................... 5,000
-------
Total............................................................ $92,511
=======
Item 14. Indemnification of Directors and Officers
Article Nine of the registrant's Certificate of Incorporation (Exhibit 3.1
hereto) and Article VI of the Registrant's Bylaws (Exhibit 3.2 hereto) provide
for mandatory indemnification of its directors and officers, and permissible
indemnification of employees and other agents, to the maximum extent permitted
by the Delaware General Corporation Law. In addition, the registrant has
entered into Indemnification Agreements (Exhibit 10.1 hereto) with its
officers and directors.
Item 15. Recent Sales of Unregistered Securities
From the registrant's inception through July 1, 1999, the registrant had
issued and sold the following securities:
(a) On December 31, 1996, we issued and sold 57,000,000 shares of our
common stock and 60,000,000 shares of our Series A preferred stock to
Reuters Nederland B.V. in connection with the establishment by Reuters
of TIBCO Software Inc. as a separate entity from TIBCO Inc. The
consideration for the issuance of the shares consisted of $10,000,000
plus the book value of the assets transferred to us less the book value
of the assumed liabilities.
(b) On May 9, 1997, we issued and sold 13,095,000 shares of our Series B
preferred stock to Cisco Systems, Inc. for a purchase price of
approximately $15,714,000.
(c) On December 31, 1997, we issued and sold 8,583,948 shares of Series C
preferred stock to entities affiliated with Mayfield Fund LLP for a
purchase price of approximately $11,045,000.
(d) As of March 31, 1999, an aggregate of 12,048,573 shares of common stock
had been issued upon exercise of options under our Stock Option Plan.
(e) On June 1, 1999, we granted to Reuters an option purchase 450,000
shares of our common stock under our Director Stock Option Plan. This
option vested immediately upon grant, has an exercise price of $2.00
per share and may be transferred by Reuters to the Reuters-nominated
directors.
II-1
The issuances of the securities described in (a), (b) and (c) above were
deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) of the Securities Act as transactions by
an issuer not involving any public offering. The issuances of the securities
described in (d) and (e) above were deemed to be exempt from registration under
the Securities Act in reliance on Rule 701 under the Securities Act as
transactions by an issuer in compensatory circumstances. All of the securities
were acquired by the recipients for investment and with no view toward the
resale or distribution thereof. In each instance, the recipients were
sophisticated investors or employees of ours, the offer and sales were made
without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions
were paid. All recipients had adequate access, through their relationships with
the registrant, to information about the registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
------- -----------
3.1** Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1* Form of Registrant's Common Stock certificate.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding legality of the securities being issued.
10.1* Form of Indemnification Agreement.
10.2* First Amended and Restated License, Maintenance and Distribution
Agreement dated May 28, 1999, among Reuters Limited, TIBCO Finance
Technology, Inc. and Registrant.
10.3** Third Amended and Restated Stockholders Agreement, among Reuters
Nederland B.V., Reuters Limited, Cisco Systems, Inc., Mayfield IX,
Mayfield Associates Fund III, Vivek Ranadive and Registrant.
10.4** 1996 Stock Option Plan, as amended.
10.5** 1998 Director Option Plan, as amended.
10.6** Assignment and Assumption of Lease Agreement, between TIBCO Finance
Technology, Inc. and Registrant.
10.7** Employment Agreement between Registrant and Vivek Y. Ranadive.
10.8** Employment Agreement between Registrant and Robert P. Stefanski.
10.9** Employment Agreement between Registrant and Paul G. Hansen.
10.10** Employment Agreement between Registrant and Richard M. Tavan.
10.12* Software License and Development Agreement dated May 11, 1999 between
Cedel Global Services, societe anonyme and Registrant.
10.13* Industrial Lease Agreement dated December 14, 1995 between Porter
Drive Associates LLC and TIBCO Finance Technology, Inc. (formerly
known as Teknekron Software Systems (Delaware), Inc.)
21.1** List of subsidiaries.
23.1*** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1*** Power of Attorney.
27.1** Financial Data Schedule
- --------
* These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-78195.
** These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-31358.
*** Previously filed.
II-2
(b) Financial Statement Schedules
Included in Notes to Financial Statements.
Item 17. Undertakings
The undersigned registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering price
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration be means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant, the registrant has had been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the registrant will, unless in the opinion of its
counsel the matter has had 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has had duly caused this Amended Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Palo
Alto, California on this 24th day of March, 2000.
TIBCO SOFTWARE INC.
/s/ Paul G. Hansen
By: ___________________________________
Paul G. Hansen
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
* President, Chief March 24, 2000
____________________________________ Executive Officer and
Vivek Y. Ranadive Chairman of the Board
(Principal Executive
Officer)
/s/ Paul G. Hansen Executive Vice March 24, 2000
____________________________________ President, Finance and
Paul G. Hansen Chief Financial Officer
(Principal Financial
Officer)
* Corporate Controller and March 24, 2000
____________________________________ Chief Accounting
Ginger M. Kelly Officer (Principal
Accounting Officer)
* Director March 24, 2000
____________________________________
Douglas M. Atkin
* Director March 24, 2000
____________________________________
Yogen K. Dalal
* Director March 24, 2000
____________________________________
Edward R. Kozel
* Director March 24, 2000
____________________________________
Donald J. Listwin
* Director March 24, 2000
____________________________________
Larry W. Sonsini
II-4
Signature Title Date
--------- ----- ----
* Director March 24, 2000
____________________________________
John G. Taysom
* Director March 24, 2000
____________________________________
Phillip E. White
* Director March 24, 2000
____________________________________
Philip K. Wood
/s/ Paul G. Hansen
*By: _______________________________
Attorney-in-fact
II-5
EXHIBITS INDEX
Exhibit
Number Description
------- -----------
3.1** Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1* Form of Registrant's Common Stock certificate.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding legality of the securities being issued.
10.1* Form of Indemnification Agreement.
10.2* First Amended and Restated License, Maintenance and Distribution
Agreement dated May 28, 1999, among Reuters Limited, TIBCO Finance
Technology, Inc. and Registrant.
10.3** Third Amended and Restated Stockholders Agreement, among Reuters
Nederland B.V., Reuters Limited, Cisco Systems, Inc., Mayfield IX,
Mayfield Associates Fund III, Vivek Ranadive and Registrant.
10.4** 1996 Stock Option Plan, as amended.
10.5** 1998 Director Option Plan, as amended.
10.6** Assignment and Assumption of Lease Agreement, between TIBCO Finance
Technology, Inc. and Registrant.
10.7** Employment Agreement between Registrant and Vivek Y. Ranadive.
10.8** Employment Agreement between Registrant and Robert P. Stefanski.
10.9** Employment Agreement between Registrant and Paul G. Hansen.
10.10** Employment Agreement between Registrant and Richard M. Tavan.
10.12* Software License and Development Agreement dated May 11, 1999 between
Cedel Global Services, societe anonyme and Registrant.
10.13* Industrial Lease Agreement dated December 14, 1995 between Porter
Drive Associates LLC and TIBCO Finance Technology, Inc. (formerly
known as Teknekron Software Systems (Delaware), Inc.)
21.1** List of subsidiaries.
23.1*** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1*** Power of Attorney.
27.1** Financial Data Schedule
- --------
* These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-78195.
** These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-31358.
*** Previously filed.