-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LDWtHZyKIxwZ2rybdk5wpRPWz5H5w2O7egDHTvLwb9kIM7CWON2C9pRX8p3xCnxh 8wpn17aWQ58AsdsMBarGqw== 0000891618-99-001303.txt : 19990402 0000891618-99-001303.hdr.sgml : 19990402 ACCESSION NUMBER: 0000891618-99-001303 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERSANT CORP CENTRAL INDEX KEY: 0000865917 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943079392 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-28540 FILM NUMBER: 99581586 BUSINESS ADDRESS: STREET 1: 6539 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 BUSINESS PHONE: 5107891500 MAIL ADDRESS: STREET 1: 6539 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 FORMER COMPANY: FORMER CONFORMED NAME: VERSANT OBJECT TECHNOLOGY CORP DATE OF NAME CHANGE: 19960428 10KSB 1 FORM 10-KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ . COMMISSION FILE NUMBER: 0-28540 VERSANT CORPORATION (Name of small business issuer in its charter) CALIFORNIA 94-3079392 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 6539 DUMBARTON CIRCLE, FREMONT, CALIFORNIA 94555 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (510) 789-1500 Securities registered pursuant to Section 12(b) of the Exchange Act: NONE Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, NO PAR VALUE (Title of Class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of our knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The issurer's revenues for the year ended December 31, 1998 were $23,233,000. As of February 26, 1999, there were outstanding 10,124,746 shares of the issurer's common stock, no par value per share. As of that date, the aggregate market value of the shares of common stock held by non-affiliates of the issuer (based on the closing price of $1.4688 for the issurer's common stock on the Nasdaq National Market on February 26, 1998) was approximately $12,522,143. This excludes 1,599,322 shares of common stock held by directors, officers and certain stockholders of the issuer. Exclusion of shares held by any person should not be construed to indicate that such person possesses power, direct or indirect, to direct or cause the direction of the management or policies of the issuer, or that such person is controlled by or is under common control with the issuer. DOCUMENTS INCORPORATED BY REFERENCE Portions of the issuer's definitive proxy statement for the issuer's 1999 annual meeting of shareholders to be filed with the Securities and Exchange Commission by April 30, 1999 are incorporated by reference in Part III of this Form 10-KSB. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] 2 VERSANT CORPORATION ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1998 TABLE OF CONTENTS FORM 10-KSB
ITEM NO. NAME OF ITEM PAGE - -------- ------------ ---- PART I Item 1 Description of Business 1 Item 2 Description of Property 13 Item 3 Legal Proceedings 13 Item 4 Submission of Matters to a Vote of Security Holders 13 PART II Item 5 Market for Common Equity and Related Stockholder Matters 14 Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A Quantitative and Qualitative Disclosures About Market Risk 33 Item 8 Financial Statements 33 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 PART III Item 10 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 34 Item 11 Executive Compensation 34 Item 12 Security Ownership of Certain Beneficial Owners and Management 34 Item 13 Certain Relationships and Related Transactions 34 Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 34 Signatures 35 Index to Consolidated Financial Statements and Financial Statement Schedule F-1
Versant(R) is a registered trademark of our company. This Form 10-KSB also includes trade names and trademarks of other companies. 3 PART I ITEM 1. DESCRIPTION OF BUSINESS This Form 10-KSB contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These forward-looking statements involve a number of risks and uncertainties which are described throughout this Form 10-KSB, including under "Revenues" and "Risk Factors" in Item 6 of this Form 10-KSB. The actual results that we achieve may differ materially from any forward-looking statements due to such risks and uncertainties. We have identified, using a preceding asterisk, various sentences within this Form 10-KSB which contain such forward-looking statements, and words such as "believes," "anticipates," "expects," "intends" and similar expressions are intended to identify forward-looking statements, but these are not the exclusive means of identifying such statements. In addition, the section labeled "Risk Factors" in Item 6 of this Form 10-KSB, which does not include asterisks for improved readability, consists primarily of forward-looking statements and associated risks. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business. OVERVIEW Our company designs, develops, markets and supports high performance object database management systems for commercial applications in distributed computing environments. Our core product is the Versant ODBMS, or Versant Object Database Management System, a highly scaleable database management system that combines native support for object-oriented languages with high performance database functionality and a client-server architecture. The Versant ODBMS enables users to store, manage and distribute information that we believe often cannot be supported effectively by traditional database technologies, including: (1) abstract data, such as graphics, images, video, audio and unstructured text; (2) dynamic, highly interrelated data, such as network management data, advanced financial instruments; and (3) distributed, rapidly changing content in Internet-based applications. We also provide peripheral products, including object-oriented programming language interfaces, database query tools, application development tools, legacy database access tools, Internet-based integration tools and multimedia management tools. In addition, we offer a variety of services, including training, consulting and technical support, to assist users in developing and deploying applications based on the Versant ODBMS. Our customers include AT&T, Alcatel Network Systems, British Airways, British Telecommunications plc, The Chicago Stock Exchange, EDS, HNC Software, Lucent, MCI WorldCom, Sabre, Decision Technologies, Siemens, Sprint, Qantas, Texaco and TRW. We are a leading provider of object database management systems to the telecommunications industry, where our products are used in strategic distributed applications such as network modeling and management, fault diagnosis, service activation and assurance and customer billing. We have also experienced customer acceptance in other vertical markets, including the financial services, defense, health care and energy markets. These markets are similar to the telecommunications market in their increasing need for high performance support for distributed applications involving abstract data types and dynamic, highly interrelated information. We were incorporated in California in August 1988 as Object Sciences Corporation. Our principal executive offices are located at 6539 Dumbarton Circle, Fremont, California 94555, and our telephone number is (510) 789-1500. BACKGROUND Organizations are under increasing pressure to manage and adapt to the forces of accelerating change and growing complexity. The combined demands of global competition, deregulation and organizational restructuring, as well as rapid changes in products and markets and a proliferation of new technologies, increasingly complicate business operations. These pressures fall heavily on corporate information systems, which must model this complexity, support 4 increasingly distributed operations and manage new types of information that are more diverse, interrelated and dynamic. In attempting to respond to these pressures, traditional information technologies are being stretched to deliver solutions for which they were neither designed nor intended. This is particularly true in the areas of software programming and database management, where many existing technology paradigms date back to the 1970s or earlier. The "structured programming" approach, which still dominates most software development, requires reduction of a business problem to a series of segmented procedures that are implemented line by line to build large, monolithic software programs. This approach can be slow and error-prone, and often produces software programs that are costly to maintain and difficult to change. We believe that a significant portion of existing programming resources can be consumed in maintaining older, legacy systems that cannot be efficiently evolved. These limitations have led a number of industry observers to declare a "crisis" in software development. A newer approach to software development, object-oriented programming, responds to many of these limitations. Object-oriented programming languages, such as C++, Java and Smalltalk, enable software developers to realistically model the complexities of large scale, dynamic systems, and to develop, maintain and evolve complex programs more quickly and at a higher level of quality than is often possible using structured programming. In addition, Java allows software developers to create applications once that will run on any computing platform, unlike most other programming languages, which require developers to modify an application every time it is ported to a different computing platform. As a result, we believe that object-oriented programming languages, especially Java, are increasingly being used by software developers. While object-oriented technology can address many software development problems, it places new demands on existing database management systems, most of which were designed to operate with traditional programming methodologies and simpler types of data in centralized environments. The hierarchical and relational database management systems now prevalent were developed at a time when data processing operations were highly structured and performed on centralized mainframe platforms or, in the case of relational database management systems, two-tier client/server applications. These systems perform well with simple types of data (such as text and numbers) and static relationships. However, businesses are increasingly required to deploy database management systems that can effectively manage the problems and conditions listed below: o Abstract Data Types. Graphics, images, video, audio and unstructured text, often combined in one application, are proliferating in business and Internet-based applications. o Complex Data Relationships. Telecommunications networks, Internet-based applications, financial instruments, health care systems, customer support systems, airline reservation systems and logistics management often involve complex relationships among thousands of rapidly changing items. o Constant Change. Business rules, data relationships, technology and information are constantly changing, requiring information systems and applications that can be quickly deployed and flexibly evolved to adapt to changes while maintaining overall system quality and data integrity and while keeping the system in service. o Highly Distributed Data. Complex, interrelated, constantly changing data may be created in or distributed to dozens or hundreds of locations around the world, and must be carefully managed to maintain integrity yet be available on demand to many users on different platforms. The growth of the Internet and the World Wide Web as mainstream computing and communication platforms compounds these challenges. The Internet incorporates new types and combinations of dynamic, abstract data, and involves a complex array of relationships among users, service and content providers, data sources and information repackagers and resellers. This computing environment is inherently distributed and dynamic and is evolving at a rapid pace. The use of the Internet for transactional applications, and the proliferation of internal corporate Intranets and external corporate Extranets, are accelerating this complexity, further increasing demand for new software and database technologies. Companies are increasingly seeking to integrate Internet, Intranet and Extranet applications with corporate databases, but the abstract multimedia information and complex, changing data relationships prevalent in these applications are not easily accommodated by hierarchical or relational databases. 2 5 Database management systems have evolved through several generations of technology, each responding to the data processing demands of its time but limited in its ability to address new problems effectively. The first online data management technologies indexed and stored data in a computer's file system and provided database access to only one user at a time. These file systems are extremely fast for single-user applications but are impractical when multiple users need access to common data. Hierarchical databases, such as IBM's IMS, enable multiple programs and users to process very large volumes of similarly structured data, often in large batch operations. While these databases provide high speed performance for such tasks as processing bank records, phone bills and insurance information, they are relatively inflexible, and are often inefficient in handling abstract data types and complex dynamic relationships. The application programs developed for these systems are in many cases over 20 years old, and can be difficult and costly to maintain and error-prone when modified. However, because they are well suited for certain applications, hierarchical databases remain in wide use today. RDBMSs, or relational database management systems, were developed in the 1970s to address the inflexibility of hierarchical databases. They were used initially to perform ad hoc queries and later for online transaction processing and decision support systems. An RDBMS stores data in a series of two-dimensional tables and defines relationships between data by connecting rows and columns and linking multiple tables. Complex queries are performed by indexing multiple tables and then "joining" them to create a different view of the data. RDBMSs are adept at handling simple types of information, such as alphanumeric data, and managing static relationships, such as that between a part number and an invoice. They are less effective in managing more abstract data types, such as graphics, video and audio, which they must "decompose" into a series of two-dimensional tables and then re-compose when needed, or must store as isolated binary large objects that do not support analysis, manipulation or relationships to other data. In addition, RDBMSs are relatively inefficient when used to manage complex relationships because of the inherent burden of indexing and joining multiple two-dimensional tables. This performance burden can significantly lengthen response times and is compounded when users seek to maintain data on more than one server in a distributed environment because data must be transmitted to a central server where these joins can be performed. The burden is increased as applications become more complex and information more interrelated. As a result, we believe that RDBMSs cannot provide the level of performance required by many users for a growing number of complex distributed applications. Relational database vendors have attempted to address some of the shortcomings of RDBMSs by "extending" their support for abstract data types with object-relational and pure object-oriented approaches, and the use of robust middleware applications that enable organizations to connect object-oriented applications to RDBMSs. While we acknowledge that the use of object-relational and middleware approaches can improve relational performance, we believe that the performance of object-relational systems or RDBMSs augmented by middleware is limited by the two-dimensional kernel architecture of RDBMSs. We also believe that the decision of relational database vendors to pursue object-relational or object-oriented approaches supports our belief that object-oriented database solutions will be increasingly demanded by business organizations. For the foregoing reasons, we believe today's business organizations need to manage abstract data types as well as complex dynamic relationships in a vastly more distributed environment and that this need is often not effectively addressed by hierarchical, relational and object-relational database management systems. THE VERSANT SOLUTION The Versant ODBMS is a database management system that combines native support for object-oriented languages with high performance database functionality and a client-server architecture that supports two-tier and n-tier applications. The Versant ODBMS is designed to meet commercial users' requirements for high performance, scalability, reliability and compatibility with heterogeneous computing platforms and legacy information systems. The Versant ODBMS provides users with the following benefits: o Management of Abstract Data Types. The Versant ODBMS allows users to store and manage a wide range of abstract information, such as images, video, audio and unstructured text, as well as traditional types of alphanumeric data. Nearly any kind of information that can be digitized can be stored as an object in the Versant ODBMS, while maintaining the application-defined behavior and relationships of the objects. o Language-Independent Support for Object-Oriented Programming. The Versant ODBMS provides native support for the leading object-oriented software development languages--C++, Java and Smalltalk. This support facilitates 3 6 rapid and flexible development, maintenance and evolution of complex, dynamic applications that closely model real-world systems and processes. Objects developed in these languages are directly stored in the Versant ODBMS. In addition, the Versant ODBMS is language-independent, allowing objects written in one object-oriented language to interoperate with objects written in another object-oriented language. Moreover, the Versant ODBMS supports Java, an object-oriented language that allows the development of applications that will run on any computing platform without modification. o High Performance. The Versant ODBMS architecture provides direct access (navigation) to stored objects. Its balanced client-server architecture enhances performance by efficiently distributing processing burdens between the client and the server to leverage the processing power of networked computers. As a result, certain customers running complex applications involving highly interrelated data on the Versant ODBMS have reported up to a hundred-fold improvement in performance compared to RDBMSs running similar applications. o Highly Scaleable Support for Distributed Computing. The Versant ODBMS architecture is designed to support the transparent integration of up to 65,000 separate databases in one network, distributed over a range of hardware and software platforms. Through object-level operations, Web browser support and other design features, the Versant ODBMS can be scaled from small workgroup operations to thousands of users over wide area networks or the Internet. o Reliability, Availability and Serviceability. The Versant ODBMS offers a number of features designed to permit continuous operation, including features providing online backup and recovery and online modification of the database system, as well as system utilities that can operate while the system is running. These features, together with replication and disk mirroring provided by our Fault Tolerant Server, support operations 24 hours per day, 365 days per year in environments such as telecommunications network, commercial banking and airline reservation systems, where it is critical that the database be continuously available. o Support for Three-Tier Architectures. Traditional two-tier architectures are adequate for closely coupled client-server environments but become unwieldy in large, distributed systems. The Versant ODBMS supports three-tier architectures, in which application logic resides as a middle layer between clients and data stores. This architecture insulates data from constant change, allows an end-user or application to locate data across multiple databases and improves the productivity and quality of application development and maintenance. o Support for Component Architectures. The Versant Enterprise Container supports the BEA WebLogic application server. This enables users to deploy their existing BEA WebLogic Enterprise Java Beans to the Versant Enterprise Container without modification, gaining the inherent performance advantages of the Versant ODBMS. o Integration with Users' Existing Information Systems. The Versant ODBMS operates on a wide range of client a server platforms, including industry-leading UNIX platforms from Sun Microsystems, Hewlett-Packard, IBM, Digital Equipment Corporation and Silicon Graphics, as well as Microsoft's Windows 3.1, Windows 95, Windows 98, and Windows NT platforms and IBM's OS/2 platform. Objects can be readily accessed and stored by any combination of these platforms in a heterogeneous network. In addition, Versant-based applications can interoperate with information stored in relational database management systems, enabling such applications to complement RDBMS strengths in structured applications. These compatibilities allow users to protect their existing investments in databases and information systems while migrating newer systems to object-oriented platforms. o Persistence. Traditionally, persistence for object-oriented applications required explicit application code in some object programming language. The emergence of application servers for Enterprise Java Beans offers an alternative to explicit programming, where application components execute in containers that provide object persistence services. The Versant Enterprise Container (scheduled for introduction in the first half of 1999) will support Enterprise Java Beans that interface to either the Versant ODBMS or existing information systems via a Java database interface, enabling customers to utilize the Versant ODBMS as a persistence solution. 4 7 COMPANY STRATEGY Versant's objective is to be the leading provider of high performance, enterprise database management systems that store objects and support application component development for commercial applications in distributed computing environments. Key elements of our strategy to achieve this objective include the following: o Extend Technology Leadership. A significant component of our strategy is to leverage our knowledge and expertise in object database management systems for distributed commercial applications. We believe that our product architecture includes a number of important technological advances and that this technological leadership is essential to our continued ability to compete effectively. In 1998, we released products that enable organizations to: (1) utilize the Versant ODBMS in conjunction with the BEA WebLogic application server family (2) asynchronously replicate changes from one Versant database to another (3) easily store time series of data within the Versant ODBMS (4) utilize automatic code generation for the Versant ODBMS from within the Rational Rose product (5) integrate the Versant ODBMS with external transaction monitors such as BEA M3 *We intend to extend our leadership position by continuing to invest in internal research and development, establishing strategic relationships with leading providers of complementary technologies and by integrating the Versant ODBMS with products offered by third parties. We note that our technological development efforts are subject to the risks typically associated with such efforts, including development delays and the technological challenges of creating new functionality and integrating third-party products into Versant's products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We depend on successful technology development." o Leverage Strength in Telecommunications to Other Vertical Markets. We are a leading provider of object database management solutions to the telecommunications market, where our products are used in such strategic, distributed applications as network modeling and management, fault diagnosis, fraud prevention, service activation and assurance and customer billing. We believe that our experience and success in this demanding market positions us to address other vertical markets such as financial services, defense, health care and energy. These markets are similar to the telecommunications market in their increasing reliance on large networks and need for high performance support for abstract data types and for distributed, complex applications involving dynamic, highly interrelated information. In 1998, we increased our focus on the financial services market and conducted several seminars worldwide to expand awareness of us and our products in this market. *We intend to continue to focus on telecommunications and financial services in 1999, though we will seek additional opportunities outside these markets as well. Our success in the telecommunications, financial services and other markets is dependent, in part, on our ability to compete with alternative technology providers and the extent to which our customers and potential customers believe we have the expertise necessary to provide effective solutions in these markets. If these conditions, among others, are not satisfied, we may not be successful in generating additional opportunities in these markets. See "Management's Discussion and Analysis of Financial Condition and Results of Operations --Risk Factors--We rely on telecommunications and financial services markets." o Capitalize on the Internet-based Market Opportunity. *We believe that the growth of the Internet and Intranets and Extranets as computing environments will significantly expand the market opportunity for our object database management technology. Internet-based computing environments and applications are highly distributed and are increasingly becoming more complex, requiring highly scaleable, high performance database systems as their infrastructure. In addition, Internet-based applications increasingly incorporate abstract data types and are increasingly being addressed by object-oriented programming languages such as C++, Java and Smalltalk. As a result, we believe that our product architecture and our telecommunications experience position us to capitalize upon the Internet-based market. Certain of our customers, including Buzzeo, EDS, Intel, Primus and Spyglass, are using our technology to develop and/or deploy Internet-based applications, including applications designed to enhance the performance of Internet-based infrastructures. In 1998, we significantly increased our focus on the Internet-based market opportunity, particularly with the release of certain products designed to allow the development of Web-based and Java applications. *We intend to continue focusing on the Internet-based market opportunity and working with partners to improve the performance of Internet-based infrastructures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We rely on telecommunications and financial services markets." 5 8 o Integrate with Component Middle-tier Servers. We intend to aggressively integrate with leading providers of component-based servers offering persistence services. Existing standards for enterprise Java Bean solutions and emerging standards for CORBA, or common object request broker architecture, solutions provide an important opportunity for Versant to expand into new markets. o Expand Distribution Channels. *We intend to expand our indirect distribution channels by recruiting additional value-added resellers, distributors and other resellers. *As familiarity with object-oriented technology and awareness of our products increase, we believe that we will be able to increase our use of indirect sales channels to address a broader market and to capitalize on resellers' integration capabilities. In addition, we believe that international markets present attractive opportunities, particularly as telecommunications and other industries face increasing change and competitive pressures worldwide. *We intend to continue to expand our international distribution network to capitalize on these opportunities, particularly through Versant Europe, our European subsidiary. However, we may not be successful expanding our distribution channels, and our international business activities are subject to accompanying international risks. We have experienced only limited success recruiting value-added resellers to date, which we believe is due, in part, to the complexity of our solutions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We depend on our international operations." o Enable Customers to Implement a Complete Solution. We believe that our object database management systems can provide customers with a foundation upon which they can build a broader object-oriented environment that includes development language interface, component servers, object request brokers, class libraries and tools for the development of applications and interface and for the integration of existing data and applications. *We believe that our Versant Enterprise Container product (scheduled for introduction in the first half of 1999) will enhance customers' ability to implement a complete solution. *We intend to expand the breadth of our product offerings through internal development efforts and through marketing, licensing and other relationships with providers of complementary technologies and other market participants. *We believe that by providing our customers with a more complete solution, we can facilitate their adoption of object-oriented technology, accelerate the development of applications in a component framework, and expand the use and value of our products. However, Versant product offerings may not be commercially accepted by our customers and are subject to potential development delays due to the technological challenges of creating new product offerings, and competing solutions may limit the market opportunity for Versant product offerings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We depend on successful technology development." o Increase Penetration of Current Customer Base. We seek to generate incremental, recurring revenue from our installed base of customers. In 1998, we significantly increased our development licenses sold compared to 1997. This action could generate significant follow-on sales of deployment licenses in 1999. A customer's successful development of an application under a development license can lead to additional revenue from deployment licenses. The scalability of the Versant ODBMS enables customers to add end-users, providing additional license revenue to us as customers expand their use of the product. The adaptability of the Versant ODBMS to a wide range of applications allows customers who have successfully implemented the Versant ODBMS for one function to develop applications for other functions. We also license our products on a project basis, with development and deployment licenses bundled at a lower price to the customer than if the customer had purchased such licenses separately. *Although we seek to increase our number of customers, typically through relatively smaller licenses, we believe that our practice of licensing our products on a project basis will increase, which could result in our realizing larger amounts of revenue at the beginning of a project than it otherwise would, with potentially reduced recurring revenue opportunities from such project in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Our revenue levels are unpredictable." PRODUCTS AND SERVICES Our core product is the Versant ODBMS, a high performance object database management system. *In addition, we offer object-oriented programming language interfaces, database query tools, application development tools, legacy database access tools, the Versant Enterprise Container (scheduled for introduction in the first half of 1999), Internet-based integration tools and multimedia management tools. Customers licensing the Versant ODBMS receive the database engine with one object-oriented programming language interface and a set of integrated database utilities. For additional fees, customers may obtain additional programming language interfaces, and users requiring continuous operation in mission-critical environments can license the Versant Fault Tolerant Server. We offer a variety of services 6 9 to assist customers in the design, development and management of their database applications, including training, consulting and custom development services. PRODUCTS Core Database Products o Versant ODBMS. The Versant ODBMS is designed to support multi-user, commercial applications in distributed environments. Its balanced client-server architecture enables the system to process a wide variety of abstract data types and complex applications in a highly concurrent, high performance manner. The product is designed to integrate over 65,000 databases connected over a like number of locations on a variety of hardware and software platforms. Each database has a theoretical storage capacity of 4.6 million terabytes, an amount far beyond the actual capacity of most existing operating systems. We believe that the customer applications developed to date have used only a small portion of this theoretical capacity. The Versant ODBMS implements a variety of database features, including two-phase commits for distributed transaction integrity and database triggers to monitor changing events and data and to notify users and applications when specified events occur. In addition, on-line management utilities enable routine maintenance to be performed while the database is running. These include utilities to perform backup operations, manage log files, dynamically evolve database schema, add, delete and compact volumes on disk storage and related functions. These utilities provide multiple levels of administrative access and application security. With version 5.2 of the Versant ODBMS (released in December 1998), we provide external transaction coordination from third-party transaction monitors, parallel queries to multiple Versant databases, distributed on-line backup of multiple Versant databases, persistent database event, and enhanced system management capabilities. We believe these new features extend our role as the premier object database provider for enterprise computing. o Versant Fault Tolerant Server. For continuous operation in mission critical environments, we offer the Versant Fault Tolerant Server. This product ensures transparent failure recovery by connecting database clients to synchronized copies of the database stored on physically separate computers. If one of the databases fails due to operating system failure, hardware breakdown or other interruption, the other database continues operation without application interruption. When the failed database is restored, the two databases automatically resynchronize and resume operations without application interruption. Language Solutions The Versant ODBMS implements an object model that is a superset of the capabilities of C++, Java and Smalltalk. The interface to these object-oriented languages make the database appear to be a natural and transparent extension of the language. Programs written in any of these languages can use objects written in another, allowing integration of corporate data stores regardless of application development language. In 1997, we commercially released our Versant Java Direct Interface, which enables the development of applications that will run on any computing platform without modification. Versant's Smalltalk interface supports both IBM VisualAge and ParcPlace VisualWorks Smalltalk environments. In addition, we provide a C language interface. Internet-based Products o Versant Multimedia Access. Versant Multimedia Access enables organizations to store and manage multimedia files flexibly and extensibly. Versant Multimedia Access automatically loads multimedia files into the Versant ODBMS as instances of predefined text, audio, video, URL or application-specific classes, and allows customization of multimedia classes and loading methods. In addition, Versant Multimedia Access embeds Verity, Inc.'s Verity Search '97 to create and maintain collections of indices for each database and Verity Information Server to provide the user with an intuitive Web interface for composing queries and data retrieval. o VersantWeb. VersantWeb is a C++ application development framework that enables developers to construct and deploy interactive systems for corporate Intranets and Extranets and the Internet while taking advantage of the flexibility and portability of Web servers and browsers. VersantWeb tightly integrates Versant databases with Web servers to extend the reach of sophisticated client/server applications to a broad range of application users without sacrificing performance. 7 10 o Versant Enterprise Container. *The Versant Enterprise Container will enable users to deploy Java-based applications called Java Beans that take advantage of the capabilities of the Versant ODBMS without customizing the applications for the Versant ODBMS. *The Versant Enterprise Container will initially support the BEA WebLogic application server family and is scheduled for introduction in the first half of 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We depend on successful technology development." Data Access and Integration Tools The Versant ODBMS allows users a choice of access methods for querying and manipulating data in the Versant ODBMS and to obtain data from relational databases. With the Versant SQL Suite, we offer open database connectivity capability and structured query language access to data stored in relational databases using industry-standard off-the-shelf query and reporting tools. These tools permit customers to retain their investments in legacy systems while addressing new applications with the productivity, flexibility and performance characteristics available through object technology. LICENSING AND PRICING OF PRODUCTS We license our products directly to end-users principally through four types of licenses--development licenses, deployment server licenses, deployment client licenses and project licenses (which include development and deployment licenses). Development licenses are sold on a per seat basis and authorize the customer to develop an application program that uses the Versant ODBMS. Before a customer may deploy an application, it must purchase at least one deployment server license and one deployment client license for each computer connected to the server that will run the application using the database. If the customer wishes to install several copies of the application, separate deployment licenses are required for each server computer and each client that will run the particular application. We also license our products on a project basis, where the customer simultaneously purchases development and deployment licenses for an entire project. List price of a development license currently is $6,750 per seat. List prices of deployment licenses range from $1,500 for a single user to over $432,000 for a 24 central processing unit multiprocessor machine, with unlimited users. We provide alternative pricing for non-interactive environments where the product is deeply embedded in a component, such as a telephone switch, and does not have end users. License fees to customers may vary from list prices depending on a number of factors. Sales through distributors generally involve a significant discount to list prices. Prices for project licenses will vary with the scope and nature of the underlying project. A typical value-added reseller develops an application incorporating the Versant ODBMS and then licenses the application to our customer. Value-added resellers purchase development licenses from us on a per seat basis on terms similar to those of development licenses sold directly to end-users. Value-added resellers are authorized by us to sub-license deployment copies of the Versant ODBMS, together with the value-added resellers' applications, to end-users. Deployment license pricing for sales through value-added resellers generally is based either on a percentage of the total price charged by the value-added reseller to our end-user customers or are based on a percentage of our list prices. We also enter into project licenses with certain value-added resellers. SERVICES We offer a variety of services to assist customers in the design, development and management of their database applications. Training is offered in a variety of Versant-specific and object-related technologies and ranges from beginning to advanced levels. Consulting services are available for analysis and design assistance, mentoring and technical transfer, application coding, design reviews and performance analysis. In addition, we provide custom development services to customers that request unique or proprietary product extensions. These services may be performed by third-party integrators, consultants, or us, depending on the nature and complexity of the request. Maintenance and technical support services are available at an annual fee typically equal to 16.5% of the net price of the software. Maintenance and support contracts, which typically have twelve-month terms, are offered concurrently with the initial license of a Versant product and entitle the customer to telephone support and to product and documentation updates. For additional fees, customers may purchase a special support package providing a dedicated support engineer, and may obtain telephone support available 24 hours per day. All maintenance contracts are renewable annually. 8 11 CUSTOMERS AND APPLICATIONS The Versant ODBMS is licensed for development and/or deployment in a wide range of applications. Many of our customers have licensed multiple copies for use in different applications. Sales to Sprint and Bank Sarasin together represented 13% of our total revenue in 1998; however, no single customer accounts for 10% or more of our 1998 total revenue. In any given quarter, it is typical for a relatively small number of customers to constitute a significant percentage of our total revenue. In 1996, 1997 and 1998, 62%, 39% and 42% of our total revenue were attributable to sales of products and services to telecommunications companies. In addition, in 1998, 15% and 7% of our total revenue were attributable to sales of products and services in the financial services and technology markets. *Our future performance will depend in significant part on the continued growth of the use of ODBMSs in telecommunications and financial market applications and the acceptance of our products within the telecommunications and financial services industries. *In addition, we expect to become increasingly dependent upon the Internet-based and financial services markets. The failure of our products to perform favorably in and become an accepted component of telecommunications, Internet-based or financial services applications, or a slower than expected increase or a decrease in the volume of sales of our products and services to telecommunications, Internet-based or financial services companies, could have a material adverse effect on us. The following examples illustrate some of the new applications for the Versant ODBMS in our target telecommunications, Internet-based and financial services markets. TELECOMMUNICATIONS British Telecommunications plc has integrated the Versant ODBMS into its SHERIFF (Statistical Heuristic Engine to Reliably and Intelligently Fight Fraud) product, a global telephone fraud detection and management system. SHERIFF leverages the Versant ODBMS's object-oriented architecture and ability to define and model complex relationships in mission-critical environments in order to identify telephone fraud online at the time of each call, rather than over time after a pattern of fraudulent activity has been detected, thereby helping to minimize potential damage. The Versant ODBMS helps SHERIFF to analyze every BT call that is made, where a call comes from and goes to, and to whom the call is billed, and, after analyzing these criteria against a series of rules and algorithms designed to detect abuse or other anomalies, automatically notifies BT's specialist fraud case investigators, presenting them with the facts necessary to make an informed decision on whether fraudulent activity is occurring and appropriate steps to combat the fraud. *This system is currently completing trials and is planned to cover all BT voice services over time. As with all new applications, the rollout of SHERIFF is subject to a number of risks, including the technological challenges of integrating the Versant ODBMS. INTERNET-BASED Buzzeo, Inc., a provider of higher education information technology, has developed an open, network-centric enterprise solution using the Versant ODBMS that allows academic institutions to provide Internet or Intranet access to a wide range of online services, including recruitment, admissions, student registration and grade management. Buzzeo leverages Versant's Java Direct Language Interface to allow college and university staff to update data, run and schedule reports and access records, all using a Web browser. Buzzeo's ZeoLogix Framework, written entirely in Java, relies upon the ability of the Versant ODBMS to manage data in real-time, without database downtime, and to provide mission-critical reliability, fault tolerance, automated replication and interoperability. FINANCIAL SERVICES The Chicago Stock Exchange has implemented an object-based, real-time trading application built on the Versant ODBMS. This application, responsible for the entire volume of stock trading on The Chicago Stock Exchange, relies on the scalability, fault tolerance and mission-critical high performance capabilities of the Versant ODBMS. By using the Versant ODBMS rather than a relational database, The Chicago Stock Exchange eliminated the complexities and overhead of mapping objects and object references to the tables and rows of a relational database, thereby significantly 9 12 increasing developer productivity. In addition, the trading application uses Versant's ability to support a three-tier client/application server/object server architecture to improve network performance. MARKETING AND SALES We market and sell the Versant ODBMS in the United States principally through our direct sales force and value-added resellers and internationally through our distributors, direct sales force and value-added resellers. DIRECT SALES As of December 31, 1998, our direct sales organization consisted of 49 employees based at our corporate headquarters in Fremont, California and at our other regional offices around the world. The direct sales organization includes a telesales force that supports our field sales personnel and maintenance renewals and handles smaller orders. The direct sales organization also includes systems engineers who answer technical questions and assist customers in running benchmarks against competitive products and developing prototype applications. In 1996, 1997 and 1998, sales by our direct sales force (including sales to value-added resellers) accounted for over 89%, 99% and 99%, respectively, of our total revenue. INDIRECT SALES An important part of our sales strategy is the development of indirect distribution channels, such as value-added resellers, systems integrators and foreign distributors. Typical value-added resellers build application programs in which they embed a deployment copy of the Versant ODBMS. Systems integrators may include our products with those of others to provide a complete solution to their customers. Foreign distributors include distributors based in Japan, Italy and Israel. Value-added resellers are typically not subject to any minimum purchase or resale requirements and can cease marketing our products at any time. Certain value-added resellers, distributors and systems integrators also offer competing products that they produce or that are produced by third parties. MARKETING We conduct marketing programs intended to position and promote our products and services, including direct mail, advertising, seminars, trade shows, public relations and distribution of product literature. We also maintain a Web site where prospective customers can obtain general information about our products, services and distribution partners, and can download Windows NT and Solaris versions of our products for evaluation for a limited period. Marketing personnel provide price lists and product descriptive materials, including white papers, and assist the direct sales force in their efforts through lead generation and sales training. The marketing department also has a leading role in product marketing activities, including product management, cooperative positioning and long-term product direction. SALES PROCESS Due in part to the strategic nature of certain Versant ODBMS applications and magnitude of the associated hardware, networking, software and consulting expenditures, potential customers are typically cautious when making product acquisition decisions. For these and other reasons, the sales cycle for our products to new customers often exceeds six months and may extend to a year or more. However, for existing customers with successful deployed applications, sales cycles for new applications of the Versant ODBMS are generally not as long. During the sales cycle, meetings involving both technical and management staff are frequently conducted at the customer's site and at our headquarters. We face significant competition in the database management system marketplace, and prospective customers typically perform a detailed technical evaluation or benchmark of the Versant ODBMS and, often, competitive products, as a part of the selection process. Upon completion of the evaluation, the customer may purchase one or more development licenses for the team of programmers that will build the application. Additionally, the customer may order maintenance, training courses and assistance from our consultants. While the customer can purchase a deployment license at the same time as it purchases a development license, or can purchase a project license that covers development and deployment for an entire project, many customers defer their purchase of a deployment license and related maintenance until they complete application development (a process that typically takes at least six months and can exceed one year) and then decide to deploy the application. Even after obtaining a development license, 10 13 customers may not complete the development of an application successfully, and even if an application is successfully developed, the customer may decide not to deploy the Versant ODBMS. For deployed applications, a customer may purchase additional deployment licenses as additional users are added to a system, without further deliveries from us, providing additional revenue over an extended period at a relatively low incremental cost to us. Depending on the application type and the customer size, it is possible for the price of a customer's deployment licenses to substantially exceed the price of earlier development licenses. SALES OF THIRD PARTY PRODUCTS In order to enhance the functionality of the Versant ODBMS, we offer certain products licensed from third parties, which are either embedded within or offered in connection with the Versant ODBMS. For example, we have embedded Verity, Inc.'s Verity Search '97 and Verity Information Server into our Versant Multimedia Access product and have an agreement with Rational Software Corporation to offer Rational Rose (an application development tool). SHIPPING AND BACKLOG Our software is typically shipped to customers shortly after the execution of a license agreement and upon our receipt of the order. As a result, we typically do not have a material backlog of unfilled license orders at any given time, and we do not consider backlog to be a meaningful indicator of future performance. RESEARCH AND DEVELOPMENT *We have committed, and expect to continue to commit, substantial resources to our research and development efforts. Our current development efforts are focused on: (1) continuing to leverage Java (2) developing application development tools, especially in Internet-based environments (3) improving performance of the Versant ODBMS, particularly on the Windows NT platform and (4) improving integration between the Versant ODBMS and legacy databases Research and development expenses were approximately $3.3 million, $5.2 million and $7.7 million in 1996, 1997 and 1998. In addition, we incurred $528,000 in acquired in-process R&D expense during 1998. To date, all research and development expenditures have been expensed as incurred. The Versant ODBMS has, to date, been almost entirely developed by our research and development personnel. Our development team consisted of 69 full-time employees as of December 31, 1998, most of whom are software engineers with significant experience in such technologies as: (1) object-oriented software development, including Java (2) relational database technology (3) platform engineering (4) design and integration and (5) large-scale run-time environments We selectively supplement our internal staff with outside consultants having expertise in specific areas. In 1997, we began performing certain porting and enhancement engineering work in Pune, India, by subcontracting work through Netcon Systems, a Software Technology Park company. A Software Technology Park company is a software development company shielded from import and export duties, so that India can promote its specialized software labor pool. In December 1998, we, with two Indian citizens, sponsored the creation of a Software Technology Park company named Versant India. In March 1999, we purchased the common stock of Versant India from its founders for $24,000. Versant India then purchased certain assets of Netcon for $73,000, and all of the employees of Netcon became Versant India employees. Versant India is our wholly owned subsidiary and will continue to do porting and development projects for us. Versant India has 14 employees and occupies a rented facility of 7,500 square feet in Pune, India. *The purchase price and legal and accounting fees of $50,000 incurred in connection with our acquisition of Versant India will be capitalized in March 1999. *The acquisition of Netcon's assets will be accounted for using the 11 14 purchase method and will result in our recording an intangible asset representing the cost in excess of fair value of the net assets acquired. This transaction is not considered to be material to us. In 1998, we also added 14 engineers with our acquisition of Soft Mountain. *Our future success will depend on our ability to attract, train and retain highly skilled research and development personnel. Competition for such personnel is intense, especially the competition for personnel familiar with object-oriented technology. *We expect that such competition will continue for the foreseeable future and may intensify. *We believe that our future results will depend on our ability to improve our current technologies and to develop new products and product enhancements on a timely basis. The market for our products and services is characterized by changing customer demands, rapid technological change and frequent introductions of new products and product enhancements. Customer requirements for products can change rapidly as a result of innovations or changes within the computer hardware and software industries, the introduction of new products and technologies (including new hardware platforms and programming languages) and the emergence, evolution or widespread adoption of industry standards. The actual or anticipated introduction of new products, technologies and industry standards can render existing products obsolete or unmarketable or result in delays in the purchase of such products. As a result, the life cycles of our products are difficult to estimate. *We have in the past experienced delays in the introduction of new products and features, and may experience such delays in the future. If we are unable, for technological or other reasons, to develop new products or enhancements of existing products in a timely manner in response to changing market conditions or customer requirements, our business, operating results and financial condition will be materially adversely affected. New products or new versions of existing products may, despite testing, contain undetected or unresolved errors or bugs that will delay their introduction or adversely affect their commercial acceptance, which could have a material adverse effect on our business, operating results and financial condition. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS We rely primarily on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. For example, we license our software pursuant to signed license agreements and, to a lesser extent, "shrink-wrap" licenses displayed in product packaging, which impose certain restrictions on the licensee's ability to utilize the software. In addition, we seek to avoid disclosure of our trade secrets, including requiring those persons with access to our proprietary information to execute confidentiality agreements with us, and we restrict access to our source code. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. On October 13, 1998 we were awarded a United States patent (No. 5,822,759) for our proprietary Cache System used within our Versant ODBMS product. For a discussion of the intellectual property risks we face, see "Management's Discussion and Analysis of financial Condition and Results of Operations--Risk Factors--We must protect our intellectual property." COMPETITION For a discussion of the competition we face in our business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We face intense competition." EMPLOYEES As of December 31, 1998, we and our subsidiaries had a total of 173 employees, 108 of whom were based in the United States, 47 of whom were based in Europe, 3 of whom were based in Australia, and 15 of whom were based in India as contractors. Of the total, 69 were engaged in engineering and technical services, 59 were engaged in sales and marketing, 25 were engaged in the services organization and 20 were engaged in administration and finance. Since December 31, 1998, in connection with our efforts to control costs, we have reduced our total number of employees to 122. None of our employees is represented by a labor union with respect to his or her employment by us. We have experienced no organized work stoppage to date and believe that our relationship with our employees is good. 12 15 *Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel. The loss of the services of one or more of our key employees could have a material adverse effect on our business, operating results and financial condition. *Our future success also depends on our continuing ability to attract, train and motivate highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, especially in Silicon Valley where our headquarters are located, and we may not be able to attract, train and motivate such personnel. ITEM 2. DESCRIPTION OF PROPERTY In August 1997, we moved our principal administrative, sales, marketing and research and development operations to a new headquarters facility in Fremont, California, where we occupy 54,000 square feet under a 10 year lease. We believe that the Fremont facility will be adequate for our requirements for the next several years. We and our subsidiaries also lease space for sales offices, generally under one-year operating lease agreements, in New York City, New York; Dallas, Texas; Frankfurt, Germany; Munich, Germany; Paris, France; and Hampshire, England. ITEM 3. LEGAL PROCEEDINGS We and certain of our present and former officers and directors were named as defendants in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998 a consolidated amended complaint was filed in this court by the lead plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the Securities Exchange Act, in connection with public statements about our expected financial performance. The complaint seeks an unspecified amount of damages. We vigorously deny the plaintiffs' claims and have moved to dismiss the allegations. The plaintiff has filed a response to our motion to dismiss, and we have filed an opposition to plaintiff's response. The motion to dismiss was submitted to the court for consideration on November 13, 1998, and the court has not yet issued a decision. Securities litigation can be expensive to defend, consume significant amounts of management time and result in adverse judgments or settlements that could have a material adverse effect on our results of operations and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 13 16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK Our common stock is quoted on the Nasdaq National Market under the symbol "VSNT." Our common stock commenced trading on the Nasdaq National Market on July 18, 1996. Prior to July 18, 1996, there was no public trading market for our common stock. The following table lists the high and low closing prices during for the last two quarters of 1996 and for 1997 (based on closing prices as reported by the Nasdaq National Market).
HIGH LOW ------- -------- 1996: First Quarter -- -- Second Quarter -- -- Third Quarter (commencing July 18, 1996) $27 5/8 $ 8 Fourth Quarter $24 $15 7/8 1997: First Quarter $22 3/4 $ 8 1/2 Second Quarter $ 9 3/8 $ 4 1/8 Third Quarter $16 1/4 $ 6 Fourth Quarter $18 5/8 $11 1/8 1998: First Quarter $14 9/16 $ 5 1/8 Second Quarter $ 7 5/16 $ 3 3/4 Third Quarter $ 5 1/2 $ 2 1/8 Fourth Quarter $ 4 1/4 $ 1 13/16
There were approximately 152 holders of record of our common stock as of February 26, 1998. We believe that a significant number of beneficial owners of our common stock hold their shares in street name. Based on information available to us, we believe we have at least 400 beneficial shareholders of our common stock. DIVIDEND POLICY We have neither declared nor paid cash dividends on our common stock in the past. *We intend to retain future earnings, if any, to fund development and growth of our business and, therefore, do not anticipate that we will declare or pay cash dividends on our common stock in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES On December 28, 1998, we raised $1,443,750 in a private placement of 700,000 shares of our common stock and warrants to purchase 350,000 shares of our common stock. The purchase price for the shares was $2.00 per share and the purchase price for the warrants was $0.125 per share. The funding was provided by Special Situations Fund III LP, Special Situations Cayman LP and Special Situations Technology Fund LP. The warrants issued to these investors are exercisable at any time into our common stock at a price of $2.25 per share. The warrants expire on December 28, 2001, or earlier under certain circumstances. The shares and warrants were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. On October 16, 1998, we raised $3.6 million through the private placement of a convertible secured subordinated promissory note. The funding was provided by Vertex Technology Fund Pte., one of the funds managed by Vertex Management. The note issued to Vertex is convertible at Vertex's option into our common stock at a price of $1.925 per share. The note is secured by our assets, is subordinated to our existing lines of credit and is due in October 2001, but may mature or be automatically converted sooner under certain circumstances. The note was issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. 14 17 On September 15, 1998, we acquired 100% of the outstanding equity of Soft Mountain S.A., a French company. In the acquisition, we acquired all of Soft Mountain's equity from the shareholders of Soft Mountain in return for 810,000 French Francs in cash (approximately $136,000) and 245,586 shares of our common stock. We funded the cash portion of the purchase price using working capital. The shares of our common stock issued to the shareholders of Soft Mountain were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. 15 18 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As indicated in the first paragraph of Item 1, above, this Form 10-KSB contains certain forward looking statements within the meaning of the Securities Exchange Act the Securities Act. We have identified, with a preceding asterisk, various sentences within this Form 10-KSB which contain such forward-looking statements and words such as "believe," "anticipate," "expect," "intend" and similar expressions are also intended to identify forward looking statements, but these are not the exclusive means of identifying such statements. The forward looking statements included in this Form 10-KSB involve numerous risks and uncertainties which are described throughout this Form 10-KSB, including under "Revenues" and "Risk Factors" within this Item 6. The actual results that we achieve may differ materially from any forward looking statements due to such risks and uncertainties. The following table presents statement of operations data for the five years ended December 31, 1998.
YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------------------------------------------------ STATEMENT OF OPERATIONS DATA: 1998 1997 1996 1995 1994 -------- -------- -------- -------- ------- (in thousands, except per share data) Revenue: License $ 14,463 $ 21,363 $ 12,202 $ 7,810 $ 5,649 Services 8,770 7,827 6,191 4,067 2,590 -------- -------- -------- -------- -------- Total revenue 23,233 29,190 18,393 11,877 8,239 Cost of revenue: License 2,846 1,445 1,144 1,062 930 Services 6,893 5,010 2,987 2,258 1,563 -------- -------- -------- -------- -------- Total cost of revenue 9,739 6,455 4,131 3,320 2,493 -------- -------- -------- -------- -------- Gross profit 13,494 22,735 14,262 8,557 5,746 -------- -------- -------- -------- -------- Operating expenses: Marketing and sales 18,511 17,265 8,327 6,319 5,710 Research and development 7,722 5,225 3,323 2,048 2,063 General and administrative 3,857 2,880 1,501 1,419 1,093 Amortization of goodwill 546 370 -- -- -- Write down of assets 1,555 -- -- -- -- Acquired in-process R&D cost 528 -- -- -- -- -------- -------- -------- -------- -------- Total operating expenses 32,719 25,740 13,151 9,786 8,866 -------- -------- -------- -------- -------- Income (loss) from operations (19,225) (3,005) 1,111 (1,229) (3,120) Interest income (expense) and other, net (692) 705 429 70 117 -------- -------- -------- -------- -------- Income (loss) before taxes (19,917) (2,300) 1,540 (1,159) (3,003) Provision for income taxes 18 40 129 73 56 -------- -------- -------- -------- -------- Net income (loss) $(19,935) $ (2,340) $ 1,411 $ (1,232) $ (3,059) ======== ======== ======== ======== ======== Basic net income (loss) per share $ (2.16) $ (0.26 ) $ 0.24 $ (0.41) $ (1.57) ======== ======== ======== ======== ======== Shares used in calculating basic net income (loss) per share 9,209 8,931 5,916 2,987 1,953 ======== ======== ======== ======== ======== Diluted net income (loss) per share $ (2.16) $ (0.26) $ 0.18 $ (0.41) $ (1.57) ======== ======== ======== ======== ======== Shares used in calculating diluted net income (loss) per share 9,209 8,931 7,690 2,987 1,953 ======== ======== ======== ======== ========
OVERVIEW We were incorporated in August 1988 and commenced commercial shipments of our principal product, the Versant ODBMS, in 1991. Since that time, substantially all of our revenue has been derived from: (1) sales of development, deployment licenses and project licenses for the Versant ODBMS (2) sales of the peripheral products for the Versant ODBMS (3) related maintenance and support, training, consulting and nonrecurring engineering fees received in connection with providing services associated with the Versant ODBMS and (4) the resale of licenses, maintenance, training and consulting for third-party products that complement the Versant ODBMS 16 19 We released Version 5.2 of the Versant ODBMS in December 1998. *We currently expect that licenses of the Versant ODBMS and peripheral products and sales of associated services will be our principal sources of revenue for the foreseeable future. *As a consequence, our future operating results will depend upon our ability to expand market acceptance of the Versant ODBMS. In 1996, 1997 and 1998, three customers, combined, accounted for approximately 49%, 36% and 17% of our total revenue, and the telecommunications industry accounted for 62%, 39% and 42% of our total revenue. In addition, in 1998, 15% and 7% of our total revenue were attributable to sales of products and services in the financial services and high technology markets. *Our future performance will depend in significant part on the continued growth of the use of ODBMSs in telecommunications and financial services applications and the acceptance of our products within the telecommunications and financial services industries. *In addition, we expect to become increasingly dependent upon the telecommunications and financial services markets. The failure of our products to perform favorably in and become an accepted component of telecommunications and financial services applications, or a slower than expected increase or a decrease in the volume of sales of our products and services to telecommunications, and financial services companies, could have a material adverse effect on us. We license our products directly to end-users principally through four types of licenses-development licenses, deployment server licenses, deployment client licenses and project licenses. Development licenses are sold on a per seat basis and authorize the customer to develop an application program that uses the Versant ODBMS. Before a customer may deploy an application it has developed under a development license, it must purchase at least one deployment server license and one deployment client license for each computer connected to the server that will run the application using the database management system. If the customer wishes to install several copies of the application, separate deployment licenses are required for each server computer and each client that will run the particular application. Pricing of the Versant ODBMS varies according to several factors, including the computer platform on which the application will run and the number of users that will be able to access the server at any one time. For certain applications, we offer deployment licenses priced on a per user basis. We also license our products on a project basis, where the customer simultaneously purchases development and deployment licenses for an entire project. Value-added resellers purchase development licenses from us on a per seat basis, on terms similar to those of development licenses sold directly to end users. Value-added resellers are authorized by us to sub-license deployment copies of the Versant ODBMS, together with the value-added reseller's application, to end-users. Deployment license pricing for sales through value-added resellers generally represents either a percentage of the total price charged by the value-added reseller to our end-user customers or a percentage of our list prices. We also license our products to certain value-added resellers on a project basis. Our development, deployment and project license agreements and agreements with value-added resellers typically require the payment of a nonrefundable, one-time license fee for a license of perpetual term, although certain licenses to value-added resellers are for a limited term and/or are limited to particular applications. Revenue from license agreements is recognized upon shipment of the software if there is no significant modification of the software, payments are due within our normal payment terms and collection of the resulting receivable is deemed probable. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Maintenance revenue is recognized ratably over the term of the maintenance contract, which is typically twelve months. Training and consulting revenue is recognized when a customer's order has been received and the services have been performed. We have entered into contracts with certain of our customers that require us to perform development work in return for nonrecurring engineering fees. Revenue related to such nonrecurring engineering fees generally is recognized using the percentage-of-completion method of accounting. Amounts received from customers under certain license, maintenance and nonrecurring engineering agreements involving significant continuing obligations to be performed by us are included on our balance sheet as deferred revenue. We license the Versant ODBMS and peripheral products and sell associated services primarily through our direct sales force to end-user customers and value-added resellers. Through late 1993, we focused our sales efforts on developing indirect sales channels and contracting for nonrecurring engineering fees from our marketing partners. In late 1993, we changed our sales strategy to a direct sales model and began increasing the size of our direct sales force. During 1995, we entered into an agreement with ISAR-Vermogensverwaltung Gbr mbH, an entity formed by a group of European investors, pursuant to which ISAR organized and funded Versant Europe. Versant provided Versant Europe with exclusive European distribution rights for our products, subject to the rights of existing distributors, and with management responsibilities for Versant's existing distributors in Europe. In March 1997, we exercised our option 17 20 to acquire Versant Europe. This acquisition, in which Versant paid approximately $3.6 million in cash and stock, has been accounted for as a purchase. See note 11 of notes to our consolidated financial statements. As of December 31, 1998, Versant Europe had 33 employees. Since inception, we have invested significant resources in developing the Versant ODBMS and in building our sales, marketing, consulting and administrative organizations. *Due to our financial performance in 1998, we restructured our worldwide organization by significantly reducing headcount in order to bring expenses in line with anticipated 1999 revenue. *Because of this action, we do not expect to hire additional personnel and expect a decrease in our promotion and selling expenditures during 1999. The labor market in which we operate is highly competitive, and we may be unable to retain key employees without substantial increases in our operating expenses. RECENT EVENTS Vertex Financing On October 16, 1998, we raised $3.6 million through the private placement of a convertible secured subordinated promissory note. The funding was provided by Vertex Technology Fund Pte., one of the funds managed by Vertex Management. The note issued to Vertex is convertible at Vertex's option into our common stock at a price of $1.925 per share. The note is secured by our assets, is subordinated to our existing lines of credit and is due in October 2001, but may mature or be automatically converted sooner under certain circumstances. Vertex has agreed not to sell its interest in the note or underlying common stock for a period of six months following its purchase of the note. Special Situations Fund Financing On December 28, 1998, we raised $1,443,750 in a private placement of 700,000 shares of our common stock and warrants to purchase 350,000 shares of our common stock. The purchase price for the shares was $2.00 per share and the purchase price for the warrants was $0.125 per share. The funding was provided by Special Situations Fund III LP, Special Situations Cayman LP and Special Situations Technology Fund LP. The warrants issued to these investors are exercisable at any time into our common stock at a price of $2.25 per share. The warrants expire on December 28, 2001, or earlier under certain circumstances. Acquisition of Soft Mountain On September 15, 1998, we acquired 100% of the outstanding equity of Soft Mountain S.A., a French company. Soft Mountain develops event-driven middleware solutions that combine object orientation and deterministic event processing in a distributed business system. *We believe that the Soft Mountain acquisition will enable us to broaden the scope of our object-oriented database solutions by leveraging Soft Mountain's technology, particularly for electronic commerce applications. However, our success in using this technology in our product line, for electronic commerce applications or otherwise, is subject to a number of risks. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Risk Factors." In the acquisition, we acquired all of Soft Mountain's equity from the shareholders of Soft Mountain in return for 810,000 French Francs in cash (approximately $136,000) and 245,586 shares of our common stock. We funded the cash portion of the purchase price using working capital. The acquisition of Soft Mountain in September 1998 resulted in our writing off $528,000 of in-process research and development expenses associated with the purchased software and recording an intangible asset representing the cost in excess of fair value of the net assets acquired in the amount of $1.2 million, which is being amortized over a five-year period. Nasdaq Listing Review In February and March 1999, the Nasdaq Stock Market notified us that our securities were scheduled to be delisted from Nasdaq unless we demonstrated our ability to regain compliance with Nasdaq's net tangible asset requirement and to sustain long-term compliance with all applicable maintenance criteria for continued inclusion on Nasdaq. We are currently pursuing all opportunities available to us to satisfy the requirements for continued listing on the Nasdaq National Market. We have scheduled a hearing with Nasdaq for April 22, 1999 at which time we will present our justification for continued listing on Nasdaq. Based upon this hearing, Nasdaq will decide: (1) To continue listing our common stock on the Nasdaq National Market; 18 21 (2) To change our Nasdaq listing to the Nasdaq SmallCap Market; or (3) To delist our securities from Nasdaq. If our securities are delisted from Nasdaq, a sustained trading market may not continue to exist for our common stock. Restructuring and Going Concern Qualification In January 1999, we restructured our worldwide organization in light of our financial performance in 1998. Specifically, we significantly reduced headcount in all functional areas in order to bring expenses in line with anticipated 1999 revenue. Notwithstanding these restructuring efforts, we may not be able to meet our obligations as they become due in 1999 without additional debt or equity financing. As our independent public accountants note in their report on our financial statements, our recurring losses from operations and net working capital deficiency raise substantial doubt about our ability to continue as a going concern. *We plan to pursue all opportunities available to us to reduce or eliminate this doubt, including attempting to generate positive cash flows from operations, extending the terms of our short-term debt, seeking additional debt or equity financing, and/or entertaining potential acquisition offers. However, we may not be successful in any of these endeavors, and certain of these actions may require the approval of our shareholders or creditors. RESULTS OF OPERATIONS REVENUE
1996 % Change 1997 % Change 1998 ----------- -------- ----------- -------- ----------- License revenue $12,202,000 75% $21,363,000 (32%) $14,463,000 As a percentage of total revenue 66% 73% 62% Services revenue 6,191,000 26% 7,827,000 12% 8,770,000 As a percentage of total revenue 34% 27% 38% Total revenue 18,393,000 59% 29,190,000 (20%) 23,233,000
Total revenue increased 59% from 1996 to 1997 and declined 20% from 1997 to 1998. We continue to experience significant annual and quarterly fluctuations in total revenue. For example, total revenue in the first quarter of 1998 was $4.6 million, representing a 20% increase over first quarter 1997 total revenue of $3.8 million, and a 47% decrease from fourth quarter 1997 total revenue of $8.6 million. We attributed the first quarter 1998 total revenue performance to the timing and complexity issues associated with selling licenses of our products. *We have experienced a seasonal pattern in our operating results, with the fourth quarter typically having higher total revenue and income from operations than the first quarter of the following year, and we expect this trend to continue in 1999 compared to 1998. Also, see the section below labeled "Risk Factors." The increase in license revenue during 1997 compared to 1996 was attributable principally to: (1) wider acceptance of object databases and market growth of the object database market (2) increased customer deployments of applications previously subject only to development licenses, particularly in the telecommunications market (3) substantial increase in the number of Company sales personnel (4) increased sales within the Internet-based and financial services markets and (5) acceleration of deployment revenue associated with project licenses The decrease in license revenue in 1998 compared to 1997 was due primarily to the timing, complexity and our inability to close large project opportunities. In addition, we accelerated a number of large projects into 1997, and we were therefore required to focus a significant amount of effort on developing new customers in 1998. *We expect license revenue to increase in 1999 in absolute dollar terms compared to 1998, due to increased license purchases by telecommunications and financial services customers and increased sales by our Versant Europe subsidiary, each as a result of our 1998 customer development activities. *We also believe that license revenue as a percentage of total revenue will increase in 1999 compared to 1998. However, due to risks highlighted in the section, "Risk Factors," 19 22 below, license revenue may decrease in absolute dollar terms or as a percentage of total revenue in 1999 when compared to 1998. The increase in services revenue during 1997 compared to 1996 was attributable principally to increased maintenance revenue from a significantly larger installed customer base, while training and consulting revenue remained relatively constant. The increase in services revenue during 1998 compared to 1997 was attributable principally to increased maintenance revenue from a significantly larger installed customer base, while training and consulting revenue declined due to the reduction in overall license revenues. *We expect that services revenue will remain flat in absolute dollar terms in 1999, and that services revenue will decline as a percentage of total revenue as we increase our focus on licensing our products. However, due to the risks highlighted in the section, "Risk Factors," below, services revenue may not remain flat in absolute dollar terms, and could increase as a percentage of total revenue, in 1999 compared to 1998. The following table sets forth, for the periods indicated, the revenues generated by our largest customers in 1996, 1997 and 1998, other domestic customers as a group and other international customers as a group, in absolute dollars and as a percentage of total revenue. Source of Total Revenue
1996 % Change 1997 % Change 1998 ----------- ----------- ----------- ----------- ----------- Sprint $ 2,067,000 179% $ 5,776,000 (68%) $ 1,856,000 Bank Sarasin -- n/a -- n/a 1,165,000 France Telecom -- n/a -- n/a 933,000 United States Government 108,000 2,775% 3,105,000 (79%) 663,000 MCI 5,117,000 (98%) 107,000 6% 113,000 Versant Europe 1,868,000 n/a -- n/a -- Scotiabank 355,000 n/a -- n/a -- ----------- ----------- ----------- ----------- ----------- Other Domestic Customers 6,887,000 69% 11,632,000 (13%) 10,114,000 Other International Customers 1,991,000 330% 8,570,000 (2%) 8,389,000 ----------- ----------- ----------- ----------- ----------- Total revenue $18,393,000 59% $29,190,000 (20%) $23,233,000 =========== =========== =========== =========== ===========
Percentage of Total Revenue
1996 1997 1998 ---- ---- ---- Sprint 11% 20% 8% Bank Sarasin -- -- 5% France Telecom -- -- 4% United States Government 1% 11% 3% MCI 28% -- -- Versant Europe 10% -- -- Scotiabank 2% -- -- --- --- --- Other Domestic Customers 37% 40% 44% Other International Customers 11% 29% 36% --- --- --- Total revenue 100% 100% 100% === === ===
As illustrated in the table above, we derive a significant amount of revenue from a limited number of customers. In addition, our major customers tend to change from year to year *The loss of any one or more of our major customers or our inability to replace a customer that has become less significant in a given year with a different major customer has harmed us in the past and could harm us in the future. See "Risk Factors--Our customer concentration increases the potential volatility of our operating results." International revenue increased 105% from $4.2 million in 1996 to $8.6 million in 1997. The significant increase in international revenue from 1996 to 1997 was driven principally by significantly higher sales by Versant Europe resulting from our increased marketing and sales investment, partially offset by decreased sales in Australia. International revenue increased 22% from $8.6 million in 1997 to $10.5 million in 1998. The increase in international revenue from 1997 to 1998 was driven principally by higher sales by Versant Europe, Australia and Asia Pacific, resulting from our increased marketing and sales investment, partially offset by decreased sales in Japan. In addition, as a result of the acquisition of Versant Europe in March 1997, we began recognizing license and service revenue from Versant Europe 20 23 that would have been recognized only at 40 % and 25 % royalty rates had Versant Europe not been acquired. *We intend to maintain our sales and marketing activities outside the United States, including Europe, Japan and other Asia/Pacific countries, which will require significant management attention and financial resources, and which may increase costs and impact margins unless and until corresponding revenue is achieved. Our international sales are currently denominated predominantly in United States dollars. An increase in the value of the United States dollar relative to foreign currencies could make our products more expensive and, therefore, less competitive in foreign markets. We believe that the increase in the value of the United States dollar relative to foreign currencies in 1998 did not have a material effect on our operating results. *To the extent that we increase our international sales, our total revenue may be affected to a greater extent by seasonal fluctuations resulting from lower sales levels that typically occur during the summer months in Europe and other parts of the world. International revenue as a percentage of total revenue increased from 23% in 1996 to 29% in 1997 and then increased to 45% in 1998. *Due to our increased emphasis on international sales, especially through Versant Europe, we expect international revenue to increase in absolute dollar terms but decrease as a percentage of total revenue; however, international revenue may not grow at all. Our international operations are subject to corresponding risks; see "Risk Factors--We depend on our international operations." COST OF REVENUE AND GROSS PROFIT
1996 % Change 1997 % Change 1998 ----------- -------- ----------- -------- ----------- Cost of license revenue $ 1,144,000 26% $ 1,445,000 97% $ 2,846,000 As a percentage of license revenue 9% 7% 20% Cost of services revenue 2,987,000 68% 5,010,000 38% 6,893,000 As a percentage of services revenue 48% 64% 79% Gross profit 14,262,000 59% 22,735,000 (41%) 13,494,000 As a percentage of total revenue 78% 78% 58%
Cost of license revenue consists primarily of reserves for estimated bad debts, product royalty obligations incurred by us when we sub-license tools provided by third parties, royalty obligations incurred by us under a porting services agreement, user manuals/product media, production labor costs, freight, and packaging. Cost of license revenue during 1997 increased compared to 1996 principally due to additions to bad debt reserves and the recognition of certain deferred license costs associated with the acquisition of Versant Europe. Cost of license revenue increased in 1998 due to increased reserves for bad debts, amortization of certain deferred license costs and increased royalty costs. As part of the acquisition of Versant Europe, we allocated $1.4 million of the purchase price to deferred license costs. In 1997 and 1998, we recognized $.4 million and $1.0 million of these deferred license costs as a cost of license revenue. *Although our cost of license revenue increased in 1998 compared to 1997, both in absolute dollars and as a percentage of license revenue, we expect 1999 cost of license revenue to be lower than it was in 1998 due to our deferred license cost now being fully amortized and an expectation that royalty payments to third parties in 1999 will decrease. *For these reasons, we expect cost of license revenue to decrease significantly in absolute dollar terms, as well as decrease as a percentage of license revenue in 1999 if expected revenue growth materializes. However, revenue growth in 1999, and therefore license revenue margin improvement, are subject to the risks highlighted in the section, "Risk Factors", below. Cost of services revenue consists principally of personnel costs associated with providing consulting, technical support, training and nonrecurring engineering work paid for by customers. The increase in cost of services revenue during 1997 compared to 1996 was attributable principally to significant investments in our services organization infrastructure to support our sales efforts, including higher compensation and operating costs resulting from additions in domestic and international services management, and compensation pressures. The increase in cost of services revenue during 1998 was attributable to the significant increase in our service organization, before reductions, the increased costs of providing maintenance support to a growing customer base and costs associated with employee turnover. Cost of services revenue as a percentage of services revenue increased in 1998 compared to 1997 due to reduced service support productivity caused by reduced license revenues and higher consulting expenses associated with the use of external 21 24 consultants on specialized customer projects, without an immediate increase in consulting and training revenue. The delay in 1997 between upgrading our services organization infrastructure and the recognition of significant additional services revenue resulted principally from: (1) customer scheduling conflicts, particularly during the fourth quarter holiday season, that created delays in beginning or continuing consulting services (2) inability to attain sufficient paid attendee levels to generate a profitable margin on training services and (3) employee training time required prior to their assignment to billable consulting engagements and training courses During 1998, we experienced a full year of relatively fixed costs associated with our upgraded services infrastructure, compared to approximately one-half of a year of such costs in 1997. Therefore, our cost of services revenue increased in absolute dollar terms. In addition, we needed to maintain a significant services organization due to the lack of third-party service support, but we experienced difficulty in forecasting billable service demand, unevenness in demand for services, which have historically been reduced during holiday periods, and pricing pressure on fees for services encountered in connection with license sales. We also experienced, increased compensation pressures as a result of the intense demand for managers and engineers in Silicon Valley, which we were not able to offset with increases in the fees we charge for maintenance and training and consulting projects due to competitive pressures and restrictions in contractual provisions regarding associated services. *We expect to reduce our cost of service revenue in 1999, both in absolute dollars as well as a percentage of revenues, through headcount reductions and increased productivity. Since December 31, 1998 we have restructured our operations to reduce employee costs and associated expenses. Worldwide headcount as of February 28, 1999 was 122 compared to the December 31, 1998 total of 173. MARKETING AND SALES EXPENSES
1996 % Change 1997 % Change 1998 ----------- -------- ----------- -------- ----------- Marketing and sales expenses $ 8,327,000 107% $17,265,000 7% $18,511,000 As a percentage of total revenue 45% 59% 80%
Marketing and sales expenses consist primarily of marketing and sales personnel costs, including sales commissions, recruiting, travel, advertising, public relations, seminars, trade shows, lead generation, product descriptive literature, product management, sales offices, mailings and depreciation expense. The significant increase during 1997 compared to 1996 resulted from unusual regional concentrations of sales, which resulted in higher commission costs, and higher than expected fees associated with the recruiting of new company personnel, primarily in the sales and marketing area. The increase in 1998 compared to 1997 was due to increased marketing program costs to generate leads, partially offset by lower commission expenses on reduced revenues. In addition, in 1997, we continued to expand our direct sales force to new sales territories, including Hong Kong, mainland China and Malaysia, and in 1997 and 1998 increased marketing spending to expand worldwide awareness of our products and services, particularly in the Internet-based and financial services markets. *We expect marketing and sales expenses to decrease in absolute dollar terms and as a percentage of revenues due to our restructured operations and our efforts to control commission costs and costs associated with marketing programs. Our operating results will be adversely affected if our marketing and sales expenditures are not reduced or if increased revenues do not occur. RESEARCH AND DEVELOPMENT EXPENSES
1996 % Change 1997 % Change 1998 ---------- -------- ---------- -------- ---------- Research and development expenses $3,323,000 57% $5,225,000 48% $7,722,000 As a percentage of total revenue 18% 18% 33%
Research and development expenses consist primarily of salaries, recruiting and other personnel-related expenses, the costs of an ISO 9001 quality program, depreciation or expensing of development equipment, supplies and travel. The increase during 1997 compared to 1996 resulted from: (1) higher compensation and other personnel expenses resulting from an increase in the number of software engineers employed for new product development and quality assurance programs 22 25 (2) the expense of completing the ISO 9001 quality certification program (3) increased depreciation or expensing of engineering computer workstations, components and related supplies and (4) the costs of funding ongoing engineering activities in India The increase in 1998 was due to: (1) higher compensation and other personnel expenses due to increased headcount (2) increased operating expenses due to new opportunities and expanded projects (3) costs of funding ongoing engineering activities in India (4) additional operating expenses associated with Soft Mountain's engineering activity We believe that a significant level of research and development expenditures is required to remain competitive and complete products under development. *Accordingly, we anticipate that we will continue to devote substantial resources to research and development to design, produce and increase the quality, competitiveness and acceptance of our products. *Due to our restructuring activities, we expect research and development expenses to decrease in absolute dollar terms and as a percentage of revenues in 1999. However, if we continue our research and development efforts without corresponding increases in revenue, our results of operations would be adversely affected. To date, all research and development expenditures have been expensed as incurred. GENERAL AND ADMINISTRATIVE EXPENSES
1996 % Change 1997 % Change 1998 ---------- -------- ---------- -------- ---------- General and administrative expenses $1,501,000 92% $2,880,000 34% $3,857,000 As a percentage of total revenue 8% 10% 17%
General and administrative expenses consist primarily of salaries, recruiting and other personnel-related expenses for our accounting, human resources, management information systems, legal and general management functions. In addition, general and administrative expenses include outside legal, audit and public reporting costs. The significant increase during 1997 compared to 1996 resulted from the inclusion of general and administrative expenses related to our Versant Europe subsidiary, compensation costs associated with an increased number of information systems, human resources and accounting employees, relocation and ongoing facility costs resulting from the occupancy of a significantly larger facility and increased legal, accounting and investor relation costs associated with being a public company with significant international operations. The increase during 1998 compared to 1997 resulted from: (1) increased severance costs incurred in connection with changes to our management team (2) increased legal and accounting services (3) expanded travel expense associated with funding projects (4) increased facility costs *We anticipate that general and administrative expenses will decrease in absolute dollar terms and as a percentage of revenues in 1999 due to the reduced costs associated with our restructuring activities and reduced severance costs incurred in connection with recent changes to our management team. However, if we continue to operate with our existing administration infrastructure without corresponding increases in revenue, our results of operations would be adversely affected. AMORTIZATION OF GOODWILL The acquisition of Versant Europe in March 1997 resulted in our recording an intangible asset representing the cost in excess of fair value of the net assets acquired in the amount of $3.3 million, which is being amortized over a seven-year period. During 1997 and 1998, we amortized $370,000 and $485,000, respectively, of this amount. Additionally in 1998 we wrote down the Versant Europe goodwill by $1.6 million due to our revised estimated discounted cash flow over the next five years. *We will amortize $174,000 of this remaining goodwill amount in 1999. See note 11 of notes to our consolidated financial statements. 23 26 The acquisition of Soft Mountain in September 1998 resulted in our writing off $528,000 of in-process research and development expenses associated with the purchased software and recording an intangible asset representing the cost in excess of fair value of the net assets acquired in the amount of $1.2 million, which is being amortized over a five-year period. During 1998, we amortized $61,000 of this amount. *We will amortize $245,000 of this amount in 1999. See note 12 of notes to our consolidated financial statements. INTEREST INCOME (EXPENSE) AND OTHER, NET
1996 % Change 1997 % Change 1998 --------- -------- --------- -------- --------- Interest income (expense) and other, net $ 429,000 64% $ 705,000 (198 %) ($692,000) As a percentage of total revenue 2% 2% (3%)
Interest income (expense) and other, net represents income earned on our cash, cash equivalents and short-term investments, interest expense associated with our financing activities and other expenses not considered to be of an operating nature, such as legal expenses associated with defending against our securities litigation. The increase in interest income (expense) and other, net from 1996 to 1997 was due to increased interest income from higher cash balances, partially offset by higher interest expense on our outstanding line of credit. The decrease in interest income (expense) and other, net from 1997 to 1998 was due to: (1) decreased interest income from lower cash balances (2) increased interest expense on bank debt and capital equipment leases (3) accrued interest expense on our convertible secured subordinated promissory note PROVISION FOR INCOME TAXES
1996 % Change 1997 % Change 1998 -------- -------- -------- -------- -------- Provision for income taxes $129,000 (69%) $ 40,000 (55%) $ 18,000 As a percentage of income (loss) before income taxes 8% (2%) (0%)
We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." We incurred net operating losses in 1997 and 1998, resulting in no federal or state tax liability based on income. However, we did incur foreign withholding taxes of $40,000 and $18,000 during 1997 and 1998, which are included within the income tax provision. We had net income of $1.4 million for 1996 and recorded an income tax provision of $129,000 for federal and state income taxes of $115,000 not offset by net operating loss carryforwards and foreign withholding taxes of $14,000. At December 31, 1998, we had federal and state net operating loss carryforwards of $34.0 million and $13.8 million and tax credit carryforwards of $2.3 million expiring on various dates through 2018. *Due to our history of operating losses through 1995 and in 1997 and 1998 and other factors, we believe that there is sufficient uncertainty regarding the realizability of these carryforwards, and therefore a valuation allowance of approximately $15.2 million has been recorded against our net deferred tax assets of approximately $15.2 million. We will continue to assess the realizability of the tax benefit available to us based on actual and forecasted operating results. Due to the "change in ownership" provisions of the Internal Revenue Code of 1986, the availability of net operating loss and tax credit carryforwards to offset federal taxable income in future periods is subject to an annual limitation due to changes in ownership for income tax purposes. Usage of net operating loss carryforwards is limited to approximately $4.0 million per year because of past ownership changes. 24 27 BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
1996 % Change 1997 % Change 1998 --------- -------- --------- -------- ---------- Basic net income (loss) per share $0.24 n/a $(0.26) (731%) $(2.16) Shares used in computing basic net income (loss) per share 5,916,000 51% 8,931,000 3% 9,209,000 Diluted net income (loss) per share $0.18 n/a $(0.26) (731%) $(2.16) Shares used in computing diluted net income (loss) per share 7,690,000 16% 8,931,000 3% 9,209,000
The decrease to basic and diluted net loss per share in 1997 compared to basic and diluted net income per share in 1996 resulted principally from operating expenses increasing at a higher rate than revenue. The increase in basic and diluted net loss per share in 1998 compared to 1997 resulted principally from: (1) operating expenses increasing while revenue decreased (2) writedown of goodwill (3) accrued interest expense associated with our convertible secured subordinated promissory note In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income and our components in a full set of general purpose financial statements. SFAS No. 130 requires that items be recorded in comprehensive income, which includes unrealized gains/losses on marketable securities classified as available-for-sale and cumulative translation adjustments, be displayed with the same prominence as other financial statements. SFAS No. 130 was adopted in our financial statements for the year ending December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES
1996 % Change 1997 % Change 1998 ------------ -------- ------------ -------- ------------- Net cash provided by (used in) operating activities $ 2,889,000 n/a ($ 5,655,000) 88% ($10,628,000) Year end cash, cash equivalents and short-term investments $ 19,983,000 (51%) $ 9,831,000 (59%) $ 3,989,000 Year end working capital (deficit) $ 18,927,000 (32%) $ 12,228,000 n/a ($ 3,381,000)
In 1998, net cash of $10.6 million was used in operating activities primarily due to the cash component of our net loss for 1998, decreases in deferred revenue, accrued liabilities and taxes and a decreased provision for doubtful accounts, which were offset by a significant decrease in accounts receivable, decreases in prepaid expenses and other current assets, and increases in accounts payable compared to 1997. The decrease in accounts receivable was due to improved collection activity, and lower revenues in the fourth quarter of 1998 compared to the fourth quarter of 1997. Through February 28, 1999, we had collected $3.2 million of our December 31, 1998 accounts receivable balance, leaving an accounts receivable balance of $3.0 million related to the December 31, 1998 balance. We purchased $2.0 million of property and equipment during 1998, primarily for the acquisition of network and computer equipment, leasehold improvements, furnishings and fixtures for our headquarters. In addition, in September 1998, we acquired Soft Mountain and paid the shareholders of Soft Mountain $136,000 in cash in addition to issuing them 245,586 shares of our common stock. These uses of cash for investing activities were entirely offset by net sales and maturities of short-term investments. Financing activities provided $6.5 million in 1998, primarily due to proceeds from the sale of a convertible secured subordinated promissory note, the sale of common stock to certain of our largest shareholders, the sale of common stock to our employees under employee benefit plans and borrowings under a short-term accounts receivable loan, which were partially offset by principal payments made under capital lease obligations and our long term bank note. *We have and will continue to make certain investments in software applications and systems to ensure that our products are Year 2000 compliant. In particular, our purchase of approximately $9 million of property and equipment during 1997 and 1998 included substantial investments in management and information systems designed to be Year 2000 compliant. We are currently in the process of testing our internal and external systems for compliance as well as contacting our customers, suppliers and providers of third-party technology that may be integrated with our products for information concerning their Year 2000 compliance status. In the event that any of our significant 25 28 suppliers or customers, or such third-party technology providers, does not successfully and timely achieve Year 2000 compliance, our business or operations could be adversely affected. See "Risk Factors--Our business may be harmed by Year 2000 problems." At December 31, 1998, we had $3.6 million in cash and cash equivalents and negative working capital of approximately $3.3 million. We maintain a revolving credit line with a bank that expires on May 31, 1999. The maximum amount that can be borrowed under the revolving credit line is $5.0 million. As of December 31, 1998, $900,000 was allocated to a standby letter of credit to support our European banking line and $1,661,000 of borrowings were outstanding. Borrowings and the standby letter of credit under the revolving credit line are limited to 80% of eligible accounts receivable and are secured by a lien on substantially all of our assets. These borrowings bear interest at the bank's base lending rate (7.75% at December 31, 1998). The loan agreement contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. We renegotiated these original covenants, effective June 30, 1998, in order to comply with our projected financial results. As of December 31, 1998, we were not in compliance with all covenants. Therefore, this line of credit is currently due on demand. We entered into an interest only, variable rate note of $2.5 million with a bank that matured March 1, 1998. On March 19, 1998, this note was converted to a variable rate, term loan with principal and interest payable over 36 months. Borrowings under the loan are secured by a lien on all assets acquired using the proceeds of the loan, which have been used for the acquisition of equipment and leasehold improvements. The loan bears interest at the bank's base lending rate, currently at 7.75%, plus 0.5%. The loan contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. We renegotiated these original covenants, effective June 30, 1998, in order to comply with our projected financial results. As of December 31, 1998, we were not in compliance with all covenants. Therefore, this loan is currently due on demand and has been restated as a current liability in our financial statements. Although we seek to negotiate new financial covenants for our existing bank debt, the bank is not required to amend our existing covenants. Moreover, any new covenants that we negotiate may contain terms that significantly restrict our business activities. *We believe that our current cash, cash equivalents, our lines of credit, and the net cash provided by operations, if any, may be insufficient to meet our anticipated cash needs for working capital and capital expenditures for 1999. At December 31, 1998, our commitments for capital expenditures were not material. *If cash provided by operations is insufficient to satisfy our liquidity requirements, we will seek additional debt or equity financing. Such financing may not be available on terms acceptable to us, if at all. The sale of additional equity or convertible debt securities could result in dilution to our shareholders. *A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, we evaluate potential acquisitions of such businesses, products and technologies. To date, we have not achieved business volume sufficient to restore profitability and a positive cash flow. We operated at a net loss of $19.9 million and $2.3 million in 1998 and 1997 and since December 31, 1998 have continued to experience operating losses. Our available cash and credit facilities may not be sufficient to fund our operations and successfully implement our business plan, part of which consists of pursuing potential strategic relationships, acquisitions of companies, products and technologies. As a result, our ability to continue as a going concern is dependent upon future events, including our ability to obtain additional debt or equity financing. Additional debt or equity financing, if required, may not be available to us on commercially reasonable terms, or at all. Even if we were able to obtain additional debt or equity financing, the terms of this financing may significantly restrict our business activities. If we are unable to obtain additional debt or equity financing and do not generate consistent positive cash flows from operations for the immediate and foreseeable future, we will be required to cease or substantially reduce operations. The actual cash resources required to successfully implement our business plan in year 1999 will depend upon numerous factors, including but not limited to those described in the following Risk Factors. 26 29 RISK FACTORS This Annual Report on Form 10-KSB contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those set forth below, that could cause actual results to differ materially from those in the forward-looking statements. The matters set forth below should be carefully considered when evaluating our business and prospects. RISKS RELATED TO OUR BUSINESS OUR LIMITED WORKING CAPITAL MAY PREVENT US FROM CONTINUING AS A GOING CONCERN. We incurred a significant reduction in working capital in 1998. To date, we have not achieved business volume sufficient to restore profitability and a positive cash flow. We operated at a net loss of $20 million in 1998 and since December 31, 1998 have continued to experience operating losses. Our available cash and credit facilities may not be sufficient to fund our operations and successfully implement our business plan, part of which consists of pursuing potential strategic relationships, acquisitions of companies, products and technologies. As a result, our ability to continue as a going concern is dependent upon future events, including our ability to obtain additional debt or equity financing. We recently raised $3.6 million through the sale of a convertible secured subordinated promissory note to Vertex Technology Fund, and $1.4 million through the sale of equity securities to Special Situations Fund. We may raise additional funds through the sale of equity securities or other means in the near future. *However, funds may not be available on favorable terms, if at all. *If we are unable to raise additional funds, we will be dependent on cash flow from operations to fund operations and to repay outstanding bank debt. *Unless we generate consistent positive cash flows from operations for the immediate and foreseeable future, we will be required to cease or substantially reduce operations. *The sale of additional equity or convertible debt securities would result in dilution to our shareholders. OUR EXISTING DEBT BURDEN IS SUBSTANTIAL, AND WE MAY DEFAULT ON OUR LOANS. At December 31, 1998, we had the following outstanding borrowings: (1) $2.4 million under a bank revolving loan, which expires on May 31, 1999; (2) $2.3 million under a bank term loan, which expires on March 18, 2001; and (3) $3.6 million under our convertible subordinated secured promissory note, which is due in October 2001. Because we were not in compliance with the covenants that apply to the bank revolving loan and the bank term loan at December 31, 1998, the bank has the ability to declare a default on these loans and demand immediate payment of approximately $4.1 million in currently outstanding borrowings. Therefore, unless we are able to renegotiate our covenants and extend or refinance this debt, we will need to generate a significant amount of cash in the immediate future, and in any event by the May 31, 1999 expiration date of the bank revolving loan. As in previous quarters in which we were not in compliance with our financial covenants, we are currently pursuing discussions with the bank to amend the terms of our loans, including their repayment schedules and financial covenants. However, we may not be successful in this endeavor. Even if we are successful amending the terms of or refinancing our loans, the new terms could be significantly less attractive than our current financing arrangements and could significantly restrict our operating activities. OUR REVENUE LEVELS ARE UNPREDICTABLE. Our revenue has fluctuated dramatically on a quarterly and annual basis, and we expect this trend to continue. These dramatic fluctuations result from a number of factors, including: (1) the lengthy and highly consultative sales cycle associated with our products (2) uncertainty regarding the timing and scope of customer deployment schedules of applications based on the Versant ODBMS (3) fluctuations in domestic and foreign demand for our products and services, particularly in the telecommunications and financial services markets (4) the impact of new product introductions by us and our competitors (5) our unwillingness to significantly lower prices to meet prices set by our competitors (6) the effect of publications of opinions about us and our competitors and their respective products (7) customer order deferrals in anticipation of product enhancements or new product offerings by us or our competitors (8) potential customers unwillingness to invest in our products given our financial instability 27 30 A number of other factors make it impossible to predict our operating results for any period prior to the end of that period. We ship our software to a customer at receipt of the customer's order, and consequently, we have little order backlog. As a result, license revenue in any quarter is substantially dependent on orders booked and shipped in that quarter. Historically, we record most of our revenue and book most of our orders in the third month of each quarter, with a concentration of such revenue and orders in the last few days of the quarter. We expect this trend to continue. Many of these factors are beyond our control. WE MAY NOT BE ABLE TO MANAGE COSTS GIVEN THE UNPREDICTABILITY OF OUR REVENUE. We expended significant resources in 1997 and 1998 to build our infrastructure and hire personnel, before reductions, particularly in the services and sales and marketing sectors, in expectation of higher revenue growth than actually occurred. Although we have restructured our operations to reduce operating expenses, we continue to plan for revenue growth in 1999 compared to 1998. Consequently, we will continue to incur a relatively high level of fixed expenses. Although, in January 1999, we reduced significantly our worldwide headcount and implemented controls on spending in order to achieve expense reductions, if expense controls are not achieved or planned revenue growth does not materialize, our business, financial condition and results of operations will be materially harmed. WE RELY ON TELECOMMUNICATIONS AND FINANCIAL SERVICES MARKETS CHARACTERIZED BY COMPLEXITY AND INTENSE COMPETITION. Historically, we have been highly dependent upon the telecommunications industry and are becoming increasingly dependent upon the financial services market. Our success in the telecommunications and financial service markets is dependent, in part, on our ability to compete with alternative technology providers and on whether our customers and potential customers believe we have the expertise necessary to provide effective solutions in these markets. If these conditions, among others, are not satisfied, we may not be successful in generating additional opportunities in these markets. The need for and type of applications and commercial products for the telecommunications and financial services markets is continuing to develop, is rapidly changing, and is characterized by an increasing number of new entrants whose products may compete with those of ours. As a result, we cannot predict the future growth of these markets, and demand for object-oriented databases in these markets may not develop or be sustainable. We also may not be successful in attaining a significant share of these markets. In addition, organizations in these markets generally develop sophisticated and complex applications that require substantial customization of our products. Although we seek to generate consulting revenue in connection with these customization efforts, we have offered, and may, under certain circumstances continue to offer, free or reduced price consulting. This practice has impacted, and will continue to impact, our service margins and will require that we maintain a highly skilled service infrastructure with specific expertise in these markets. OUR PRODUCTS HAVE A LENGTHY SALES CYCLE. Our sales cycle, which varies substantially from customer to customer, often exceeds nine months and can sometimes extend to a year or more. Due in part to the strategic nature of our products and associated expenditures, potential customers are typically cautious in making product acquisition decisions. The decision to license our products generally requires us to provide a significant level of education to prospective customers regarding the uses and benefits of our products, and we must frequently commit no-fee pre-sales support resources, such as assistance in performing bench marking and application prototype development. Because of the lengthy sales cycle and the relatively large average dollar size of individual licenses, a lost or delayed sale could have a significant impact on our operating results for a particular period. Although we seek to develop relationships with best-of-class value-added resellers in the telecommunications and financial services markets in order to strengthen our indirect sales activity, we have not yet entered into such relationships and may not be successful in developing such relationships. In addition, our value-added resellers may be subject to a lengthy sales cycle for our products. OUR CUSTOMER CONCENTRATION INCREASES THE POTENTIAL VOLATILITY OF OUR OPERATING RESULTS. Notwithstanding our recent efforts to develop new customers, typically through the use of relatively small licenses, a significant portion of our total revenue has been, and we believe will continue to be, derived from a limited number of orders placed by large organizations. The timing of such orders and their fulfillment has caused, and is likely to cause in the future, material fluctuations in our operating results, particularly on a quarterly basis. In addition, our major customers tend to change from year to year. The loss of any one or more of our major customers or our inability to replace a customer that has become less significant in a given year with a different major customer could have a material adverse effect on our business. 28 31 WE DEPEND ON OUR INTERNATIONAL OPERATIONS. A significant portion of our revenue is derived from customers located outside the United States. This requires that we operate internationally and maintain a significant presence in international markets. However, our international operations are subject to a number of risks. These risks include: (1) longer receivable collection periods (2) changes in regulatory requirements (3) dependence on independent resellers (4) multiple and conflicting regulations and technology standards (5) import and export restrictions and tariffs (6) difficulties and costs of staffing and managing foreign operations (7) potentially adverse tax consequences (8) foreign exchange fluctuations (9) the burdens of complying with a variety of foreign laws (10) the impact of business cycles and economic instability outside the United States, including the current economic instability in Asia. WE MUST DEFEND AGAINST SECURITIES LITIGATION. We and certain of our present and former officers and directors were named as defendants in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998, a consolidated amended complaint was filed in this court by the lead plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the Exchange Act, in connection with public statements about our expected financial performance. The complaint seeks an unspecified amount of damages. We vigorously deny the plaintiff's claims and have moved to dismiss the allegations. The plaintiff has filed a response to our motion to dismiss, and we have filed an opposition to plaintiff's response. The motion to dismiss was submitted to the court for consideration on November 13, 1998, and the court has not yet issued a decision. Securities litigation can be expensive to defend, consume significant amounts of management time and result in adverse judgments or settlements that could have a material adverse effect on our results of operations and financial condition. OUR STOCK PRICE IS VOLATILE. Our revenue, operating results and stock price have been and may continue to be subject to significant volatility, particularly on a quarterly basis. We have previously experienced significant shortfalls in revenue and earnings from levels expected by securities analysts and investors, which has had an immediate and significant adverse effect on the trading price of our common stock. This may occur again in the future. Additionally, as a significant portion of our revenue often occurs late in the quarter, we may not learn of revenue shortfalls until late in the quarter, which could result in an even more immediate and adverse effect on the trading price of our common stock. OUR BUSINESS MAY BE HARMED BY YEAR 2000 PROBLEMS. We and our customers and suppliers are aware and concerned about the risks associated with Year 2000 computer issues. If our systems do not recognize the correct date when the year changes to 2000, there could be a material adverse effect on our operations. We are at risk from both internal and external areas. We have categorized our risk into the following categories: (1) internal systems required to operate our business (e.g. operational, financial, product development, safety and environmental controls); (2) external supplier systems that are necessary to support our business requirements (e.g. raw materials, supplies, shipping and delivery systems, banking, payroll and government systems); and (3) product warranty exposure with our customer base. We are currently evaluating our exposure in all these areas. We have been reviewing our facility, financial and operating systems to identify and assess the requirements to bring hardware systems and software applications to Year 2000 compliance. We expect to conclude our estimate of exposure to Year 2000 problems, associated costs and required correction plans by the end of July 1999 and to correct any Year 2000 problems by October 31, 1999. We have not identified any alternative remediation plans in the event Year 2000 issues can not be adequately corrected. We will define any alternative plans if and when we discover systems that can not be made Year 2000 compliant. If implementation of upgrade or replacement systems is delayed or if significant new non-compliance issues are discovered, our operations could be materially adversely affected. 29 32 We have and will continue to make certain investments in software applications and systems to ensure that we are Year 2000 compliant with respect to our internal systems. In particular, our purchase of $9 million of property and equipment during 1997 and 1998 included substantial investments in management and information systems designed to be Year 2000 compliant. We have contracted with an outside independent consulting firm to provide internal Year 2000 equipment testing and consulting services to assist us in the process of defining and implementing a Year 2000 compliance project. This compliance project includes the following phases:
Expected completion Name of phase: Description: Status: date: - -------------- ------------ ------- ----- Awareness and Educate the company on the Year 2000 project, the In progress April 1999 Assessment Phase potential problems associated with this date issue, inventory our systems and products that require compliance testing. Testing and Test our systems and products and identify the Begins March 1999 July 1999 Validation Phase non-compliant areas, develop remediation plans, map the conversion process to correct non-compliant areas and validate the changes that need to be made to correct non-compliant areas. Implementation and Convert non-compliant areas with compliant products Begins August October 1999 Certification Phase (hardware or software), verify that all intended 1999 changes have been made successfully and that all planned Year 2000 compliance changes have been made. Maintenance Phase This phase puts processes and procedures in place to Begins December 1999 minimize the likelihood that Year 2000 compliance November 1999 problems will be reintroduced into the compliant systems and products.
Status: Awareness and Assessment Phase: We are in the process of writing an awareness statement to educate our employees, vendors and customers about the Year 2000 issues and potential problems associated with the Year 2000 rollover problem and what effect this will have on our company and customers. We have identified all internal systems (products and software) that need to be tested for Year 2000 compliance. Testing and Validation Phase: We have tested the personal computers and servers used by our employees to complete their daily work assignments. The results are being analyzed and will be assessed by April 1999. We will be testing or seeking validation with respect to Year 2000 compliance regarding external providers for phone service, security service, utility service, internet service and air conditioning service. We will then develop remediation plans to correct non-compliant systems. In addition to the internal testing, evaluation and remediation project, we will implement a program that will query our suppliers and providers of third-party technology that may be integrated with our products to determine if the suppliers operations', products and services are Year 2000 compliant. We expect these questionnaires to be sent to our third party providers and key suppliers by the end of April 1999 and conclude our review by the end of June 1999. Where practical, we will take the necessary actions to reduce our exposure to suppliers that are not Year 2000 compliant by finding alternative suppliers. However, there may be critical suppliers that cannot be substituted and this could have a material adverse effect on our operations. 30 33 We believe our products are Year 2000 compliant. However, not every customer situation can be anticipated, especially in areas that involve third party products. Extensive testing has been performed on our products and additional testing will continue as we become aware of our customer's Year 2000 needs and issues. We may see an increase in customer demands for warranty service. This may create additional service costs that can not be recovered. In addition, if our products are not Year 2000 compliant, we could face litigation regarding Year 2000 compliance issues. The process to insure our systems and our supplier systems are Year 2000 compliant is expected to be significantly completed by October 31, 1999, with testing to be done through the remainder of 1999. In addition, we could face reduced demand for our products through 1999 if customers focus on purchasing solutions to their Year 2000 problems rather than purchasing our products, which are not designed to solve Year 2000 problems. Customer's purchasing plans could be affected by the Year 2000 problem if they need to expend significant resources to correct their existing systems. This situation may result in reduced funds available to implement solutions based upon our products. In addition, some customers may defer the license of our products until after the Year 2000 while they complete remediation and testing of their current systems to ensure Year 2000 compliance. A decrease in demand for our products due to customers' Year 2000 issues would seriously harm our business and results of operations. RISKS RELATED TO OUR INDUSTRY WE FACE INTENSE COMPETITION. The market for our products is intensely competitive. We believe that the primary competitive factors in our market include: (1) database performance, including the speed at which operations can be executed and the ability to support large amounts of different information (2) vendor reputation (3) the ability to handle abstract data types and complex data relationships (4) ease of use (5) database scalability (6) the reliability, availability and serviceability of the database (7) compatibility with customers' existing technology platforms (8) the ease and speed with which applications can be developed (9) price and (10) service and support. Our current and prospective competitors include companies that offer a variety of database solutions using various technologies including object database, object-relational database and relational database technologies. Competitors offering object and object-relational database management systems include Oracle Corporation, Computer Associates International, Inc., Object Design, Inc., Informix and its Illustra Information Technologies, Inc. subsidiary, Objectivity, Inc., Gemstone Systems, Inc., Poet Software Corporation, ONTOS, Inc. In addition, our products compete with traditional relational database management systems, many of which have been or are expected to be modified to incorporate object-oriented interface and other functionality, and to leverage Java. The principal competitors in the relational database market are Oracle, Sybase, Informix, IBM and Microsoft. We expect to face additional competition from other established and emerging companies as the object database market continues to develop and expand. In 1997, Oracle released its Oracle8 product, which, with its object option, provides object-relational database capabilities, and Computer Associates released their Jasmine ODBMS, which is a pure object-oriented database. Although we believe that the decision of relational database vendors to pursue object-relational or object-oriented approaches validates our belief that object-oriented database solutions will be increasingly demanded by today's business organizations, we are facing heightened competition. During the last year we have seen a major shift away from Smalltalk towards JAVA. In addition Versant is used more and more as a middle tier persistence layer in multi tier applications This brings us in direct competition with some of the more established companies in these markets. These are companies like IBM, SUN and BEA selling Java based tools and solutions. There is also some movement in the market to buy as much middleware components as possible from one or just a few suppliers. Because we are offering just a ODBMS for the time being we may not be able to compete in some of these situations. This could result and would continue to result in fewer customer orders, price reductions, reduced transaction size, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, operating results and financial 31 34 condition and on the market price of our common stock. Due to the introduction by Oracle and Computer Associates of competing products with lower prices than the Versant ODBMS, we may not be able to maintain prices for our products at levels that will enable us to market our products profitably. Any decrease in per unit prices, as a result of competition or otherwise, could have a material adverse effect on our business, operating results and financial condition. In addition our poor financial performance during 1998 may influence customers to delay orders or cancel projects to wait and see how we are performing during the next foreseeable future. We are also indirectly facing competition from developers of middleware products that allow users to connect object-oriented applications to existing legacy data and RDBMSs. To the extent that these products gain market acceptance, they may reduce the market for the Versant ODBMS for less complex object-oriented applications. Many of our competitors, and especially Oracle and Computer Associates, have longer operating histories, significantly greater financial, technical, marketing, service and other resources, significantly greater name recognition, broader product offerings and a larger installed base of customers than ours. In addition, many of our competitors have well-established relationships with current and potential customers of ours. As a result, our competitors may be able to devote greater resources to the development, promotion and sale of their products, may have more direct access to corporate decision-makers based on previous relationships and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. We may not be able to compete successfully against current or future competitors, and competitive pressures could have a material adverse effect on our business, operating results and financial condition. WE DEPEND ON SUCCESSFUL TECHNOLOGY DEVELOPMENT. We believe that significant research and development expenditures will be necessary to remain competitive. While we believe our research and development expenditures will improve the Versant ODBMS and result in successful peripheral product introductions, due to the uncertainty of software development projects, these expenditures will not necessarily result in successful product introductions. Uncertainties impacting the success of software development project introductions include technical difficulties, market conditions, competitive products and consumer acceptance of new products and operating systems. In particular, we note that we have not yet achieved commercial acceptance for our Versant Multimedia Access product. We also face certain challenges in integrating third-party technology with our products. These challenges include the technological challenges of integration, which may result in development delays, and uncertainty regarding the economic terms of our relationship with the third-party technology provider, which may result in delays of the commercial release of new products. We face further technology development challenges associated with our acquisition of Soft Mountain. The Soft Mountain R'Net product offering is still under development, and there is uncertainty in both the timing of the release and the market acceptance of the product. Soft Mountain's geographic location in France generates additional management and integration challenges, because our product development to date has been performed in California and India. Developing and marketing our new Versant Enterprise Container for Java Beans creates new challenges for us. This product, which has not yet been commercially introduced, represents our first attempt to provide solutions to the application server market. Although we have worked with BEA to develop technology that will allow the Versant Enterprise Container to support the BEA WebLogic application server family, undiscovered bugs or errors may exist that prevent us from achieving the functionality we seek with the Versant Enterprise Container. In addition, because Java Bean containers are specific to each application server vendor and no standards have been adopted for such containers, we may not be able to take advantage of our development work with the BEA application server family when developing solutions for other application server vendors. We do not currently have any agreements or relationships regarding the Versant Enterprise Container with other application server vendors, and when our new product is introduced, customers will only be able to use it with BEA application servers. WE MUST PROTECT OUR INTELLECTUAL PROPERTY. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products, obtain or use information that we regard as proprietary or use or make copies of our products in violation of license agreements. Policing unauthorized use of our products is difficult. In addition, the laws of many jurisdictions do not protect our proprietary rights to as great an extent as do the laws of the United States. Shrink-wrap licenses may be wholly or partially unenforceable under the laws of certain jurisdictions, 32 35 and copyright and trade secret protection for software may be unavailable in certain foreign countries. Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technology. To date, we have not been notified that our products infringe the proprietary rights of third parties, but third parties could claim that our current or future products infringe such rights. We expect that developers of object-oriented technology will increasingly be subject to infringement claims as the number of products, competitors and patents in our industry segment grows. Any such claim, whether meritorious or not, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us or at all, which could have a material adverse effect upon our business, operating results and financial condition. Our future success will depend in part on our ability to integrate our products with those of vendors providing complementary products. The Versant ODBMS must be integrated with compilers, development tools, operating systems and other software and hardware components to produce a complete end-user solution. We may not receive the support of these third-party vendors, some of which may compete with us, to integrate our products with the vendors' products. WE DEPEND ON OUR PERSONNEL FOR WHOM COMPETITION IS INTENSE. Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel. The loss of the services of one or more of our key employees could have a material adverse effect on our business. Our future success also depends on our continuing ability to attract, train and motivate highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, especially in Silicon Valley where our headquarters are located, and we may not be able to attract, train and motivate such personnel. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our exposure to market risk for changes in interest rates relate primarily to our investment portfolio. Currently, we do not use derivative financial instruments in our investment portfolio. We invest in high-credit quality issuers and, by policy, limits the amount of principal exposure to any one issuer. As stated in our policy, we seek to ensure the safety and preservation of our invested principal funds by limiting default and market risk. We seek to mitigate default risk by investing in high-credit quality securities and by positioning our investment portfolio to respond to a significant reduction in a credit rating of any investment issuer, guarantor or depository. We seek to mitigate market risk by limiting the principal and investment term of funds held with any one issuer and by investing funds in marketable securities with active secondary or resale markets. As of December 31, 1998 we had invested all our excess funds in current money market accounts and had no fixed term investments to report. ITEM 8. FINANCIAL STATEMENTS The financial statements and supplementary data required by Item 8 are set forth below on pages F-1 to F-20 of this report. ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 33 36 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The information concerning our directors required by this Item is incorporated by reference to our definitive proxy statement for our 1999 annual meeting of shareholders, which we will file with the Securities and Exchange Commission by April 30, 1999, under the heading "Election of Directors." The information concerning our executive officers required by this item is incorporated by reference to the proxy statement under the heading "Executive Officers." The section entitled "Compliance under Section 16(a) of the Securities Exchange Act of 1934" that will appear in our proxy statement sets forth the information concerning compliance by our officers, directors and 10% shareholders with Section 16 of the Securities Exchange Act and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference to our proxy statement under the heading "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference to our proxy statement under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference to our proxy statement under the heading "Certain Relationships and Related Transactions." ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Exhibits. See Exhibit Index, page X-1. (b) Reports on Form 8-K filed in quarter ending December 31, 1998. On October 1, 1998, we filed a report on Form 8-K that included an Item 5, Other Events, disclosure of our September 15, 1998 acquisition of Soft Mountain and the issuance of shares and payment of cash to the shareholders of Soft Mountain in connection with the acquisition. On October 22, 1998, we filed a report on Form 8-K that included an Item 5, Other Events, disclosure of our issuance of a convertible secured subordinated promissory note to Vertex in a private placement in which we raised $3.6 million. With the exception of the information incorporated herein by reference to our proxy statement in Items 9, 10, 11 and 12 of Part III, the proxy statement is not deemed to be filed with this Form 10-KSB. 34 37 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fremont, State of California, on this 26th day of March, 1999. VERSANT CORPORATION By:/s/ Gary Rhea -------------------------------------- Gary Rhea Vice President-Finance and Administration In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ Nick Ordon President, Chief March 26, 1999 -------------------------------------- Executive Officer and Nick Ordon Director PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER: /s/ Gary Rhea Vice President-Finance March 26, 1999 -------------------------------------- and Administration Gary Rhea ADDITIONAL DIRECTORS: /s/ Mark Leslie Director March 27, 1999 -------------------------------------- Mark Leslie /s/ Stephen J. Gaal Director March 28, 1999 -------------------------------------- Stephen J. Gaal Director March __, 1999 -------------------------------------- James Simpson /s/ David Banks Director March 29, 1999 -------------------------------------- David Banks
35 38 VERSANT CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ------- Report of Independent Public Accountants........................... F-2 Consolidated Balance Sheets........................................ F-3 Consolidated Statements of Operations.............................. F-4 Consolidated Statements of Shareholders' Equity (Deficit).......... F-5 Consolidated Statements of Cash Flows.............................. F-6 Notes to Consolidated Financial Statements......................... F-7 to F-20 Schedule II - Valuation and Qualifying Accounts and Reserves....... F-21
F-1 39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Versant Corporation: We have audited the accompanying consolidated balance sheets of Versant Corporation (a California corporation) and its subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Versant Corporation and its subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, is out of compliance with debt covenants, has a net working capital deficiency and will require additional funding in 1999 to fund its ongoing operations and repay its debt obligations. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule appearing on page F-21 is presented for purposes of complying with the Securities and Exchange Commission rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California January 25, 1999 F-2 40 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, --------------------- 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 3,564 $ 3,717 Short-term investments -- 6,114 Accounts receivable, net of allowance for doubtful accounts of $335 and $666 in 1998 and 1997, respectively 5,878 9,569 Deferred license cost, net of accumulated amortization of $1,028 and $372 in 1998 and 1997, respectively -- 1,028 Other current assets 1,318 1,272 -------- -------- Total current assets 10,760 21,700 Property and equipment, net 7,381 7,067 Other assets 433 466 Excess of cost of investment over fair value of net assets acquired, net of accumulated amortization of $2,473 and $370 in 1998 and 1997, respectively 2,095 2,973 -------- -------- $ 20,669 $ 32,206 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of capitalized lease obligations $ 561 $ 404 Current maturities of long-term debt 2,223 721 Short term debt 2,426 629 Note payable -- 106 Accounts payable 2,331 1,072 Accrued liabilities 3,692 3,278 Deferred revenue 2,830 3,262 -------- -------- Total current liabilities 14,063 9,472 Long-term liabilities, net of current portion: Capitalized lease obligations 369 546 Long term debt 3,678 1,801 Deferred revenue 704 1,087 Shareholders' equity: Common stock: Authorized --30,000 shares Issued and outstanding--10,150 in 1998 and 8,994 in 1997 45,727 42,980 Accumulated deficit (43,890) (23,955) Accumulated other comprehensive income 18 275 -------- -------- Total shareholders' equity 1,855 19,300 $ 20,669 $ 32,206 ======== ========
The accompanying notes are an integral part of these consolidated statements. F-3 41 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year Ended December 31, -------------------------------------- 1998 1997 1996 -------- -------- -------- Revenue: License $ 14,463 $ 21,363 $ 12,202 Services 8,770 7,827 6,191 -------- -------- -------- Total revenue 23,233 29,190 18,393 -------- -------- -------- Cost of revenue: License 2,846 1,445 1,144 Services 6,893 5,010 2,987 -------- -------- -------- Total cost of revenue 9,739 6,455 4,131 -------- -------- -------- Gross profit 13,494 22,735 14,262 -------- -------- -------- Operating expenses: Marketing and sales 18,511 17,265 8,327 Research and development 7,722 5,225 3,323 General and administrative 3,857 2,880 1,501 Amortization of goodwill 546 370 -- Write down of assets 1,555 -- -- Acquired in-process R&D cost 528 -- -- -------- -------- -------- Total operating expenses 32,719 25,740 13,151 Income (loss) from operations (19,225) (3,005) 1,111 -------- -------- -------- Other income and expense: Currency translation gain (loss) (34) 133 -- Interest expense (640) (162) (58) Interest and other income (expense), net (18) 734 487 -------- -------- -------- Total other income and expense (692) 705 429 Income (loss) before taxes (19,917) (2,300) 1,540 Provision for income taxes 18 40 129 -------- -------- -------- Net income (loss) $(19,935) $ (2,340) $ 1,411 ======== ======== ======== Net income (loss) per share: Basic $ (2.16) $ (0.26) $ 0.24 ======== ======== ======== Diluted $ (2.16) $ (0.26) $ 0.18 ======== ======== ======== Weighted shares used in per share calculations Basic 9,209 8,931 5,916 ======== ======== ======== Diluted 9,209 8,931 7,690 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. F-4 42 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (In thousands, except share amounts)
Other Total Common Stock Comprehensive Accumulated Shareholders' Comprehensive Shares Amount Income(Loss) Deficit Equity(Deficit) Income(Loss) --------- ---------- ------------- ----------- --------------- ------------- Balance at December 31, 1995 3,138,940 $ 20,488 -- $ (23,026) $ (2,538) -- Conversion of mandatorily redeemable convertible preferred stock to common stock 2,367,424 4,429 -- -- 4,429 -- Issuance of common stock in initial public offering 2,136,842 14,879 -- -- 14,879 -- Exercise of stock options and warrants 976,001 343 -- -- 343 -- Issuance of common stock to shareholders of Versant Europe 100,000 750 -- -- 750 -- Net income -- -- -- 1,411 1,411 1,411 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments -- -- -- -- -- -- Comprehensive income(loss) -- -- -- -- -- -- Balance at December 31, 1996 8,719,207 40,889 -- (21,615) 19,274 1,411 ========== ========== ========== ========== ========== ========== ESPP and exercises of stock options and warrants 106,866 946 -- -- 946 -- Issuance of common stock to shareholders of Versant Europe 167,545 1,145 -- -- 1,145 -- Net loss -- -- -- (2,340) (2,340) (2,340) Other comprehensive income (loss), net of tax: Foreign currency translation -- -- 275 -- 275 275 ---------- ---------- ---------- ---------- ---------- ---------- adjustments Comprehensive income(loss) -- -- 275 -- 275 275 ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1997 8,993,618 $ 42,980 $ 275 $ (23,955) $ 19,300 $ (2,065) ========== ========== ========== ========== ========== ========== ESPP and exercises of stock options and warrants 210,934 734 -- -- 734 -- Issuance of common stock to shareholders of Soft Mountain 245,586 645 -- -- 645 -- Issuance of common stock to Special Situations Fund 700,000 1,368 -- -- 1,368 -- Net loss -- -- -- (19,935) (19,935) (19,935) Other comprehensive income (loss), net of tax: Foreign currency translation -- -- (257) -- (257) (257) ---------- ---------- ---------- ---------- ---------- ---------- adjustments Comprehensive income(loss) -- -- (257) -- (257) (257) ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1998 10,150,138 $ 45,727 $ 18 $ (43,890) $ 1,855 $ (20,192) ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-5 43 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, 1998 1997 1996 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(19,935) $ (2,340) $ 1,411 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,716 1,262 387 Write-off of acquired in-process R&D 528 -- -- Write down of goodwill 1,555 -- -- Provision for doubtful accounts receivable (857) 208 621 Changes in current assets and liabilities, net of acquisitions: Accounts receivable 4,548 (5,030) (1,382) Prepaid expenses and other current assets 982 (2,476) 437 Deposits and other assets 33 (381) (29) Accounts payable 1,259 597 403 Accrued liabilities and taxes (642) 966 94 Deferred revenue (815) 1,539 947 -------- -------- -------- Net cash provided by (used in) operating activities (10,628) (5,655) 2,889 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,989) (6,679) (72) Purchases of short-term investments -- (20,632) (18,716) Proceeds from sale and maturities of short-term investments 6,114 29,462 4,000 Purchase of Versant Europe, net of cash acquired -- (1,987) -- Purchase of Soft Mountain, net of cash acquired (136) -- -- -------- -------- -------- Net cash provided by (used in) investing activities 3,989 164 (14,788) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 2,102 946 15,972 Borrowings under short term note and bank loan 1,797 735 -- Principal payments under capital lease obligations (627) (262) (87) Principal payments under long term bank note (106) 2,522 -- Proceeds from long-term borrowings 3,320 -- -- -------- -------- -------- Net cash provided by financing activities 6,486 3,941 15,885 -------- -------- -------- Effects of exchange rate changes on cash -- -- -- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (153) (1,550) 3,986 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,717 5,267 1,281 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,564 $ 3,717 $ 5,267 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest $ 378 $ 180 $ 52 Foreign withholding and state income taxes 18 -- 14 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Capital lease obligations incurred for acquisition of equipment $ 607 $ 574 $ 625 Conversion of preferred stock to common stock -- -- $ 4,429 Issuance of common stock to shareholders of Versant Europe -- $ 1,145 -- Issuance of common stock to shareholders of Soft Mountain $ 645 -- --
The accompanying notes are an integral part of these consolidated statements F-6 44 VERSANT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. ORGANIZATION, OPERATIONS AND LIQUIDITY Versant Corporation was incorporated in California in August 1988. References to the "Company" in these Notes to Consolidated Financial Statements refer to Versant Corporation and its subsidiaries. The Company operates in a single industry segment and is involved in the design, development, marketing and support of high performance object database management software systems. The Company is subject to the risks associated with other companies in a comparable stage of development. These risks include, but are not limited to, fluctuations in operating results, seasonality, a lengthy sales cycle, dependence on the acceptance of object database technology, competition, a limited customer base, dependence on key individuals, product concentration, and the ability to adequately finance its ongoing operations. The Company has suffered recurring losses from operations, is out of compliance with debt covenants, has a net working capital deficit and will require additional funding in 1999 to fund its ongoing operations and repay its debt obligations. These factors raise substantial doubt about its ability to continue as a going concern. Specifically, the Company has not achieved business volume sufficient to restore profitability and a positive cash flow. The Company operated at a net loss of $19.9 million and $2.3 million in 1998 and 1997 and since December 31, 1998 has continued to experience operating losses. Further, the Company was not in compliance with its bank line of credit and term loan covenants as of December 31, 1998, and has been unable to secure a waiver of such noncompliance. Under the terms of the line and term loan the bank could demand repayment of the entire outstanding balance at any time. The Company's line of credit expires on May 31, 1999. The Company's available cash and credit facilities may not be sufficient to fund the Company's operations, service its debt facilities and successfully implement the Company's business plan, part of which consists of pursuing potential strategic relationships, products and technologies. As a result, the Company's ability to continue as a going concern is dependent upon future events, including the Company's ability to obtain additional debt or equity financing. Additional debt or equity financing, if required, may not be available to the Company on commercially reasonable terms, or at all. Even if the Company was able to successfully refinance its outstanding debt and obtain additional debt or equity financing, the terms of this financing may significantly restrict the Company's business activities. If the Company was unable to obtain additional debt or equity financing and does not generate consistent positive cash flows from operations for the immediate and foreseeable future, the Company will be required to substantially reduce operations or seek to sell the company. No adjustments have been made to the accompanying financial statements to reflect the outcome of this uncertainty. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents and Short-term Investments For purposes of the consolidated statements of cash flows, the Company considers all highly liquid cash investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of United States Government obligations. Investments have been accounted for in accordance with Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity Securities." As of December 31, 1997, the Company transferred all investments in marketable securities classified as held-to-maturity to available-for-sale under SFAS No. 115. The Company elected this classification to provide for greater liquidity in its investment balances. There were no unrealized gains or losses on these securities at the date of transfer. The Company's investments in debt securities matured at various dates through March 1998. The fair value of available-for-sale securities was determined based on quoted market prices at the reporting date for the instruments. As of December 31, F-7 45 1998, 1997 and 1996, the Company's investments consisted of the following (in thousands):
MATURITY OF FAIR MARKET AMORTIZED UNREALIZED SECURITIES YEAR VALUE COST BASIS GAIN (LOSS) WITHIN ONE YEAR ---- ----------- ---------- ---------- --------------- United States Government and Agency Investments 1998 $ 0 $ 0 -- $ 0 United States Government and Agency Investments 1997 $ 6,114 $ 6,114 -- $ 6,114 United States Government and Agency Investments 1996 $ 14,716 $ 14,716 -- $ 14,716
Foreign Currency Translation The functional currency of each of the Company's subsidiaries is its local currency. Accordingly, the Company applies the current rate method to translate the subsidiaries' financial statements into U.S. dollars. Translation adjustments are included as a separate component of shareholders' equity in the accompanying consolidated financial statements. Revenue Recognition The Company adopted the provisions of Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), for transactions entered into after January 1, 1998. Revenue consists mainly of revenue earned under software license agreements, maintenance agreements and consulting and training activities. Revenue from perpetual software license agreements is recognized as revenue upon shipment of the software if there is no significant modification of the software, payments are due within the Company's normal payment terms and collection of the resulting receivable is probable. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. The Company has entered into contracts with certain of its customers that require the Company to perform development work in return for nonrecurring engineering fees. Revenue related to such nonrecurring engineering fees is generally recognized on a percentage of completion basis. Maintenance revenue is recognized ratably over the term of the maintenance contract. Consulting and training revenue is recognized when a customer's purchase order is received and the services are performed. Cost of license revenue consists principally of product royalty obligations, product packaging, freight, users manuals, product media, production labor costs and reserves for estimated bad debts. Cost of services revenue consists principally of personnel costs associated with providing training, consulting, technical support and nonrecurring engineering work paid for by customers. The Company acted as a sublicensor under an agreement, that expired on December 31, 1996 and was not renewed, on behalf of a certain developer of software tools products that are used in the development of applications on the Company's object-oriented database product. The Company also subcontracts a portion of its consulting work to this developer. The Company incurred product royalty obligations totaling approximately $33,000 under the terms of the sublicense agreement in 1996. Segment Information In 1998 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision F-8 46 making group is the Executive Management Committee, which is comprised of the Chief Executive Officer, the Chief Operating Officer and various Executive Vice Presidents of the Company. The Company is organized geographically and by line of business. The Company has three major lines of business operating segments: license, support, and consulting and training. However, the Company also evaluates certain lines of business segments by vertical industries as well as by product categories. While the Executive Management Committee evaluates results in a number of different ways, the line of business management structure is the primary basis for which it assesses financial performance and allocates resources. The license line of business licenses an object orientated database management software (ODBMS). The ODBMS software can be classified into two broad categories: systems and development tools, which enables users to create, store, retrieve, and modify the various types of data stored in a computer system. The support line of business provides customers with a wide range of support services that include on-site support, telephone or internet access to support personnel, as well as software upgrades. The consulting and training line of business provides customers with a wide range of consulting and training services to assist the customer in evaluating, installing and customizing the database as well as training classes on the use and operation of the Company's products. The accounting policies of the line of business operating segments are the same as those described in the summary of significant accounting policies. The Company does not track assets by operating segments. Consequently, it is not practicable to show assets by operating segment. The table below presents a summary of operating segments (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Revenues from Unaffiliated Customers License $ 14,463 $ 21,361 $ 12,202 Support 4,428 3,804 2,389 Consulting & Training 4,342 4,026 3,802 -------- -------- -------- Total Revenue 23,233 29,190 18,393 Distribution Margin License 11,617 19,915 11,058 Support 445 264 1,049 Consulting & Training 1,432 2,556 2,155 -------- -------- -------- Total Distribution Margin 13,494 22,735 14,262 Profit Reconciliation: Other Operating Expenses 32,191 25,740 13,151 Acquired In-Process R&D Cost 528 -- -- Other Income (Expense) (692) 705 429 -------- -------- -------- Income (Loss) Before Provision for Income Taxes $(19,917) $ (2,300) $ 1,540 ======== ======== ========
The table below presents the Company's revenues by legal subsidiary (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 ------- ------- ------- Total Revenues Attributable To: United States $13,280 $22,149 $18,393 Germany 3,663 4,627 -- France 2,659 1,356 -- United Kingdom 2,411 354 -- Australia 1,220 704 -- ------- ------- ------- Total $23,233 $29,190 $18,393 ======= ======= =======
F-9 47 Property and Equipment Property and equipment, at cost, consisted of the following (in thousands):
DECEMBER 31, ---------------------- 1998 1997 -------- -------- Computer equipment $ 8,574 $ 7,678 Furniture and fixtures 2,110 1,222 Software 1,138 626 Other 1,782 1,652 -------- -------- 13,604 11,178 Less--Accumulated depreciation and amortization (6,223) (4,111) -------- -------- $ 7,381 $ 7,067 ======== ========
Depreciation and Amortization Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets of three to ten years. Leased assets are amortized over the shorter of the estimated useful life or the lease term. Amortization of Excess Cost of Assets Acquired Amortization of excess of cost of investment over fair value of assets acquired related to the Company's acquisitions. The goodwill associated with the acquisition of Versant Europe (see Note 11) in 1997 was being recognized on a straight-line basis over seven years, but this estimate was changed in 1998 to a five year period. The goodwill associated with the acquisition of Soft Mountain (see Note 12) will be recognized over five years. Software Development Costs Under the criteria set forth in Statement of Financial Accounting Standards No. 86 ("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. The Company has defined the establishment of technological feasibility as the completion of a working model. Amounts capitalizable to date under the provisions of SFAS No. 86 have not been material. Deferred Revenue Deferred revenue represents amounts received from customers under certain license, maintenance and nonrecurring engineering agreements for which the revenue earnings process has not been completed. Deferred revenue consisted of the following components (in thousands):
DECEMBER 31, ----------------- 1998 1997 ------ ------ Maintenance $3,160 $3,560 Development work 39 398 Training and consulting 336 391 ------ ------ $3,535 $4,349 ====== ======
Accrued Liabilities Accrued liabilities consisted of the following components (in thousands):
DECEMBER 31, ----------------- 1998 1997 ------ ------ Payroll and related $1,869 $1,985 Taxes payable 851 509 Other 972 784 ------ ------ $3,692 $3,278 ====== ======
F-10 48 Major Customers The Company had sales to major customers as follows (in thousands):
YEAR ENDED DECEMBER 31, -------------------------- 1998 1997 1996 ---- ------ ------ Customer A * * $5,117 Customer B * $5,776 $2,067 Customer C * * $1,868 Customer D * $3,105 *
* less than 10% International Sales International sales, consisting of sales to customers in foreign countries, were $10.5 million, $8.5 million and $4.2 million of total revenue in 1998, 1997 and 1996, respectively. International sales by country or region were as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 ------- ------- ------- Europe $ 8,733 $ 6,337 $ 1,871 Canada 286 1,163 702 Australia 825 603 1,237 Japan 226 361 101 Other 417 106 303 ------- ------- ------- $10,487 $ 8,570 $ 4,214 ======= ======= =======
Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of accounts receivable and short-term investments. Credit is extended based on an evaluation of the customer's financial condition, and generally collateral is not required. As of December 31, 1998, approximately 21% of accounts receivable were concentrated with three customers. Also 62%, 39% and 42% of our total revenue in 1996, 1997 and 1998, respectively, were attributable to sales of products to telecommunications companies. The Company generally does not require collateral on accounts receivable because the majority of the Company's customers are large, well established companies. The Company provides reserves for estimated credit losses in accordance with management's ongoing evaluation. 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Net Income (Loss) Per Share The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), effective December 15, 1997. This standard revised certain methodology for computing net income (loss) per share and requires the reporting of two net income (loss) per share figures: basic net income (loss) per share and diluted net income (loss) per share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of shares outstanding plus the dilutive effect of shares issuable through the exercise of stock options. The dilutive effect of stock options is computed using the treasury stock method, and the dilutive effect of convertible preferred stock is computed using the if converted method. Dilutive securities are excluded from the diluted net income (loss) per share computation if their effect is antidilutive. F-11 49 The reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations are as follows (in thousands, except per share amounts):
Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- FOR THE YEAR 1996: Basic net income per share: Income available to holders of common stock $ 1,411 5,916 $ 0.24 ======== ======== ========= Shares issuable upon exercise of stock options using treasury stock method 490 Shares outstanding based on assumed conversion of common stock equivalents 1,284 -------- Diluted net income per share: Income available to holders of common stock plus assumed conversions $ 1,411 7,690 $ 0.18 ======== ======== ========= FOR THE YEAR 1997: Basic and diluted net loss per share: Losses available to holders of common stock $ (2,340) 8,931 $ (0.26) ======== ======== ========= FOR THE YEAR 1998: Basic and diluted net loss per share: Losses available to holders of common stock $(19,935) 9,209 $ (2.16) ======== ======== =========
Basic net income (loss) per share was computed using the weighted average number of shares outstanding. Diluted net income per share for the year ended December 31, 1996 was computed using the weighted average number of shares outstanding plus the weighted average number of common stock equivalents using the treasury stock method. Common stock equivalents have been excluded in loss years as their effect would be antidilutive. The number of weighted average common stock equivalents not included in diluted loss per share for the year ended December 31, 1998 and 1997, because they were antidilutive, and may be dilutive in future periods, were 35,844 and 518,276, respectively. The change in the way the Company previously reported net income (loss) per share for financial reporting purposes is due in part to the adoption of SFAS No. 128 and subsequently, Staff Accounting Bulletin No. 98 on "Computations of Earnings per Share," which became effective in February 1997. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Reclassifications Certain reclassifications have been made to amounts in prior years to conform to the 1998 presentation. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In October 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), which was adopted by the Company in 1998. SOP 97-2 clarifies and amends certain provisions of Statement of Position 91-1, "Software Revenue Recognition." In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which was adopted by the Company in 1998. The Company is required to disclose, in financial statement format, all non-owner changes in equity. Such changes include, for example, cumulative foreign currency translation adjustments, certain minimum pension liabilities and unrealized gains and losses on available-for-sale securities. F-12 50 In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which establishes standards for reporting information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosure about products and services, geographic areas and major customers. As defined in SFAS No. 131, operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operation decision-maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company adopted SFAS No. 131 in 1998. In December 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-9") which addresses software revenue recognition as it applies to certain multiple-element arrangements. SOP 98-9 also amends, Statement of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2," (SOP 98-4) to extend the deferral of application of certain passages of SOP 97-2 through years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in years beginning after March 15, 1999. The Company will adopt SOP 98-9 in 1999. The Company is currently evaluating the impact of the SOP on its financial statements and related disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. The pronouncement is effective for years beginning after June 15, 1999. The statement must be applied to derivative instruments that were issued, acquired, or substantively modified after December 31, 1997. The Company does not currently hedge in currency exposure. The adoption of SFAS No. 133 is not expected to impact the Company's consolidated financial position or results of operations. 4. LEASE OBLIGATIONS In November 1996, the Company entered into an agreement to lease its new corporate headquarters facility under a ten-year operating lease agreement commencing on June 1, 1997 and expiring on May 31, 2007. The terms of the lease provide for certain increases in rental payments during the lease term. Rental expense under this agreement is recognized on a straight-line basis. As of March 31, 1998, the Company had outstanding $106,000 in the form of a note payable issued as a security deposit to the lessor of its corporate headquarters facility. The note bears interest at zero percent and matured on June 1, 1998, at which time the Company paid the note in full. The Company also leases field office space generally under one-year operating lease agreements. Consolidated rent expense for 1998, 1997 and 1996 was approximately $2,043,000, $1,358,000 and $427,000, respectively. The future annual minimum lease payments at December 31, 1998 under noncancellable operating leases were as follows (in thousands):
Year Amount ---- ------- 1999 1,448 2000 1,384 2001 1,434 2002 1,467 2003 1,500 Thereafter 5,672 ------- $12,905 =======
The Company has entered into capital lease agreements for equipment with an original cost of $1,856,000 $1,199,000 and $625,000 at December 31, 1998, 1997 and 1996, respectively. Accumulated depreciation of leased equipment was $926,000, $249,000 and zero at December 31, 1998, 1997 and 1996, respectively. The future F-13 51 minimum lease payments required under these capital leases at December 31, 1998 were as follows (in thousands):
Year Amount ---- ------ 1999 $ 620 2000 286 2001 72 2002 42 2003 -- ------ Minimum lease payments 1,020 Less--amount representing interest (7 1/2%-14.7%) 90 ------ Present value of net minimum lease payments 930 Current maturities 561 ------ Long term maturities $ 369 ======
5. LINE OF CREDIT The Company maintains a revolving credit line with a bank that expires on May 31, 1999. The maximum amount that can be borrowed under the revolving credit line is $5.0 million. As of December 31, 1998, $900,000 was allocated to a standby letter of credit to support the Company's European banking line and $1,661,000 of borrowings were outstanding. Borrowings and the standby letter of credit under the revolving credit line are limited to 80% of eligible accounts receivable and are secured by a lien on substantially all of the Company's assets. These borrowings bear interest at the bank's base lending rate (7.75% at December 31, 1998). The loan agreement contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. The Company renegotiated these original covenants, effective June 30, 1998, in order to comply with the Company's projected financial results. As of December 31, 1998 we were not in compliance with all covenants and were not able to obtain a waiver from the bank. This line of credit is currently due on demand. On March 19, 1998, the Company converted an interest only, variable rate note to a variable rate, term loan with principal and interest payable over 36 months. Borrowings under the loan are secured by a lien on all assets acquired using the proceeds of the loan, which have been used for the acquisition of equipment and leasehold improvements. The loan bears interest at the bank's base lending rate, currently at 7.75%, plus 0.5%. The loan contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. The Company renegotiated the original covenants effective June 30, 1998 in order to comply with the Company's projected financial results. As of December 31, 1998 we were not in compliance with all covenants and were not able to obtain a waiver from the bank. This loan is currently due on demand and has been restated as a current liability in our financial statements. The Company's subsidiary, Versant Europe, has a credit facility which bears interest at 8.25% as of December 31, 1998. The total amount available under this credit facility is $900,000 and is secured by a letter of credit issued by the Company. The outstanding balance at December 31, 1998 is $703,000 and is payable on demand. 6. COMMON STOCK During 1995, the Company sold shares of Common Stock to employees at $1.00 per share, which represented fair market value on April 22, 1995. These share issuances were made pursuant to the 1989 Stock Option Plan and such amounts are included in the option grant and option exercise table in Note 8. In July and August of 1996, the Company completed its initial public offering of 2,380,500 shares of Common Stock (including an over-allotment option of 310,500 shares) at $8.00 per share, resulting in net proceeds to the Company of $14.9 million after offering costs. In May 1996, the Company sold 100,000 shares of Common Stock to the owners of Versant Europe, which at the time was an independent distributor of the Company's products, at a price of $7.50 per share for total proceeds to the Company of $750,000. In September 1998 in connection with the Company's acquisition of Soft Mountain, the Company agreed to register the 245,586 shares issued in such transaction with the SEC on Form S-3 by December 31, 1998. As the shares were not registered by such date the Company may become obligated to repurchase such shares for 6,190,000 French Francs (approximately $1.1 million). F-14 52 In December 1998 in connection with the sale of shares of common stock to Special Situations Fund, the Company agreed to register 700,000 shares of Common Stock issued plus warrants to purchase an additional 350,000 shares, in such transaction, with the SEC on Form S-3 by April 9, 1999. 7. STOCK OPTION AND STOCK PURCHASE PLANS 1996 Equity Incentive Plan In May 1996, the Board adopted the 1996 Equity Incentive Plan (the "1996 Equity Plan") and the Company's shareholders approved the 1996 Equity Plan in June 1996. The 1996 Equity Plan serves as the successor equity incentive program to the Company's 1989 Stock Option Plan. The 1996 Equity Plan provides for the grant of stock options and stock bonuses and the issuance of restricted stock by the Company to its employees, officers, directors, consultants, independent contractors and advisors. Options granted under the 1989 Stock Option Plan before its termination remain outstanding in accordance with their terms, but no further options have been granted under the 1989 Stock Option Plan since the Company's initial public offering. Any authorized shares that are not issued or subject to outstanding grants under the 1989 Stock Option Plan will be available for grant and issuance in connection with future awards under the 1996 Equity Plan. As of December 31, 1998, the Company has authorized 1,650,000 shares of Common Stock, plus any shares previously issuable under the 1989 Option Plan and now issuable under the 1996 Equity Plan, for issuance under the 1996 Equity Plan. As of December 31, 1998, options to purchase 1,751,894 shares were outstanding under the 1996 Equity Plan, options to purchase 8,125 shares had been exercised under the 1996 Equity Plan, and 270,351 shares were available for grant under the 1996 Equity Plan, including shares previously available for grant under the 1989 Stock Option Plan. At December 31, 1998, options to purchase 358,173 shares were exercisable under the 1996 Equity Plan. 1996 Directors Stock Option Plan In May 1996, the Board adopted the 1996 Directors Stock Option Plan (the "Directors Plan") and the Company's shareholders approved the Directors Plan in June 1996. The Directors Plan provides for the grant of nonqualified stock options to nonemployee directors of the Company, including automatic grants of options to purchase 10,000 shares of Common Stock to nonemployee directors that were granted concurrently with the initial public offering, an option to new nonemployee directors to purchase 10,000 shares of Common Stock on the date on which the new director joins the Board and an additional option to purchase 5,000 shares of Common Stock to each eligible director on each anniversary date of such director's initial option grant under the Directors Plan if such director has served continuously as a member of the Board since the date such director was first granted an option under the Directors Plan. The exercise price of all options granted under the Directors Plan will be the fair market value of the Common Stock on the date of grant. All options issued under the Directors Plan will vest as to 50% of the shares on each of the first two anniversaries following the date of grant, provided the optionee continues as a member of the Board or as a consultant to the Company. As of December 31, 1998, the Company has authorized 125,000 shares of Common Stock for issuance under the Directors Plan. At December 31, 1998, options for an aggregate of 75,000 shares were outstanding, and options to purchase 42,500 shares were exercisable. 1989 Stock Option Plan The 1989 Stock Option Plan was succeeded by the 1996 Equity Plan during 1996. Under the provisions of the 1989 Stock Option Plan, the Board of Directors granted either incentive or non-statutory stock options to employees, consultants, directors and officers to purchase Common Stock at an exercise price of not less than 100% of the fair value (as determined by the Board of Directors) of the shares on the date of grant, except that non-statutory options were granted at 85% of such fair value. Options expire no later than ten years from the date of grant and generally vest over a period of 5 years. As of December 31, 1998, options to purchase 212,155 shares were outstanding under the 1989 Stock Option Plan, options to purchase 1,217,812 shares had been exercised under the 1989 Stock Option Plan, and no shares were available for grant under the 1989 Stock Option Plan. As of December 31, 1998, options to purchase 131,527 shares were exercisable under the 1989 Stock Option Plan. F-15 53 Reserved for Future Issuance As of December 31, 1998, the Company had reserved shares of Common Stock for the following purposes: Employee stock purchase plan 24,337 Stock options available for grant 320,351 Exercise of stock options outstanding 2,039,049 --------- 2,383,737 =========
The Company applies APB Opinion No. 25 and related interpretations in accounting for its option plans. Accordingly, no compensation cost has been recognized for its option plans. Had compensation cost for the Company's option plans been determined based on the fair value at the grant dates for the awards calculated in accordance with the method prescribed by FASB Statement No. 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
1998 1997 1996 ---------- --------- ------- Net income (loss) As Reported $ (19,935) $ (2,340) $ 1,411 Pro forma $ (21,987) $ (3,750) $ 989 Basic net income (loss) per share As Reported $ (2.16) $ (0.26) $ 0.24 Pro forma $ (2.39) $ (0.42) $ 0.17 Diluted net income (loss) per share As Reported $ (2.16) $ (0.26) $ 0.18 Pro forma $ (2.39) $ (0.42) $ 0.13
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for 1998, 1997 and 1996, respectively: zero dividend yield for all years; volatility of 80%, 60% and 90%, respectively; risk-free interest rates of 5.1%, 6.1% and 7.0% respectively; and expected life of 3 years, 3 years and 5.75 years, respectively. The weighted average fair value of options granted during 1998, 1997 and 1996 was $2.69, $4.99 and $5.55 per share, respectively. Option activity under all of the Company's option plans is as follows:
OPTIONS OUTSTANDING -------------------------------- WEIGHTED OPTIONS NUMBER OF AVERAGE AVAILABLE SHARES EXERCISE PRICE ---------- ---------- -------------- Balance at December 31, 1995 202,929 1,161,144 0.59 Authorized 1,075,000 -- -- Granted (608,365) 608,365 7.31 Exercised -- (929,505) 0.59 Canceled 74,476 (74,476) 4.92 ---------- ---------- ------ Balance at December 31, 1996 744,040 765,528 $ 5.48 ========== ========== ====== Authorized 850,000 -- -- Granted (1,194,215) 1,194,215 11.71 Exercised -- (69,424) 2.28 Repurchased 89,480 -- 0.90 Canceled 555,268 (555,268) 13.20 ---------- ---------- ------ Balance at December 31, 1997 1,044,573 1,335,051 $ 8.01 ========== ========== ====== Authorized -- -- -- Granted (1,112,700) 1,112,700 4.84 Exercised -- (27,257) 1.42 Repurchased 7,033 -- 1.23 Canceled 381,445 (381,445) 7.59 ---------- ---------- ------ Balance at December 31, 1998 320,351 2,039,049 $ 6.45 ========== ========== ======
F-16 54 The following table summarizes information concerning outstanding and exercisable options at December 31, 1998.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------------------- NUMBER WEIGHTED WEIGHTED NUMBER OUTSTANDING AVERAGE AVERAGE EXERCISABLE AT WEIGHTED AT DECEMBER 31, REMAINING EXERCISE DECEMBER 31, AVERAGE EXERCISE PRICES 1998 CONTRACTUAL LIFE PRICE 1998 EXERCISE PRICE --------------- --------------- ---------------- --------- -------------- -------------- From $ .25 to $ 2.00 489,655 8.56 $ 1.66 114,719 $ 1.05 From $ 4.75 to $ 6.88 905,491 9.04 5.87 102,306 5.62 From $ 7.25 to $ 8.88 490,330 7.99 8.12 258,477 8.08 From $18.00 to $18.75 153,573 8.53 18.07 56,698 18.09 --------- ---- --------- ------- ------ From $ .25 to $18.75 2,039,049 8.63 $ 6.32 532,200 $ 7.16 ========= ==== ========= ======= =========
1996 Employee Stock Purchase Plan In May 1996, the Board adopted the 1996 Employee Stock Purchase Plan (the "Purchase Plan"), and the Company's shareholders approved the Purchase Plan in June 1996. The Company has reserved 400,000 shares of Common Stock for issuance under the Purchase Plan. The Purchase Plan will enable eligible employees to purchase common stock at 85% of the lower of the fair market value of the Company's Common Stock on the first or the last day of each offering period. As of December 31, 1998, 300,663 shares had been issued. 8. INCOME TAXES The Company accounts for income taxes pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to accounting for income taxes. The Company incurred net operating losses in 1998 and 1997 and consequently paid no federal or state taxes based on income. The Company did pay foreign withholding taxes during those periods. The provision for income taxes consisted of the following components (in thousands):
DECEMBER 31, ------------------------------------ 1998 1997 1996 ---- ---- ---- Current: Federal $ -- $ -- $ 75 State -- -- 40 Foreign withholding 18 40 14 ---- ---- ---- Total current 18 40 129 Deferred: Federal -- -- -- State -- -- -- ---- ---- ---- Total deferred -- -- -- Total provision for income taxes $ 18 $ 40 $129 ==== ==== ====
The provision for income taxes differs from the amount estimated by applying the statutory federal income tax rate to income (loss) before income taxes as follows (in thousands):
DECEMBER 31, ----------------------------------------------- 1998 1997 1996 ------- ------- ------- Provision (benefit) computed at federal statutory rate $(5,134) $ (805) $ 534 State income taxes, net of federal benefit -- -- 92 Change in valuation allowance 5,134 805 (750) Other 18 40 253 ------- ------- ------- Provisions for income taxes $ 18 $ 40 $ 129 ------- ------- ------- Effective tax rate -- -- 7.5%
F-17 55 The components of the net deferred tax asset were as follows (in thousands):
DECEMBER 31, -------------------------------------------------- 1998 1997 1996 -------- -------- -------- Deferred tax asset: Net operating loss carryforwards $ 12,782 $ 7,954 $ 7,073 Tax credit carryforwards 2,259 1,556 1,282 Other 126 523 873 -------- -------- -------- 15,167 10,033 9,228 Valuation allowance (15,167) (10,033) (9,228) -------- -------- -------- Net deferred tax asset $ -- $ -- $ -- ======== ======== ========
At December 31, 1998, the Company had federal and state net operating loss carryforwards of $34.0 million and $13.8 million, respectively, and tax credit carryforwards of $2.3 million, expiring on various dates through 2018. Due to the Company's history of operating losses through 1995, and in 1997 and 1998 and other factors, the Company believes that there is sufficient uncertainty regarding the realizability of these carryforwards, and therefore a valuation allowance of approximately $15.2 million has been recorded against the Company's net deferred tax assets of approximately $15.2 million. Management will continue to assess the realizability of the tax benefits available to the Company based on actual and forecasted operating results. 9. RELATED PARTIES The Company has an agreement with a shareholder, under which a) the Company licenses for resale certain of the shareholder's products and remits a royalty to the shareholder and b) the shareholder performed certain porting of the Company's products in exchange for a royalty payment related to ongoing sales of these products. Royalties due under these agreements were zero, zero and $41,000 at December 31, 1998, 1997 and 1996, respectively. In 1992, the Company also entered into a distribution agreement with this shareholder, under which revenue to date has not been material. 10. ACQUISITION OF VERSANT EUROPE On March 26, 1997, the Company acquired Versant Europe, an independently owned distributor of the Company's products in Europe. The Company paid $3.6 million to the shareholder of Versant Europe consisting of $2.0 million in cash and 167,545 shares of Common Stock valued at $9.75 per share. The acquisition was accounted for using the purchase method of accounting. Accordingly, the results of operations of Versant Europe are reflected in the consolidated financial statements commencing on the date of the acquisition. The acquisition of Versant Europe resulted in the Company recording an intangible asset representing the cost in excess of fair value of the net assets acquired in the amount of $3.3 million, which is being amortized over a five-year period. The Company also acquired approximately $1.4 million of prepaid sublicense credits which are being amortized and included in cost of license revenue in conjunction with associated license revenue transactions realized by Versant Europe (fully amortized at December 31, 1998). In the fourth quarter of 1998, the Company determined that the value of its intangible asset had been impaired due to weaker than anticipated operating results in Europe. Therefore, the Company recorded a "write-down of asset" charge of $1,555,000 during 1998. This charge represents the shortfall between projected future cash flows for Europe (as discounted) and the net book value of the intangible. As of December 31, 1998, the Company also changed its estimate of the future life of the acquired intangible asset from seven to five years. F-18 56 The table below presents the pro forma results (in thousands, except per share data) for the years ended December 31, 1997 and 1996 had the Company's acquisition of Versant Europe occurred at the beginning of 1996.
1997 1996 -------- -------- Total revenue $ 29,579 $ 18,039 Net loss (2,457) (2,057) Pro forma basic and diluted net loss per share $ (0.27) $ (0.34) Shares used in computing pro forma net (loss) per share 9,088 5,916
11. ACQUISITION OF SOFT MOUNTAIN On September 15, 1998, the Company acquired 100% of the outstanding equity (the "Acquisition") of Soft Mountain S.A. ("Soft Mountain"), a French company. Soft Mountain develops event-driven middleware software solutions that combine object orientation and deterministic event processing in a distributed business system. The Acquisition was effected pursuant to a Share Purchase Agreement, dated as of July 30, 1998 (the "Agreement"), by and between Versant and the shareholders of Soft Mountain. Pursuant to the terms of the Agreement, the Company acquired the equity of Soft Mountain in return for approximately $136,000 in cash and 245,586 shares of Versant Common Stock, valued at $2.625 and incurred approximately $300,000 in acquisition expenses. The cash portion of the purchase price was funded by working capital. Pursuant to the Agreement, the Company was obligated to use reasonable efforts to file, before September 30, 1998, a registration statement on Form S-3 (or other appropriate form) with the Securities and Exchange Commission with respect to the resale of the shares of Versant Common Stock issued to the shareholders of Soft Mountain. The Company has not yet filed such registration statement. The acquisition of Soft Mountain was accounted for using the purchase method and resulted in the Company recording an intangible asset representing the cost in excess of fair market value of the net assets acquired (goodwill) in the amount of $1.2 million, which is being amortized over a five year period. The Company wrote off approximately $528,000 of in-process research and development (IPR&D) costs associated with the purchased software, as the software had not yet reached technological feasibility and had no alternative future use. The amount allocated to IPR&D was estimated based upon the stage of completion of the project, the costs to complete the project, the expected future cash flow, the life cycle of the product ultimately developed and the associated risks. If the product is not successfully developed the revenue and profitability of the Company may be adversely affected in future periods. Consolidated operations for the year ending December 31, 1998 include total revenue and operating expenses from Soft Mountain of approximately $119,000 and $290,000, respectively, for the period from date of acquisition to December 31, 1998. The following table presents the unaudited pro forma results assuming that the Company had acquired Soft Mountain at the beginning of 1997. Net loss per share has been adjusted to exclude the write-off of acquired in-process research and development of $528,000 in the twelve month period ended December 31, 1998.
Twelve Months Ended Twelve Months Ended 12/31/97 (unaudited) 12/31/98 (unaudited) -------------------- -------------------- Revenue 30,108 23,460 Net Loss (2,701) (20,113) Basic and Diluted Loss Per Share ($0.29) ($2.18)
12. VERTEX FUNDING On October 16, 1998, the Company raised $3.6 million through the private placement of a Convertible Secured Subordinated Promissory Note. The funding was provided by Vertex Technology Fund Pte. ("Vertex"), a fund managed by Vertex Management. F-19 57 The Note issued to Vertex is convertible at Vertex's option into common stock of the Company at a price of $1.925 per share. The fair market value of the Company's common stock on October 16, 1998 was $2.375. As this is a favorable conversion the resulting discount increases the effective interest rate and is therefore reflected as interest expense over the period from the issue date through the date at which the security is first convertible. The Company recognized approximately $128,000 in interest expense during fiscal year 1998. As of February 26, 1999, Versant has 10,124,746 shares of common stock outstanding. The Note initially will not bear interest, however, in the event the Note has not been converted prior to the maturity date, simple interest will be deemed to have accrued from the date of issuance, at an interest rate of 9.25%. The Note is secured by the assets of the Company, is subordinated to the Company's existing lines of credit and is due in October 2001, but may mature or be automatically converted sooner under certain circumstances. Vertex may not sell its interest in the Note or underlying common stock until April 16, 1999. To date neither the Note nor the shares issuable upon conversion of the Note have been registered under the Securities Act of 1933, as amended (the "Securities Act"). 13. SPECIAL SITUATIONS FUNDING On December 30, 1998, the Company raised $1.4 million through the private placement of 700,000 shares of Common Stock plus Warrants to purchase an additional 350,000 shares of Common Stock. The funding was provided by funds affiliated with Special Situations Fund, a current stockholder in the Company. The Common Stock was sold at $2.00 per share and the warrants, which permit the purchase of an additional 350,000 shares at a price of $2.25, were sold for an additional $43,750. The Warrants expire upon the earlier of : (i) December 28, 2001 (ii) an acquisition of the Company, or (iii) the Company's stock has closed with a closing bid price above $4.00 for ten consective days Neither the Common Stock or Warrants, nor the shares issuable upon the exercise of the Warrants, have been registered under the Securities Act of 1933, as amended. Versant has agreed to file a registration statement for the resale of the shares of Common Stock issued or issuable in connection with this transaction. 14. LEGAL PROCEEDINGS The Company and certain of its present and former officers and directors were named as defendants in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998, a Consolidated Amended Complaint was filed in the above mentioned court, by the lead Plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the Securities Exchange Act, in connection with public statements about the Company's expected financial performance. The complaint seeks an unspecified amount of damages. The Company vigorously denies the plaintiffs' claims and has moved to dismiss the allegations. The Plaintiff has filed a response to the Company's motion to dismiss and the Company has filed an opposition to Plaintiff's response. The motion to dismiss was submitted to the court for consideration on November 13, 1998 and the court has not yet issued a decision. Securities litigation can be expensive to defend, consume significant amounts of management time and result in adverse judgments or settlements that could have a material adverse effect on the Company's results of operations and financial condition. F-20 58 VERSANT CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT OF YEAR INCOME DEDUCTIONS END OF YEAR ---------- ---------- ---------- ----------- (IN THOUSANDS) ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CUSTOMER RETURNS: Year ended December 31, 1996 $ 81 621 99 $ 603 Year ended December 31, 1997 $ 603 208 145 $ 666 Year ended December 31, 1998 $ 666 857 1,188 $ 335
F-21 59 EXHIBIT INDEX
EXHIBIT NUMBER TITLE ------- ----- 2.01 -- Acquisition Agreement dated as of March 26, 1997 by and between registrant and ISAR-Vermogensverwaltung Gbr mbH ("ISAR")(1) 3.01 -- Registrant's Amended and Restated Articles of Incorporation, as amended(2) 3.02 -- Registrant's Certificate of Amendment of Articles of Incorporation filed prior to the closing of registrant's initial public offering(2) 3.03 -- Registrant's Amended and Restated Articles of Incorporation filed following the closing of registrant's initial public offering(2) 3.04 -- Registrant's Bylaws(2) 3.05 -- Registrant's Amended and Restated Bylaws adopted prior to the closing of registrant's initial public offering(2) 3.06 -- Certificate of Amendment of Amended and Restated Articles of Versant Object Technology Corporation(7) 4.01 -- [intentionally omitted] 4.02 -- Preferred Stock Purchase Agreement, dated as of April 27, 1994, as amended(2) 10.01 -- Registrant's 1989 Stock Option Plan, as amended, and related documents(2)** 10.02 -- Registrant's 1996 Equity Incentive Plan, as amended, and related documents(3)** 10.03 -- Registrant's 1996 Directors Stock Option Plan, as amended, and related documents(4)** 10.04 -- Registrant's 1996 Employee Stock Purchase Plan, as amended, and related documents(5)** 10.05 -- Registrant's 401(k) Plan and addendum thereto(2) 10.06 -- Lease Agreement dated March 22, 1993 between Lincoln Property Company N.C., Inc. and Registrant, as amended(2) 10.07 -- Master Lease Agreement dated January 26, 1996 between LINC Capital Management, a division of Scientific Leasing Inc., and Registrant(2) 10.08 -- Amended and Restated Loan and Security Agreement dated as of June 14, 1996 between Registrant and Silicon Valley Bank(2) 10.09 -- Joint Venture Agreement dated as of July 26, 1995 between Registrant and ISAR-Vermogensverwaltung Gbr mbH(2)* 10.10 -- Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers(2) 10.11 -- 1996 Executive Compensation Plan -- Rich Kadet (2)*/**
X-1 60
EXHIBIT NUMBER TITLE ------- ----- 10.12 -- 1996 Executive Compensation Plan -- George Franzen (2)*/** 10.13 -- 1996 Executive Compensation Plan -- Jim Lochry (2)*/** 10.14 -- Form of Amendment to Versant Corporation Stock Option Agreement(2)** 10.15 -- Lease Agreement dated November 25, 1996 between John Arrillaga, Trustee et. al. and Versant Corporation(6) 10.16 -- Form of Letter Agreement dated October 22, 1997 between registrant and its executive officers(9)** 10.17 -- Severance Agreement and Release of Claims dated January 7, 1997 between registrant and David Banks(9)** 10.18 -- Letter Agreement dated November 26, 1997 between registrant and Nick Ordon(9)** 10.19 -- Revolving Credit Loan and Security Agreement dated May 15, 1997(7) 10.20 -- Consulting Agreement between Company and David Banks dated January 7, 1998(7) 10.21 -- Variable Rate-Installment Note dated March 19, 1998(7) 10.22 -- Equipment Rider dated March 19, 1998(7) 10.23 -- Corporate Resolution and Incumbency Certification dated March 30, 1998(7) 10.24 -- Modification to Loan and Security Agreement dated May 6, 1998(7) 10.25 -- Waiver to Loan and Security Agreement Covenants Dated August 10, 1998(8) 10.26 -- Waiver to Loan and Security Agreement Dated August 11, 1998(8) 10.27 -- Loan and Security Agreement Consent and Amendment Dated October 16, 1998(10) 10.28 -- Vertex Note Purchase Agreement Dated October 16, 1998(10) 10.29 -- Vertex Convertible Secured Subordinated Promissory Note Dated October 16, 1998(10) 10.30 -- Vertex Security Agreement Dated October 16, 1998(10) 10.31 -- Vertex Registration Rights Agreement Dated October 16, 1998(10) 10.32 -- Vertex Subordination Agreement Dated October 16, 1998(10) 10.33 -- Special Situations Fund Common Stock and Warrant Purchase Agreement Dated December 28, 1998(10) 10.34 -- Special Situations Fund Stock Warrant Dated December 28, 1998(10) 10.35 -- Special Situations Fund Registration Rights Agreement Dated December 28, 1998(10) 21.01 -- Subsidiaries of the registrant(10) 23.01 -- Consent of Arthur Andersen LLP, Independent Public Accountants(10)
X-2 61
EXHIBIT NUMBER TITLE ------- ----- 27.01 -- Financial Data Schedule(10)
- -------- (1) Incorporated by reference to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 1997 (2) Incorporated by reference to the registrant's Registration Statement on Form SB-2 (file number 333-4910-LA) filed with and declared effective by the Securities and Exchange Commission on July 17, 1996. (3) Incorporated by reference to Exhibit 4.05 to the registrant's Registration Statement on Form S-8 (file number (333-29947) filed with the Securities and Exchange Commission on June 24, 1997. (4) Incorporated by reference to Exhibit 4.06 to the registrant's Registration Statement on Form S-8 (file number (333-29947) filed with the Securities and Exchange Commission on June 24, 1997. (5) Incorporated by reference to Exhibit 4.07 to the registrant's Registration Statement on Form S-8 (file number (333-29947) filed with the Securities and Exchange Commission on June 24, 1997. (6) Incorporated by reference to the registrant's Form 10-KSB for the year ended December 31, 1996, filed with the Securities and Exchange Commission on March 31, 1997. (7) Incorporated by reference to the registrant's Form 10-QSB for the quarter ended June 30, 1998, filed with the Securities and Exchange Commission on August 14, 1998. (8) Incorporated by reference to the registrant's Form 10-QSB for the quarter ended September 30, 1998, filed with the Securities and Exchange Commission on November 13, 1998. (9) Incorporated by reference to the registrant's Form 10-KSB for the quarter ended December 31, 1997, filed with the Securities and Exchange Commission on April 3, 1998. (10) Filed herewith. * Confidential treatment has been granted with respect to certain portions of this agreement. Such portions have been omitted from the filing and have been filed separately with the Securities and Exchange Commission. ** Management contract or compensatory plan. X-3 EX-10.27 2 LOAN AND SECURITY AGREEMENT CONSENT 1 EXHIBIT 10.27 LOAN & SECURITY AGREEMENT CONSENT AND AMENDMENT THIS LOAN & SECURITY AGREEMENT CONSENT AND AMENDMENT (this "Consent and Amendment") is entered into as of October 16, 1998 between VERSANT CORPORATION ("Borrower") and COMERICA BANK-CALIFORNIA ("Bank") with reference to the following facts: A. Borrower has previously entered into a Revolving Loan & Security Agreement (Accounts & Inventory) (the "Agreement") with Bank dated May 15, 1997 and modified May 6, 1998. B. In connection with Borrower's acquisition of Soft Mountain S.A. ("Soft Mountain"), Borrower's proposed sale of its Convertible Secured Subordinated Promissory Notes ("Notes") to one or more investors and certain other matters, Borrower seeks (i) Bank's consent to certain transactions entered into or proposed to be entered into by Borrower and (ii) the waiver of certain covenants contained in the Agreement. THE PARTIES AGREE AS FOLLOWS: 1. Consent to Acquisition. Bank hereby consents to Borrower's acquisition of Soft Mountain on September 15, 1998 through the purchase of all the outstanding equity of Soft Mountain from the shareholders of Soft Mountain in return for 245,586 shares of Borrower's Common Stock and 810,000 French Francs in cash. In connection with the acquisition of Soft Mountain, Bank hereby waives the requirement in the Agreement that Bank give its prior written consent to such acquisition. 2. Consent to Sale of Notes. Bank hereby consents to the sale of up to $3,619,000 principal amount of Notes pursuant to the Note Purchase Agreement substantially in the form attached hereto as Exhibit A, and agrees that such transaction does not constitute a breach or default under the Agreement. Without limiting the foregoing, Bank consents to Borrower's incurring indebtedness in connection with the sale of the Notes and to the creation of a security interest in the Collateral (as defined in the Agreement) in connection with the sale of the Notes. 3. Consent to Name Change. Bank hereby consents to the name change of Borrower from Versant Object Technology Corporation to Versant Corporation, effective July 14, 1998. In connection with Borrower's name change, Bank hereby waives the requirement in the Agreement that Bank give its prior written consent to such name change. 4. Consent to Change in Place of Business. Bank hereby consents to the change in Borrower's place of business from 1380 Willow Road, Menlo Park, CA 94025 to 6539 Dumbarton Circle, Fremont, CA 94555 and hereby waives the requirement in the Agreement that Bank give its prior written consent to such change in Borrower's place of business. 2 5. Notification of Certain Litigation. Borrower hereby notifies Bank that Borrower is the defendant in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998, a Consolidated Amended Complaint was filed in the above mentioned court, by the lead Plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Securities and Exchange Commission Rule 10b-5 promulgated under the Exchange Act, in connection with public statements about Borrower's expected financial performance. The complaint seeks an unspecified amount of damages. 6. Waiver of Certain Covenants. Bank agrees to waive compliance by Borrower of the following covenants contained in the Agreement through December 31, 1998: paragraphs 6.17b, d, e, i and m. 7. Modification of Agreement. The first sentence of Section 6.5 of the Agreement is hereby amended to read in its entirety as follows: "Borrower shall keep the Inventory only at the following locations: 6539 Dumbarton Circle, Fremont, CA 94555, and the owner of the locations is John Arrillaga, Trustee and Richard T. Peery, Trustee." Section 6.17k of the Agreement is hereby amended to read in its entirety as follows: "Borrower is to raise a minimum of $3,000,000.00 in capital (which shall include convertible subordinated debt) by December 31, 1998." 8. General Provisions. Except as specifically set forth in this Consent and Amendment, all of the terms and conditions of the Agreement remain in full force and effect. This is an integrated Consent and Amendment and supersedes all prior negotiations and agreements regarding the subject matter hereof. All amendments hereto must be in writing and signed by the parties. IN WITNESS WHEREOF, the parties have agreed as of the date first set forth above. BORROWER: BANK: VERSANT CORPORATION COMERICA BANK-CALIFORNIA By _____________________________ By ____________________________ Title __________________________ Title _________________________ 2 EX-10.28 3 VERTEX NOTE PURCHASE AGREEMENT 1 EXHIBIT 10.28 NOTE PURCHASE AGREEMENT This NOTE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of October __, 1998 by and among Versant Corporation, a California corporation (the "COMPANY"), and the party listed on the Schedule of Investors attached to this Agreement as Exhibit A (the "INVESTOR"). R E C I T A L S A. The Company is currently in need of funds for working capital purposes. B. The Investor is willing to lend money to the Company in exchange for the issuance to it of certain convertible secured subordinated promissory notes, as provided in this Agreement. NOW THEREFORE, the parties hereby agree as follows: 1. PURCHASE AND SALE OF NOTES. The Investor agrees to purchase from the Company a Convertible Secured Subordinated Promissory Note in the form attached to this Agreement as Exhibit B (the "NOTE") in the principal face amount set forth opposite such Investor's name on Exhibit A to this Agreement and the Company agrees to sell to the Investor the Note on the terms set forth herein. 2. CLOSING. The purchase and sale of the Note will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Suite 800, Palo Alto, California, at 11:00 a.m. Pacific Time, on October __, 1998 or at such other time and place as the Company and the Investor mutually agree upon, either orally or in writing (which time and place are referred to in this Agreement as the "CLOSING"). At the Closing, the Company will deliver to the Investor the Note for the principal amount that such Investor has agreed to purchase hereunder as shown on Exhibit A against delivery to the Company by such Investor of the full purchase price of such Note, paid by a check payable to the Company's order or wire transfer of funds to the Company. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Investor that, except as set forth in the Schedule of Exceptions (the "SCHEDULE OF EXCEPTIONS") attached to this Agreement as Exhibit C (which Schedule of Exceptions shall be deemed to be representations and warranties to the Investor by the Company under this Section 3), the statements in the following paragraphs of this Section 3 are all true and complete: 3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own its properties and assets and 2 to carry on its business as now conducted and as presently proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where failure to be so qualified would have a material adverse effect on its financial condition, business, prospects or operations. 3.2 Due Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of, and the performance of all obligations of the Company under, this Agreement, the Note, the Security Agreement (as defined in Section 5.8 below) and the Registration Rights Agreement (as defined in Section 5.9 below) and the authorization, issuance, reservation for issuance and delivery of all of the Common Stock that is issuable under conversion of the Note (the "CONVERSION SHARES") has been taken or will be taken prior to the execution of this Agreement, and this Agreement, the Note, the Security Agreement and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except as may be limited by: (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditor's rights generally; and (ii) the effect of rules of law governing the availability of equitable remedies. 3.3 Corporate Power. The Company has all requisite legal and corporate power to execute and deliver this Agreement, the Note, the Security Agreement and the Registration Rights Agreement, to issue the Conversion Shares, and to carry out and perform all its obligations under this Agreement, the Note, the Security Agreement and the Registration Rights Agreement. 3.4 Proceedings. There is no pending action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), prosecution, hearing, or investigation, commenced, brought, conducted or heard by or before, any governmental body or any arbitrator or arbitration panel ("PROCEEDING"), and to the Company's knowledge, no person or entity has threatened to commence any Proceeding, that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the transactions contemplated by this Agreement, the Note, the Security Agreement or the Registration Rights Agreement. 3.5 Non-Contravention; Consents. Neither the execution and delivery of this Agreement, the Note, the Security Agreement or the Registration Rights Agreement, nor the consummation or performance of any of the transactions contemplated by this Agreement, the Note, the Security Agreement or the Registration Rights Agreement to be performed at the Closing, will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of (i) any of the provisions of the Company's Articles of Incorporation or Bylaws, or (ii) any resolution adopted by the Company's shareholders, the Company's Board of Directors or any committee of the Company's Board of Directors; -2- 3 (b) to the Company's knowledge, contravene, conflict with or result in a violation of, or give any governmental body or other person the right to challenge any of the transactions contemplated by this Agreement, the Note, the Security Agreement or the Registration Rights Agreement or to exercise any remedy or obtain any relief under, any federal, state, local, municipal, foreign or other law, statute, legislation, ordinance, rule, regulation or ruling that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any governmental body, or any order to which the Company, or any of the assets owned or used by the Company, is subject; or (c) contravene, conflict with or result in a material violation or breach of, or result in a material default under, any of the Company's material agreements. With the exception of any necessary filings pursuant to federal and state securities laws, and except as disclosed on the Schedule of Exceptions, the Company will not be required to make any filing with or give any notice to, or to obtain any consent from, any person in connection with the execution and delivery of this Agreement, the Note, the Security Agreement and the Registration Rights Agreement or the consummation or performance at the Closing of any of the transactions contemplated by this Agreement, the Note, the Security Agreement and the Registration Rights Agreement. 3.6 Brokers. The Company has not agreed or become obligated to pay, and has not taken any action that likely would result in any person claiming to be entitled to receive, any brokerage commission, finder's fee or similar commission or fee in connection with any of the transactions contemplated by this Agreement. 3.7 Full Disclosure; SEC Reports; SEC Matters. (a) This Agreement (including all exhibits hereto) does not contain any untrue statement of material fact and does not omit to state any fact necessary to make any of the representations, warranties or statements contained herein on behalf of the Company not misleading with respect to the Company. (b) As of the date of this Agreement, the Company has provided the Investor or its counsel with full and complete access to all of the Company's records and other documents and data requested by them. (c) The Company has filed all reports required to be filed with the Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all such reports and amendments thereto, collectively, the "COMPANY SEC REPORTS"). None of such Company SEC Reports, as of their respective dates (as amended through the date hereof), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. -3- 4 (d) The Company has filed all material contracts required to be filed with the SEC pursuant to the Item 601 of Regulation S-K under the Securities Act of 1933, as amended (the "1933 ACT") and the Exchange Act. (e) The Company is eligible to file Form S-3 registration statements under the 1933 Act with the SEC in connection with offerings of outstanding Company securities to be offered for the account of any person other than the Company, so long as such person is not a registered broker-dealer. 3.8 Valid Issuance. The Note and the Conversion Shares, when issued in compliance with the terms of this Agreement and the Note, will be validly issued, fully paid and nonassessable and will be free of any liens or encumbrances. 3.9 Intellectual Property. Set forth on the Schedule of Exceptions is a true and complete list of all the material patents, trademarks, service marks, trade names and copyrights, as well as all applications therefor ("INTELLECTUAL PROPERTY") owned by the Company. (a) The Company is the sole owner of, or possesses sufficient legal rights on commercially reasonable terms to, all Intellectual Property necessary for its business as now conducted and as proposed to be conducted without any known conflict with or infringement of the rights of any other person or entity. The Company has not received any communications alleging that the Company has violated or is otherwise acting adversely to, or by conducting its business as proposed, would violate or act adversely to, any Intellectual Property owned or claimed to be owned by any other person or entity, and, to the Company's knowledge, there is no basis for such claim. (b) The Company is not aware of any violation by a third party of any of the Company's Intellectual Property. (c) The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or communications of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company's business as proposed to be conducted. (d) The Company has obtained and will obtain from all individuals who participated in any respect in the invention or authorship of any material Intellectual Property owned by the Company (as employees of the Company, consultants, employees of consultants or otherwise) effective waivers of any and all ownership rights of such individuals in such owned Intellectual Property, and assignments to the Company of all rights with respect thereto, other than from such individuals whose copyrightable works the Company hereby represents to be "works for hire" within the meaning of Section 101 of the Copyright Act of 1976. -4- 5 (e) The Company has no knowledge of any facts or claims that would cause any of its patents or patents issuable with respect to any of patent applications to be invalid or to infringe any patent or other Intellectual Property of any third party. 4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR. The Investor hereby represents and warrants to, and agrees with, the Company that: 4.1 Authorization. This Agreement, the Security Agreement and the Registration Rights Agreement constitute such Investor's valid and legally binding obligation, enforceable in accordance with their respective terms except as may be limited by: (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally, and (ii) the effect of rules of law governing the availability of equitable remedies. The Investor represents that such Investor has full power and authority to enter into this Agreement, the Security Agreement and the Registration Rights Agreement. 4.2 Purchase for Own Account. The Note to be purchased by such Investor hereunder and the Conversion Shares will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. 4.3 Disclosure of Information. The Investor believes it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Note to be purchased by such Investor under this Agreement. Such Investor further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Note and Conversion Shares and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Investor or to which such Investor had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Section 3. 4.4 Investment Experience. The Investor is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. 4.5 Restricted Securities. The Investor understands that the Note and Conversion Shares are characterized as "restricted securities" under the 1933 Act and Rule 144 promulgated thereunder inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the 1933 Act and applicable regulations thereunder such securities may be resold without registration under the 1933 Act only in certain limited circumstances. -5- 6 4.6 No Solicitation. At no time was the Investor presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Note or Conversion Shares. 4.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Note or Conversion Shares unless and until: (a) there is then in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) (i) such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) such Investor shall have furnished the Company, at the expense of such Investor or its transferee, with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such securities under the 1933 Act. Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be required: (i) for any transfer of any Note or Conversion Shares in compliance with SEC Rule 144; (ii) for any transfer of any Note or Conversion Shares by an Investor to any affiliate (as that term is defined in Rule 405 promulgated under the 1933 Act) of such Investor; or (iii) for any transfer of any Note or Conversion Shares by an Investor that is a partnership or a corporation to (A) a partner of such partnership or a shareholder of such corporation or (B) the estate of any such partner or shareholder; or (iv) for the transfer by gift, will or intestate succession by any Investor to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing; provided that in each of the foregoing cases the transferee agrees in writing to be subject to the terms of this Section 4 to the same extent as if the transferee were an original Investor hereunder. 4.8 Legends. It is understood that the certificates evidencing the Note and Conversion Shares will bear the legend set forth below: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE -6- 7 REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. 5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of the Investor under Section 2 of this Agreement are subject to the fulfillment or waiver, on or before the Closing, of each of the following conditions, which conditions may be waived by written, oral or telephone communication to the Company, its counsel or to counsel to the Investor: 5.1 Representations and Warranties True. Each of the representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing and shall have obtained all approvals, consents and qualifications necessary to complete the purchase and sale described herein. 5.3 Compliance Certificate. The Company shall have delivered to the Investor at the Closing a certificate signed on its behalf by its Chief Executive Officer or Chief Financial Officer certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there shall have been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company not previously disclosed to the Investor. 5.4 Securities Exemptions. The offer and sale of the Note and Conversion Shares to the Investor pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act and the registration and/or qualification requirements of all applicable state securities laws. 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investor and to the Investor's counsel, and they shall each have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. 5.6 No Material Change. There shall have been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company. 5.7 Opinion of Company Counsel. The Investor shall have received an opinion from Fenwick & West LLP, counsel for the Company, dated as of the date of the Closing, in the form attached hereto as Exhibit D. -7- 8 5.8 Security Agreement. The Company shall have executed and delivered to the Investor a Security Agreement substantially in the form attached hereto as Exhibit E (the "SECURITY AGREEMENT"). 5.9 Registration Rights Agreement. The Company shall have executed and delivered a Registration Rights Agreement substantially in the form attached hereto as Exhibit F (the "REGISTRATION RIGHTS AGREEMENT"). 5.10 UCC-1. The Company shall have executed and delivered to Investor counsel a UCC-1 in the form attached hereto as Exhibit G. 6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to the Investor under this Agreement are subject to the fulfillment or waiver on or before the Closing of each of the following conditions by the Investor: 6.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 4 shall be true and correct on the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. The Investor shall have delivered to the Company the purchase price specified for such Investor on Exhibit A in accordance with the provisions of Section 2. 6.3 Securities Exemptions. The offer and sale of the Note and Conversion Shares to the Investor pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act and the registration and/or qualification requirements of all applicable state securities laws. 6.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and to the Company's legal counsel, and the Company shall have received all such counterpart originals and certified or other copies of such documents as it may reasonably request. 6.5 Subordination Agreement. The Investor and Comerica Bank - California ("COMERICA") shall have entered into a Subordination Agreement in form acceptable to Comerica. 7. COVENANTS OF THE COMPANY 7.1 Costs, Expenses. The Company shall pay in connection with the preparation, execution and delivery of this Agreement and the issuance of the Note, the fees and out-of-pocket expenses of Wilson Sonsini Goodrich & Rosati, special counsel to the Investor, such fees and expenses not to exceed $10,000. -8- 9 7.2 Singapore Office. The Company agrees to establish a regional office in Singapore as soon as practicable after the Closing if business and financial conditions warrant. 7.3 Investor's Securities Filings. The Company agrees to assist the Investor in making any required filings under applicable U.S. securities laws in connection with this Agreement and the transactions contemplated hereby. 7.4 Security Interest Filings. The Company agrees to assist the Investor in filing the applicable financing statements, deeds of trust or other documents with the U.S. Patent and Trademark Office and the U.S. Register of Copyrights in connection with the perfection of Investor's security interests in the Collateral (as defined in the Security Agreement) within 10 days after the Closing. 8. COVENANTS OF INVESTOR. 8.1 Lock-up. The Investor agrees that it will not sell or otherwise transfer or dispose of or reduce its economic interest in the Note or Conversion Shares for a period of six months from the Closing. 8.2 Standstill. The Investor agrees that, from the Closing until such time as the Note is no longer outstanding, it will not acquire more than 100,000 shares of the Company's Common Stock (other than any Conversion Shares issued to Investor) in any two week period without the prior written consent of the Company. The Company will respond to any Investor request to acquire more than 100,000 shares of such stock within two business days of the Company's receipt of such request. If the Company does not respond within such two business day period, the Company shall be deemed to have waived the requirement of such consent as to the referenced transaction. The Company agrees not to unreasonably withhold its consent. 8.3 Right of First Offer. Commencing on the Closing, in the event Investor and its "affiliates" or "associates" (as those terms are defined in Rule 405 promulgated under the 1933 Act) (collectively, the "INVESTOR GROUP") seek to sell, transfer the voting rights in, or otherwise transfer for value 5% or more of the then outstanding shares of the Company's Common Stock (assuming for this purpose conversion of any Notes) to any person or group of persons in one or more related transactions (a "SIGNIFICANT TRANSACTION"), the Investor Group will provide the Company, in writing, with a notice reflecting its desire to enter into such Significant Transaction and setting forth the terms and conditions of the proposed Significant Transaction (such notice, a "ROFO NOTICE"). Each ROFO Notice shall constitute an offer by the Investor Group to sell the securities covered by such ROFO Notice (the "ROFO SECURITIES") to the Company on the terms and conditions set forth in the ROFO Notice. If the Company desires to accept the offer set forth in the ROFO Notice as to any part of the ROFO Securities, the Company shall, within ten business days of receipt of such ROFO Notice, notify the Investor Group of its agreement to acquire some or all of the ROFO Securities (the "ROFO ACCEPTANCE"). The closing of any sale of ROFO Securities by the Investor Group to the Company shall occur within three business days of the Investor Group's receipt of the ROFO Acceptance, at which time the Company will deliver the purchase price for the ROFO Securities -9- 10 it is purchasing in return for such securities. In the event (i) the Company does not provide the Investor Group with a ROFO Acceptance within ten business days of receipt of a ROFO Notice or (ii) the Investor Group receives a ROFO Acceptance with respect to less than all of the ROFO Securities, then the Investor Group may sell, transfer the voting rights in, or otherwise transfer for value all or the remaining ROFO Securities, as the case may be, to any third party or parties on terms and conditions no less favorable in the aggregate to such third parties than those set forth in the ROFO Notice; provided, however, that if such sale, transfer of voting rights, or transfer of value does not occur within 60 days of the Company's initial receipt of a ROFO Notice, the Investor Group will be required to resubmit a ROFO Notice to the Company and follow the procedures outlined in this section before consummating such sale, transfer of voting rights or transfer for value. This Right of First Offer (i) will not apply to any transfer in connection with a transaction approved by the Company's Board of Directors, (ii) will not continue to apply to any shares transferred pursuant to this Section, and (iii) will terminate three years from the date hereof. 9. MISCELLANEOUS. 9.1 Governing Law. This Agreement shall be governed by and construed under the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, without reference to principles of conflict of laws or choice of laws. 9.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.3 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with a recognized international courier service, fees prepaid and addressed to the party to be notified at the address indicated for such party on Exhibit A or, in the case of the Company, at 6539 Dumbarton Circle, Fremont, California 94555, or at such other address as such party may designate by ten (10) days advance written notice to all other parties. 9.4 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the principal amount of the Notes then outstanding. Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any Note or Conversion Stock at the time outstanding, each future holder of such securities, and the Company. 9.5 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, constitutes the entire understanding and agreement of the parties with respect to -10- 11 the subject matter hereof and supersedes all prior understandings and agreements with respect to such matters. 9.6 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. 9.7 Headings. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto, all of which exhibits are incorporated herein by this reference. 9.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be enforced to the maximum extent possible consistent with applicable law and the balance of the Agreement shall remain in full force and effect. 9.9 Further Assurances. From and after the date of this Agreement, upon the request of the Investor or the Company, the Company and the Investor shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. 9.10 Waiver of Conflict of Interest. The Investor and the Company are aware that Fenwick & West LLP ("F&W"), counsel to the Company, has previously performed and may continue to perform certain legal services for the Investor in matters unrelated to F&W's representation of the Company. In connection with its Investor representation, F&W may have obtained confidential information of such Investor that could be material to F&W's representation of the Company in connection with negotiation, execution and performance of this Agreement. By signing this Agreement, the Investor and the Company each waives any potential conflict of interest arising out of such representation or such possession of confidential information and acknowledges that F&W is solely representing the Company in connection with this transaction. The Investor and the Company further represents that it has had the opportunity to be, or has been, represented by independent counsel in giving the waivers contained in this Section 9.10. The Investor and the Company agrees that F&W may represent the Company in any dispute that may arise between the Company and the Investor or any Investor Group related to this Agreement or the transactions contemplated hereby. -11- 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. VERSANT CORPORATION VERTEX TECHNOLOGY FUND PTE. LTD. By: ___________________________ By: ____________________________ Name:__________________________ Name: __________________________ Title:_________________________ Title: _________________________ The Company expressly acknowledges The Investor expressly the conflict of interest waiver acknowledges the conflict set forth in Section 9.10. of interest waiver set forth in Section 9.10. [SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT.] -12- 13 EXHIBIT A
INVESTOR NAME PRINCIPAL AMOUNT AND ADDRESS OF NOTE - ------------- ---------------- Vertex Technology Fund Pte. Ltd $3,619,000 c/o Vertex Management, Inc. 3 Lagoon Drive Suite 220 Redwood City, CA 94065
-13- 14 EXHIBIT C SCHEDULE OF EXCEPTIONS
SECTION COMMENT - ------- ------- 3.5 The Company needs to obtain, and will obtain prior to the Closing, the consent of Comerica Bank to this transaction. Various filings will need to be made with government agencies to perfect the security interest granted pursuant to the Security Agreement. 3.6 Cowen & Co. may be entitled to a fee of $72,380 in connection with this transaction, which fee will be the sole responsibility of and paid by the Company. 3.9 The Company's Intellectual Property consists of the following: PATENT ------ PATENT NO. ISSUE DATE ---------- ---------- 5822759 10/13/98 COPYRIGHTS ---------- Versant 3.0.9 TX3-924-043 Versant 4.0 TX3-674-115 Versant ODBMS 5.0.7 TX4-627-009 TRADEMARKS REGISTRATIONS ------------- DESCRIPTION REGISTRATION NO. REGISTRATION DATE ----------- ---------------- ----------------- Versant 1,649,354 7/2/91 Versant Object Technology 1,658,074 9/24/91
-14- 15 APPLICATIONS ------------ Making Objects Do Business 75/182,424 10/16/96 75/182,423 10/16/96 Versant Time Series 75/471,701 4/21/98 Versant Transport 75/471,704 4/21/98 Versantace 75/432,704 2/11/98
-15- EX-10.29 4 VERTEX CONVERTIBLE SECURED PROMISSORY NOTE 1 EXHIBIT 10.29 EXHIBIT B THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. CONVERTIBLE SECURED SUBORDINATED PROMISSORY NOTE OF VERSANT CORPORATION $3,619,000.00 October 16, 1998 For value received, Versant Corporation, a California corporation (the "COMPANY"), with principal offices at 6539 Dumbarton Circle, Fremont, CA 94555, hereby promises to pay to Vertex Technology Fund Pte. Ltd the sum of Three Million Six Hundred Nineteen Thousand Dollars ($3,619,000.00). The Note initially will not bear interest; however, in the event the Note has not been converted pursuant to Section 2 hereof prior to the Maturity Date (as defined below), or in case of an Event of Default, simple interest will be deemed to have accrued on the Note from the date of issuance, at an interest rate equal to 9.25%. The principal amount of this Note, and any interest accrued thereon, shall be due and payable in full on the Maturity Date at the principal offices of the Company in lawful money of the United States, unless this Note shall have been previously converted pursuant to Section 2 hereof. Any payments made hereunder by the Company shall be net of any applicable U.S. withholding taxes. This Note is issued pursuant to that certain Note Purchase Agreement dated as of October 16, 1998 (the "PURCHASE AGREEMENT"), by and among the Company and the original holder of this Note. 1. DEFINITIONS. The following definitions shall apply for all purposes of this Note: 1.1 "COMPANY" means the "COMPANY" as defined above and includes any corporation which shall succeed to or assume the obligations of the Company under this Note. 2 1.2 "CONVERSION PRICE" means $1.925 per share of Common Stock. The Conversion Price is subject to adjustment as provided herein. 1.3 "CONVERSION STOCK" means the shares of the Company's Common Stock ("COMMON STOCK"), issuable upon conversion of the Note. The number and character of shares of Conversion Stock are subject to adjustment as provided herein, and the term "CONVERSION STOCK" shall include stock and other securities and property at any time receivable or issuable upon conversion of this Note in accordance with its terms. 1.4 "EVENT OF DEFAULT" shall have the meaning provided in the Security Agreement. 1.5 "HOLDER" means any person who shall at the time be the registered holder of this Note. 1.6 "MATURITY DATE" means the earlier of (i) October 15, 2001 and (ii) the closing of (A) a merger, consolidation or similar transaction, or series of related transactions, in which the Company's shareholders prior to the transaction own less than a majority of the surviving corporation after the transaction or (B) the sale of all or substantially all of the Company's assets (each, an "ACQUISITION"). Notwithstanding the foregoing, the Company shall give the Holder at least 20 days advance written notice of an Acquisition, and at any time up to the closing of the Acquisition, the Holder may elect to convert this Note pursuant to Section 2.1. 1.7 "NOTE" means this Convertible Secured Subordinated Promissory Note. 1.8 "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement dated as of October 16, 1998 by and among the Company and the Holder of this Note, attached as Exhibit F to the Purchase Agreement. 1.9 "SECURITY AGREEMENT" means that certain Security Agreement dated October 16, 1998 by and between the Company and the Holder of this Note, attached as Exhibit E to the Purchase Agreement. 2. CONVERSION. 2.1 Voluntary Conversion. This Note may be converted at any time this Note remains outstanding, in the sole discretion of the Holder, into shares of Conversion Stock at the Conversion Price. 2.2 Mandatory Conversion. In the event the Company's Common Stock, as quoted on the Nasdaq National Market or any successor or other market on which such stock may subsequently trade, closes at a price that is greater than $10 per share for 30 consecutive trading days (the "PRICE TEST"), then, provided the Company is in compliance with the Registration Rights Agreement, this Note shall automatically convert into shares of Conversion Stock at the Conversion Price, without the need for further action on the part of the Holder; -2- 3 provided, however, that the Holder shall not be entitled to receive the stock certificate representing the shares of Conversion Stock to be issued upon conversion of this Note until the original of this Note is surrendered to the Company. 3. ISSUANCE OF CONVERSION STOCK. As soon as practicable after conversion of this Note, the Company at its expense will cause to be issued in the name of and delivered to the Holder, a certificate or certificates for the number of shares of Conversion Stock to which the Holder shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of legal counsel of the Company), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note. Such conversion shall be deemed to have been made, (a) if made under Section 2.1 above, on the date the Holder delivers to the Company the original of the Note together with a written request for conversion, and (b) if made under Section 2.2 above, on the date the Price Test is satisfied. No fractional shares will be issued upon conversion of this Note. If upon any conversion of this Note a fraction of a share would otherwise result, then in lieu of such fractional share the Company will pay the cash value of that fractional share, calculated on the basis of the applicable Conversion Price. 4. ADJUSTMENT PROVISIONS. The number and character of shares of Conversion Stock issuable upon conversion of this Note (or any shares of stock or other securities or property at the time receivable or issuable upon conversion of this Note) and the Conversion Price therefor, are subject to adjustment upon occurrence of the following events between the date this Note is issued and the date it is converted: 4.1 Adjustment for Stock Splits and Stock Dividends. The Conversion Price of this Note and the number of shares of Conversion Stock issuable upon conversion of this Note (or any shares of stock or other securities at the time issuable upon conversion of this Note) shall each be proportionally adjusted to reflect any stock dividend, stock split or reverse stock split affecting the number of outstanding shares of Conversion Stock (or such other stock or securities). 4.2 Adjustment for Other Dividends and Distributions. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable respect to the Conversion Stock that is payable in (a) securities of the Company (other than issuances with respect to which adjustment is made under Section 4.1), or (b) assets (other than cash dividends paid or payable solely out of retained earnings), then, and in each such case, the Holder, upon conversion of this Note at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Conversion Stock issuable upon such conversion, the securities or such other assets of the Company to which the Holder would have been entitled upon such date if the Holder had converted this Note immediately prior thereto (all subject to further adjustment as provided in this Note). 4.3 Adjustment for Merger, Consolidation, Etc. other than Acquisition. In the event of any merger, consolidation or similar transaction that is not an Acquisition, then the -3- 4 Holder, upon the conversion of this Note at any time after the consummation of such transaction, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the conversion of this Note prior to such consummation, the stock or other securities or property to which the Holder would have been entitled upon the consummation of such transaction if the Holder had converted this Note immediately prior thereto, all subject to further adjustment as provided in this Note, and the successor or purchasing corporation in such transaction (if other than the Company) shall duly execute and deliver to the Holder a supplement hereto acknowledging such corporation's obligations under this Note; and in each such case, the terms of the Note shall be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such transaction. 4.4 Conversion of Stock. In case all the authorized Conversion Stock of the Company is converted, pursuant to the Company's Articles of Incorporation, into other securities or property, or the Conversion Stock otherwise ceases to exist, then, in such case, the Holder, upon conversion of this Note at any time after the date on which the Conversion Stock is so converted or ceases to exist (the "TERMINATION DATE"), shall receive, in lieu of the number of shares of Conversion Stock that would have been issuable upon such exercise immediately prior to the Termination Date, the stock and other securities and property to which the Holder would have been entitled to receive upon the Termination Date if the Holder had converted this Note immediately prior to the Termination Date (all subject to further adjustment as provided in this Note). 4.5 Notice of Adjustments. The Company shall promptly give written notice of each adjustment or readjustment of the Conversion Price or the number of shares of Conversion Stock or other securities issuable upon conversion of this Note. The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment or readjustment is based. 4.6 No Change Necessary. The form of this Note need not be changed because of any adjustment in the Conversion Price or in the number of shares of Conversion Stock issuable upon its conversion. 4.7 Reservation of Stock. If at any time the number of shares of Conversion Stock or other securities issuable upon conversion of this Note shall not be sufficient to effect the conversion of this Note, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Conversion Stock or other securities issuable upon conversion of this Note as shall be sufficient for such purpose. 5. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Note does not by itself entitle the Holder to any voting rights or other rights as a shareholder of the Company. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the Holder, shall cause the Holder to be a shareholder of the Company for any purpose. -4- 5 6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or Bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder under this Note against wrongful impairment. 7. SUBORDINATION. The indebtedness represented by this Note is subordinated to the Company's indebtedness to Comerica Bank - California ("COMERICA") on the terms set forth in a separate Subordination Agreement entered into between the original holder of this Note and Comerica. Holder agrees that the Company is not obligated to make any payment to Holder to the extent prohibited by such Subordination Agreement. 8. SECURITY AGREEMENT. This Note is secured by a security interest in certain assets of the Company, which security interest was granted by the Company to the original holder of this Note pursuant to the terms of the Security Agreement. The Security Agreement provides for the acceleration of the amounts due under this Note under certain circumstances. 9. PREPAYMENT. The Company may not prepay in whole or in part the unpaid principal sum of this Note, except with the prior written consent of the Holder. 10. WAIVERS. The Company hereby waives notice, presentment, protest and notice of dishonor. 11. ATTORNEYS' FEES. In the event the Holder engages the services of attorneys for the purpose of enforcing this Note, or any provision thereof, the prevailing party shall be entitled to recover its reasonable expenses and costs, including attorneys' fees. 12. TRANSFER. Neither this Note nor any rights hereunder may be assigned, conveyed or transferred, in whole or in part, without the Company's prior written consent, provided, however, that this Note may be assigned, conveyed or transferred without the prior written consent of the Company to any person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Holder. The rights and obligations of the Company and the Holder under this Note shall be binding upon and benefit their respective permitted successors, assigns, heirs, administrators and transferees. 13. GOVERNING LAW. This Note shall be governed by and construed under the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, without reference to principles of conflict of laws or choice of laws. 14. HEADINGS. The headings and captions used in this Note are used for convenience only and are not to be considered in construing or interpreting this Note. -5- 6 15. NOTICES. Unless otherwise provided, any notice required or permitted under this Note shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with a recognized international courier, fees prepaid and addressed to the Holder at the last address furnished to the Company by the Holder in writing or, in the case of the Company, at the principal offices of the Company, or at such other address as any party or the Company may designate by giving ten (10) days' advance written notice to all other parties. 16. AMENDMENTS AND WAIVERS. Any term of this Note may be amended, and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holder(s) of a majority of the outstanding principal amount of the Note(s). Any amendment or waiver effected in accordance with this Section shall be binding upon the Holder of this Note, each future holder of such securities and the Company. 17. SEVERABILITY. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision(s) shall be enforced to the maximum extent permitted by applicable law, and the balance of the Note shall remain in full force and effect. -6- 7 IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name as of the date first above written. VERSANT CORPORATION: By: _____________________________________ Name: ___________________________________ Title: __________________________________ [SIGNATURE PAGE TO CONVERTIBLE SECURED SUBORDINATED PROMISSORY NOTE] -7- EX-10.30 5 VERTEX SECURITY AGREEMENT 1 EXHIBIT 10.30 EXHIBIT E SECURITY AGREEMENT This Security Agreement (this "AGREEMENT") is made as of October __, 1998 by and between Versant Corporation, a California corporation (the "COMPANY"), and the party listed on the Schedule of Secured Parties attached to this Agreement as Exhibit A (the "SECURED PARTY"). RECITALS A. The Secured Party has loaned funds to the Company in exchange for the issuance to the Secured Party of a convertible secured subordinated promissory note evidencing the Company's obligation to repay the Secured Party's loans. B. The parties have agreed that Company's obligations under such convertible secured subordinated promissory note will be secured by the Company's grant to the Secured Party of a security interest in and to certain collateral, pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. SECURITY. 1.1 GRANT OF SECURITY INTEREST. As security for payment of all Indebtedness (as defined below) of the Company to the Secured Party when and as due, the Company hereby grants to the Secured Party a security interest in the Collateral (as defined below). For purposes of this Agreement, "INDEBTEDNESS" means all obligations and liabilities of the Company to the Secured Party under that certain convertible secured subordinated promissory note issued to the Secured Party on or about the date hereof (the "NOTE"). Reference to the "SECURED PARTIES" in the remainder of this Agreement shall include the subsequent holders of the Note. 1.2 COLLATERAL DEFINED. As used in this Agreement, the term "COLLATERAL" means, collectively, any and all of the "accounts," "chattel paper," "documents," "equipment," "fixtures," "general intangibles" (including copyrights, moral rights, trademarks, service marks, trade secrets, patents, patent applications and similar intellectual property rights), "instruments" and "inventory" (as such terms are defined in Division 9 of the California Uniform Commercial Code in effect on the date of this Agreement), whether now owned by the Company or hereafter acquired, and all proceeds thereof. 1.3 FINANCING STATEMENTS. So long as the Company is indebted to the Secured Parties under the Note, the Company will promptly execute and deliver to the Secured Parties such assignments, notices, financing statements or other documents and papers (including, but not limited to, such documents as may be filed with the U.S. Register of Copyrights and the U.S. Patent and Trademark Office in order to perfect Secured Parties' rights in Company's patents, registered trademarks, registered copyrights and applications therefor) as any Secured Party may 2 reasonably require in order to perfect and maintain the security interest in the Collateral granted to the Secured Parties hereby and to give any third party notice of the Secured Parties' interest in the Collateral. Upon the full and final discharge of all of the Indebtedness, the Secured Parties will execute and deliver such documents as may be reasonably necessary and requested by the Company to release the Collateral from the security interested granted to the Secured Parties in this Agreement. 1.4 PRIORITY AMONG INVESTORS. As between the Secured Parties, the rights granted hereunder will be held by each of the Secured Parties pro rata in accordance with the then-current amount of unpaid principal and accrued interest under all the Notes held by each of the Secured Parties, and on a pari passu basis of equal seniority and priority. In the event that any Secured Party is identified alone as the creditor or the secured party in any financing statement or similar document intended to perfect a security interest granted under this Agreement, such Secured Party will hold and exercise any rights arising therefrom in trust for the benefit of all Secured Parties on a pro rata, pari passu basis as described above. The Secured Parties hereby agree that rights granted under this Agreement will be exercised only in the manner decided by the vote of the Secured Parties holding at least fifty percent (50%) of the aggregate then-outstanding and unpaid principal amount of indebtedness under all of the then-outstanding Notes. 1.5. TERMINATION. When all the Indebtedness has been paid in full and discharged (including conversion of the Indebtedness into stock of the Company), this Agreement and the security interest granted to the Secured Parties under this Agreement will terminate. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Secured Parties that: 2.1 TITLE; NO LIENS OR CLAIMS IN COLLATERAL. The Company owns all right, title and interest in and to the Collateral. All of the Collateral is (and until the Note has been paid in full and all the Indebtedness is fully satisfied will be) free and clear of all liens, security interests, mortgages, claims, rights, encumbrances and restrictions of any kind except for (i) statutory tax liens, (ii) the security interest granted to the Secured Parties under this Agreement and (iii) the liens set forth on Exhibit B attached hereto. 2.2 NO BANKRUPTCY. The Company is not subject to any bankruptcy case or insolvency proceedings before any court in any jurisdiction. In the ninety (90) days preceding the date of this Agreement, the Company has not received any threat from any third party to subject the Company to any involuntary bankruptcy or insolvency proceeding. 3. COVENANTS OF THE COMPANY. So long as the Company is indebted to the Secured Parties under the Note, the Company covenants and agrees with the Secured Parties that: 3.1 CONDITION OF COLLATERAL. The Company will maintain the Collateral in good condition and repair and will protect and maintain the validity and enforceability of the Company's material patents and copyrights. The Company will use its reasonable best efforts to detect infringement of its material intellectual property and will promptly advise the Secured Representative of any such detected infringement. 2 3 3.2 SALE OF COLLATERAL. The Company will not, without the prior written consent of the holders of a majority of the outstanding principal under the Note(s), which will not be unreasonably withheld, sell, lease, assign, transfer, encumber or otherwise dispose of the Collateral, any part thereof or any interest therein, or any of the Company's rights therein, to any person, entity or party other than the Secured Parties, except in the ordinary course of the Company's business. Notwithstanding the foregoing, the Company shall not be required to obtain such consent in connection with (i) the sale of all or substantially all of the Company's assets or (ii) a merger, consolidation or other reorganization of the Company. 3.3 OTHER LIENS. The Company will keep the Collateral free and clear of all liens, security interests, mortgages, claims, rights, encumbrances and restrictions of any kind except for statutory tax liens, the liens set forth on Exhibit B attached hereto and those consented to in writing by the holders of a majority of the outstanding principal under the Note(s), which consent will not be unreasonably withheld. 3.4 FURTHER INDEBTEDNESS. The Company will not incur any indebtedness other than in the ordinary course of business, including any increase in the amount of the credit lines that the Company has with Comerica Bank-California, without the prior written consent of the holders of a majority of the outstanding principal under the Note(s), such consent not to be unreasonably withheld. 3.5 CONFLICTING AGREEMENTS. The Company will not enter into any agreement that is likely to impair or conflict with the Company's obligations under this Agreement, without the consent of the holders of a majority of the outstanding principal under the Note(s), such consent not to be unreasonably withheld. 4. EVENTS OF DEFAULT. As used herein, as "EVENT OF DEFAULT" shall mean any of the following: (a) The failure of the Company to pay any amount due hereunder or under the Note, within ten days of written notice of such failure; (b) The failure of the Company to perform any covenant or agreement with a third party if such failure would have a material adverse effect on the Company's assets, operations or financial condition; (c) If the Company shall (i) petition or apply to any tribunal for, or consent to the appointment of, a receiver, trustee or liquidator of the Company or, of all or any substantial portion of its property or assets, (ii) confirm in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of its creditors, or (iv) voluntarily file any petition in bankruptcy, or a petition or answer seeking reorganization or arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency or similar law or statute, or having any of the foregoing filed against it and not dismissed within 60 days of such filing; (d) The creation of any lien on the Collateral, other than liens permitted hereunder, if such lien is not removed within 30 days of written notice of such lien to the Company; 3 4 (e) Entry of any judgment or order against the Company in excess of $1.0 million; (f) Material breach of any representation, warranty or agreement made by the Company to the Secured Parties which breach is not cured within ten days of notice to the Company; provided, however, that if such breach cannot reasonably be cured within ten days then the Company shall have such longer period of time as is reasonably required, not to exceed 30 days, so long as such extension of time does not materially prejudice the Secured Parties; (g) The Company loses its eligibility to use a Form S-3 Registration Statement under the Securities Act of 1933, as amended, for secondary offerings, and the Company does not regain such eligibility within 15 days. 5. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT. 5.1 GENERAL REMEDIES. In the event of an occurrence of any Event of Default, and at any time so long as such event shall be continuing, the Secured Parties may, by notice to the Company, declare all outstanding principal and accrued interest on the Note to be immediately due and payable, whereupon all such outstanding principal and accrued interest on the Note shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company. In addition to the foregoing, and any other rights the Secured Parties may have under the Note, at law or in equity, or pursuant to the provisions of the California Commercial Code, the Secured Parties may, at their option, and without demand first made, exercise any one or all of the following rights and remedies: (i) collect the Collateral and its proceeds; (ii) take possession of the Collateral wherever it may be found, using all reasonable means to do so, or require the Company to assemble the Collateral and make it available to the Secured Parties at a place designated by the Secured Parties that is reasonably convenient to the Company; (iii) proceed with the foreclosure of the security interest in the Collateral granted herein and the sale or endorsement and collection of the proceeds of the Collateral in any manner permitted by law or provided for herein; (iv) sell, lease or otherwise dispose of the Collateral at public or private sale, with or without having the Collateral at the place of sale; (v) institute a suit or other action against the Company for recovery on the Notes; (vi) exercise any rights and remedies of a secured party under the California Commercial Code; and/or (vii) offset, against any payment due from the Company to the Secured Parties, the whole or any part of any indebtedness of the Secured Parties to the Company. 5.2 NO ELECTION OF REMEDIES. The election by the Secured Parties of any right or remedy will not prevent the Secured Parties from exercising any other right or remedy against the Company. 5.3 PROCEEDS. If an Event of Default occurs, all proceeds and payments with respect to the Collateral will be retained by the Secured Parties (or if received by the Company will be held in trust and will be forthwith delivered by the Company to the Secured Parties in the original form received, endorsed in blank) and held by the Secured Parties as part of the Collateral or applied by the Secured Parties to the payment of the Indebtedness. 5.4 SALES OF COLLATERAL. If an Event of Default occurs, any item of Collateral may be sold for cash or other value at public or private sale or other disposition and the proceeds thereof collected by or for the Secured Parties. The Company agrees to promptly execute and 4 5 deliver, or promptly cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Parties may require in connection with any such sale or disposition. The Secured Parties will have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Company, which right or equity is hereby waived or released. If any notice of a proposed sale, lease, license or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale, lease, license or other disposition. The Secured Parties agree to give the Company ten (10) days' prior written notice of any sale, lease, license or other disposition of Collateral (or any part thereof) by the Secured Parties. 5.5 APPLICATION OF PROCEEDS. The proceeds of all sales and collections in respect of the Collateral, the application of which is not otherwise specifically herein provided for, will be applied as follows: (i) first, to the payment of the costs and expenses of such sale or sales and collections and the attorneys' fees and out-of-pocket expenses incurred by the Secured Parties relating to costs of collection; (ii) second, any surplus then remaining will be applied first, to the payment of all unpaid interest accrued under the Note, and then to the payment of unpaid principal under the Note; and (iii) third, any surplus then remaining will be paid to the Company. 6. GENERAL PROVISIONS. 6.1 SURVIVAL OF WARRANTIES. The representations, warranties and covenants of the Company and the Secured Parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of any of the Secured Parties or the Company, as the case may be. 6.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. 6.3 GOVERNING LAW. This Agreement shall be governed by and construed under the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, without reference to principles of conflict of laws or choice of laws. 6.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 HEADINGS. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with a recognized international courier, fees prepaid and addressed to the party to be notified at the last address furnished to the Company by the Secured Parties in writing or, in the case of the Company, at the principal offices of the 5 6 Company, or at such other address as any party or the Company may designate by giving ten (10) days' advance written notice to all other parties. 6.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the outstanding principal under the Note(s). Any amendment or waiver effected in accordance with this Section 5.7 shall be binding upon each of the Secured Parties and the Company. 6.8 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be enforced to the maximum extent permitted by applicable law and the balance of the Agreement shall remain in full force and effect and shall be enforceable in accordance with its terms. 6.9 FURTHER ASSURANCES. From and after the date of this Agreement, upon the request of Secured Parties or the Company, the Company and the Secured Parties shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. 6 7 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written. VERSANT CORPORATION: VERTEX TECHNOLOGY FUND PTE. LTD: By: ________________________________ By: __________________________________ Name: ______________________________ Name: ________________________________ Title: _____________________________ Title: _______________________________ Address: ___________________________ Address: _____________________________ ____________________________________ ______________________________________ Fax No.: ___________________________ Fax No.: _____________________________ [SIGNATURE PAGE TO SECURITY AGREEMENT] 7 8 EXHIBIT A Secured Party Name and Address - ---------------- Vertex Technology Fund Pte. Ltd c/o Vertex Management, Inc. 3 Lagoon Drive Suite 220 Redwood City, CA 94065 9 EXHIBIT B SCHEDULE OF LIENS EX-10.31 6 VERTEX REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.31 VERSANT CORPORATION REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made this 16th day of October, 1998, by and between Versant Corporation, a California corporation (the "Company"), and the purchaser (the "Purchaser") of the Company's Convertible Secured Subordinated Promissory Note (the "Note") pursuant to that certain Note Purchase Agreement dated of even date herewith (the "Purchase Agreement"). 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the shares of the Company's Common Stock, no par value. 1.3 "Form S-3" shall mean Form S-3 promulgated by the Commission or any substantially similar form then in effect. 1.4 "Holder" shall mean any holder of record of Registrable Securities or any transferee or assignee of record of such Registrable Securities. 1.5 "Purchasers" shall mean collectively, the Purchaser, its assignees and transferees, and individually, a Purchaser and any transferee or assignee of such Purchaser. 1.6 The terms "Register," "Registered" and "Registration" refer to a registration effected by preparing and filing a registration statement ("Registration Statement") in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such Registration Statement. 1.7 "Registrable Securities" shall mean the Common Stock issuable upon conversion of the Note, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which the rights hereunder are not assigned in accordance with this Agreement, or any Registrable Securities sold to the public or sold pursuant to Rule 144 promulgated under the Securities Act. 1.8 "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2 and 3 hereof, including without limitation, all federal and state registration, qualification and filing fees, printing expenses, fees and disbursements of counsel 2 for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such Registration. 1.9 "Registration Termination Date" shall mean, with respect to any Registrable Securities, the earliest of (i) October 15, 2001, (ii) the date that such Registrable Securities shall have been Registered and sold or otherwise disposed of in accordance with the intended method of distribution by the seller or sellers thereof set forth in the registration statement covering such Securities or transferred in compliance with Rule 144, and (iii) the date as of which the Company shall have notified the Holder, in writing, that it has determined that such Registrable Securities may be sold pursuant to paragraph (k) of Rule 144 (or any successor provision). 1.10 "Rule 144" shall mean Rule 144 promulgated by the Commission pursuant to the Securities Act. 1.11 "Securities Act" shall mean the Securities Act of 1933, as amended. 1.12 "Shares" shall mean Common Stock. 1.13 "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement, together with the fees of any counsel to the selling shareholders. 2. S-3 Registration. 2.1 Registration. The Company covenants and agrees with each of the Purchasers that the Company will prepare and file with the Commission a Registration Statement on Form S-3 covering the Registrable Securities, and use its best efforts to have the Registration Statement declared effective as promptly as practicable and in any event within 90 days of the Closing. Such Registration Statement also may include other shares of the Company's Common Stock, in the Company's discretion. 2.2 Blue Sky. The Company will use its best efforts to Register and qualify the Registrable Securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders for the distribution of such securities; provided, however, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.3 Expenses of Registration. All Registration Expenses incurred in connection with the Registration pursuant to Section 2 shall be borne by the Company. All Selling Expenses shall be borne by the persons who sell the Shares generating said Selling Expenses. -2- 3 2.4 S-3 Registration Procedures. 2.4.1 Advice By Company. The Company will keep each Holder advised as to the initiation and completion of the Registration. At its expense the Company will (a) use its best efforts to keep any Registration pursuant to Section 2 effective until the Registration Termination Date and (b) furnish promptly to each Holder such number of copies of prospectuses (including preliminary prospectuses), and all amendments and supplements thereto, in conformity with the requirements of the Securities Act, and such other documents as any such Holder from time to time may reasonably request. 2.4.2 Notice of Sale and Sale under the Registration Statement. Any Holder intending to sell Shares under the Registration Statement filed pursuant to Section 2 shall give at least three (3) business days' prior written notice (a "Sale Notice") to the Company of any proposed sale of Shares under the Registration Statement effective pursuant to this Section 2 and shall not make such sale (i) unless such three (3) days lapse without response from the Company, or (ii) in the event the Company responds by stating that a prospectus supplement or post-effective amendment will be filed pursuant to Section 2.4.3, until the Company has notified such Holder pursuant to Section 2.4.3 that any such post-effective amendment has become effective or prospectus supplement has been filed. A Sale Notice shall be effective for 30 days after it is given. 2.4.3 Amendments. The Company will prepare and file with the Commission such amendments and prospectus supplements, including post-effective amendments, to the Registration Statement filed pursuant to Section 2 as the Company determines may be necessary or appropriate, and use its best efforts to have such post-effective amendments declared effective as promptly as practicable; cause the related prospectus to be supplemented by any prospectus supplement, and as so supplemented, to be filed with the Commission; and notify the Holders and the underwriter thereof, if any, promptly when a prospectus, any prospectus supplement or post-effective amendment must be filed or has been filed and, with respect to any post-effective amendment, when the same has become effective. 2.4.4 Blackout Period. Notwithstanding any other provision hereof, the Company may delay the Holders' ability to resell Registrable Securities pursuant to the Registration Statement if the Company delivers a certificate in writing to the Holders to the effect that a delay in such sale is necessary because, in the good faith and reasonable judgment of the Company's Board of Directors, a sale pursuant to the Registration Statement would require the public disclosure of information that could have a significant adverse effect on the Company, or could constitute a violation of the federal securities laws. In such an event, the Company shall notify the Holders promptly after it is determined that such circumstances no longer exist. The Company shall not be entitled to delay the Holders' ability to resell Registrable Securities more than 45 days in any calendar year. 3. Piggyback Registrations. 3.1 Registration. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to filing any registration statement under the -3- 4 Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2 of this Agreement or to any employee benefit plan or a corporate reorganization pursuant to Rule 145 promulgated under the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within ten (10) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. 3.2 Underwriting. If a registration statement under which the Company gives notice under this Section 3 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first, to the Company, and second, to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder", as defined in this sentence. 3.3 Expenses of Registration. All Registration Expenses incurred in connection with the Registration pursuant to Section 3 shall be borne by the Company. All Selling Expenses shall be borne by the persons who sell the Shares generating said Selling Expenses. -4- 5 3.4 Registration Procedures. 3.4.1 Advice By Company. The Company will keep each Holder advised as to the initiation and completion of the Registration. At its expense the Company will furnish promptly to each Holder such number of copies of prospectuses (including preliminary prospectuses), and all amendments and supplements thereto, in conformity with the requirements of the Securities Act, and such other documents as any such Holder from time to time may reasonably request. 3.4.2 Amendments. The Company will prepare and file with the Commission such amendments and prospectus supplements, including post-effective amendments, to the Registration Statement filed pursuant to Section 3 as the Company determines may be necessary or appropriate, and use its appropriate efforts to have such post-effective amendments declared effective; cause the related prospectus to be supplemented by any prospectus supplement, and as so supplemented, to be filed with the Commission; and notify the Holders and the underwriter thereof, if any, promptly when a prospectus, any prospectus supplement or post-effective amendment must be filed or has been filed and, with respect to any post-effective amendment, when the same has become effective. 3.4.3 Blue Sky. The Company will use its best efforts to Register and qualify the Registrable Securities covered by the Registration Statement under such other securities or Blue Sky laws of such United States jurisdictions as shall be reasonably requested by the Holders for the distribution of such securities; provided, however, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 4. Information Furnished by Holder. It shall be a condition precedent to the Company's obligations under this Agreement as to any Holder that (i) such Holder furnish to the Company in writing such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request; and (ii) such Holder is not a securities market professional, i.e., a market maker, specialist, ordinary broker dealer, member of the National Association of Securities Dealers, Inc. or a registered representative thereof, or an affiliate of any of the foregoing. 5. Indemnification. 5.1 Company's Indemnification of Holders. The Company will indemnify each Holder, each of its officers, directors and constituent partners, and each person controlling such Holder, with respect to which Registration of Registrable Securities has been effected pursuant to this Agreement, and each underwriter thereof, if any, and each of its officers, directors, constituent partners, and each person who controls such underwriter, against all claims, losses, damages or liabilities (or actions in respect thereof) suffered or incurred by any of them, to the extent such claims, losses, damages or liabilities arise out of or are based upon any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or any related Registration Statement incident to any such Registration, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the -5- 6 statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to actions or inaction required of the Company in connection with any such Registration; and the Company will reimburse each such Holder, each such underwriter and each person who controls any such Holder or underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 5.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); and provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to the Company by such Holder, underwriter, controlling person or other indemnified person and stated to be for use in connection with the offering of securities of the Company. Notwithstanding the above, the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the Registration Statement becomes effective or a prospectus is filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to such person and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. 5.2 Holder's Indemnification of Company. Each Holder will indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's Shares covered by a Registration Statement, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other Holder, each of its officers, directors, and constituent partners and each person controlling such other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) suffered or incurred by any of them and arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in such Registration Statement or related prospectus, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of any rule or regulation promulgated under the Securities Act applicable to such Holder and relating to action or inaction required of such Holder in connection with the Registration of Securities pursuant to such Registration Statement; and will reimburse the Company, such other Holders, such directors, officers, partners, persons, underwriters and controlling persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement or prospectus in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use in connection with the offering of Securities of the Company; provided, however, that each Holder's liability under this Section 5.2 shall not exceed such Holder's proceeds from the offering of Shares made in connection with such Registration. -6- 7 5.3 Indemnification Procedure. Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action which may give rise to a claim for indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 5, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim, and shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, the parties entitled to indemnification shall have the right to employ separate counsel (reasonably satisfactory to the indemnifying party) to participate in the defense thereof, but the fees and expenses of such counsel shall be the expense of such indemnified parties unless the named parties to such action or proceedings include both the indemnifying party and the indemnified parties and the indemnifying party or such indemnified parties shall have been advised by counsel that there are one or more legal defenses available to the indemnified parties which are different from or additional to those available to the indemnifying party (in which case, if the indemnified parties notify the indemnifying party in writing that they elect to employ separate counsel at the reasonable expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of the indemnified parties, it being understood, however, that the indemnifying party shall not be liable for the reasonable fees and expenses of more than one separate counsel at any time for all indemnified parties, which counsel shall be designated in writing by the Holders of a majority of the Shares). 5.4 Contribution. If the indemnification provided for in this Section 5 from an indemnifying party is unavailable to an indemnified party hereunder in respect to any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party and the parties' relative intent, knowledge, access to information supplied by such indemnifying party or indemnified party and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with the investigating or defending any action, suit, proceeding or claim. 6. Covenants of the Company. The Company agrees to: 6.1 Notice of Defect. Notify the Holders at any time when a prospectus relating to Registrable Securities covered by the Registration Statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the -7- 8 prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The Company shall promptly amend or supplement the Registration Statement to correct any such untrue statement or omission. 6.2 Notice of Stop Order. Notify the Holders of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. 6.3 Inspection. Make available for inspection by the Holders, and the counsel, accountants or other agents retained by the Holders, all pertinent financial and other records, corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holders in connection with the Registration, subject to appropriate confidentiality obligations. 6.4 Listing. If the Common Stock is then listed on a national securities exchange or national market system, use its best efforts to cause the Registrable Securities to be listed on such exchange or market system. 6.5. Assistance. Take all other reasonable actions necessary to expedite and facilitate disposition by the Holders of the Registrable Securities pursuant to the Registration Statement. 6.6 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the Commission that may at any time permit the Holders to sell securities of the Company to the public without registration, the Company agrees to: 6.6.1 for at least three years from the date hereof, make and keep public information available, as those terms are understood and defined in Rule 144; 6.6.2 for at least three years from the date hereof, file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities and Exchange Act of 1934 (the "1934 Act"); and 6.6.3 furnish to each Holder, so long as such Holder owns any Registrable Securities, forthwith upon written request (a) a written statement by the Company whether it has complied with the reporting requirements of Rule 144, the Securities Act and the 1934 Act (at any time after it has become subject to such reporting requirements), (b) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (c) such other information as may be reasonably requested in availing the Holders of any rule or regulation of the Commission which permits the selling of any such securities without registration. -8- 9 7. Miscellaneous. 7.1 Notice. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered or sent by internationally recognized express courier, addressed (i) if to the Company, at Versant Corporation, 6539 Dumbarton Circle, Fremont, California 94555; Attention: Chief Executive Officer and (ii) if to a Purchaser, at the address set forth in the Purchase Agreement questionnaire, or at such other address as each such party furnishes by notice given in accordance with this Section 7.1. 7.2 Amendment and Waiver. Any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and Holders representing at least a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 7.2 will be binding upon each Holder of Registrable Securities then outstanding, each future Holder of such securities and the Company. 7.3 Governing Law; Severability. This Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of California, as such laws are applied by California courts to agreements entered into and to be performed in California by and between residents of California. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. 7.4 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. -9- 10 IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the date first written above. VERSANT CORPORATION PURCHASERS By: ___________________________ By: __________________________ Its: __________________________ Its: __________________________ [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] -10- 11 EXHIBIT A LIST OF PURCHASERS Vertex Technology Fund Pte. Ltd. c/o Vertex Management, Inc. 3 Lagoon Drive Suite 220 Redwood City, CA 94065 EX-10.32 7 VERTEX SUBORDINATION AGREEMENT 1 EXHIBIT 10.32 SUBORDINATION AGREEMENT (All Indebtedness and Liens) Versant Corporation ("Borrower") is indebted to the undersigned ("Creditor") in the principal sum of ______ Dollars ( $3,619,000 ) evidenced by ___an open account [X] promissory note ___ other (describe) ____ which indebtedness is ___ unsecured [X] secured by Borrower's Assets , and Creditor is or may become financially interested in borrower and desires to aid Borrower in obtaining or having continued financial accommodations, whether by way of loan, commitment to loan, discounting of instruments, extensions of credit or the obtaining of any other financial aid from Comerica Bank-California ("Bank"). In order to induce the Bank to extend or to continue to extend financial accommodations to Borrower from time to time, whether by way of a loan, commitment to loan, discounting of instruments, extension of credit or otherwise and in consideration of any of these financial accommodations, Creditor agrees as follows: 1. Any and all obligations and liabilities of Borrower to Creditor, including, without limit, principal and interest, whether direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or to become due, now existing or later arising and whatever the amount and however evidenced (the "Subordinated Indebtedness"), are subordinated in right of payment to any and all obligations and liabilities of Borrower. to the Bank, including, without limit, principal and interest payments whether direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or to become due, now existing or later arising and however evidenced, together with all other sums due thereon and all costs of collecting the same (including, without limit, reasonable attorney fees) for which Borrower is liable (the "Senior Indebtedness"). 2. Except for the conversion of the Subordinated Indebtedness into equity securities of Borrower (upon which Creditor shall terminate its security interest in any of Borrower's property) Creditor will not ask for, demand, sue for, take or receive (by way of voluntary payment, acceleration, set-off or counterclaim, foreclosure or other realization on security, dividends in bankruptcy or otherwise), or offer to make any discharge or release of, any of the Subordinated Indebtedness, and Creditor waives any such rights with respect to the Subordinated Indebtedness nor shall Creditor exercise any rights of subrogation or other similar rights with respect to the Senior Indebtedness. 3. Creditor will not exercise any of Creditor's rights in any collateral now or later securing the Subordinated Indebtedness. All rights of Creditor in any collateral now or later securing the Subordinated Indebtedness are subordinated to all rights of the Bank now or later existing in any of the same collateral securing the Senior Indebtedness. 4. Should any payment, distribution or security or proceeds from these be received by Creditor upon or with respect to the Subordinated Indebtedness prior to the satisfaction in full of the 1 2 Senior Indebtedness, Creditor shall immediately deliver same to the Bank in the form received (except for endorsement or assignment by Creditor where required by the Bank), for application on the Senior Indebtedness (whether or not then due and in such order of maturity as Bank elects) and, until so delivered, the same shall be held in trust by Creditor as the property of the Bank. 5. Creditor represents and warrants that it has not made or permitted to be made and shall not make or permit any assignment, transfer, pledge, or disposition for collateral purposes or otherwise, of all or any part of the Subordinated Indebtedness or any collateral or other security for the Subordinated Indebtedness so long as this Agreement remains in effect. Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. No amendment of the documents evidencing or relating to the Subordinated Debt shall directly of indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of the security interest or lien that Creditor may have in any property of Borrower. By way of example, such instruments shall not be amended to (i) increase the rate of interest with respect to the Subordinated Debt, or (ii) accelerate the payment of the principal or interest or any other portion of the Subordinated Debt. 6. This Agreement constitutes a continuing agreement of subordination, even though at times Borrower is not indebted to the Bank. The Bank may continue, in reliance on this Agreement, without notice to Creditor, to lend monies, extend credit, modify, renew or make other financial accommodations, to or for the account of Borrower until the fifth (5th) day ("effective date") following written acknowledgment by an officer of the Bank that the Bank received written notice of revocation of this Agreement from Creditor. Any such notice of revocation shall not be effective as to any Senior Indebtedness existing at the effective date of revocation or any Senior Indebtedness created after that pursuant to any commitment or agreement of the Bank or pursuant to any Borrower loan (whether advances or readvances by the Bank after the effective date of revocation are optional or obligatory) existing at the effective date of revocation or any modifications or renewals of any Senior Indebtedness, whether in whole or in part. Possession by the Bank of any note or other evidence of indebtedness made, endorsed or guaranteed by Borrower shall be conclusive evidence (but not the only means of establishing) that Borrower is indebted to the Bank. 7. Creditor shall indemnify the Bank against all claims, damages, costs, and expenses, including, without limit, reasonable attorneys' fees, incurred by the Bank in connection with any suit, claim or action against the Bank arising out of any modification or termination of a Borrower loan or any refusal by the Bank to extend additional credit relating to the revocation of this Agreement. 8. Creditor delivers this Agreement based solely on Creditor's independent investigation of (or decision not to investigate) the financial condition of the Borrower and is not relying on any information furnished by the Bank. Creditor assumes full responsibility for obtaining any further information concerning the Borrower's financial condition, the status of the Senior Indebtedness or any other matter which Creditor may deem necessary or appropriate now or later. Creditor waives any duty on the part of the Bank, and agrees that Creditor is not relying upon nor expecting the Bank to disclose to Creditor any fact now of later known by the Bank, whether 2 3 relating to the operations or condition of the Borrower, the existence, liabilities or financial condition of any guarantor of the Senior Indebtedness, the occurrence of any default with respect to the Senior Indebtedness, or otherwise, notwithstanding any effect such fact may have upon Creditor's risk or Creditor's rights against the Borrower. Creditor knowingly accepts the full range of risk encompassed in this Agreement, which risk includes, without limit, the possibility that the Borrower may incur Senior Indebtedness to the Bank after the financial condition of the Borrower, or its ability to pay Borrower's debts as they mature, has deteriorated. Creditor acknowledges and agrees that the Bank's rights under this Agreement are not conditioned upon pursuit by the Bank of any remedy the Bank may have against the Borrower or any other person or any other security. The absence of Borrower's signature at the end of this Agreement shall in no way impair or affect the validity of this Agreement. 9. The Bank, in its sole discretion, without notice to Creditor, may release, exchange, enforce and otherwise deal with any security now or later held by the Bank for payment of the Senior Indebtedness or release any party now or later liable for payment of the Senior Indebtedness without affecting in any manner the Bank's rights under this Agreement. Creditor acknowledges and agrees that the Bank has no obligation to acquire or perfect any lien on or security interest in any asset(s), whether realty or personalty, to secure payment of the Senior Indebtedness, and Creditor is not relying upon assets in which the Bank has or may have a lien or security interest for payment of the Senior Indebtedness. 10. Notwithstanding any prior revocation, termination, surrender, or discharge of this Agreement in whole or in part, the effectiveness of this Agreement shall automatically continue or be reinstated in the event that any payment received or credit given by the Bank in respect of the Senior Indebtedness is returned, disgorged, or rescinded under any applicable state or federal law, including, without limitation, laws pertaining to bankruptcy or insolvency, in which case this Agreement, shall be enforceable against the Creditor as if the returned, disgorged, or rescinded payment or credit had not been received or given by the Bank, and whether or not the Bank relied upon this payment or credit or changed its position as a consequence of it. In the event of continuation or reinstatement of this Agreement, the Creditor agrees upon demand by the Bank to execute and deliver to the Bank those documents which the Bank determines are appropriate to further evidence (in the public records or otherwise) this continuation or reinstatement, although the failure of the Creditor to do so shall not affect in any way the reinstatement or continuation. 11. Creditor waives any right to require the Bank to: (a) proceed against any person or property; (b) give notice of the terms, time and place of any public or private sale of personal property security held from the Borrower or any other person, or otherwise comply with the provisions of Section 9-504 of any applicable Uniform Commercial Code; or (c) pursue any other remedy in the Bank's power. Creditor waives notice of acceptance of this Agreement and presentment, demand, protest, notice of protest, dishonor, notice of dishonor, notice of default, notice of intent to accelerate or demand payment of any Senior Indebtedness, any and all other notices to which the undersigned might otherwise be entitled, and diligence in collecting any Senior Indebtedness, and agrees that the Bank may, once or any number of times, modify the terms of any Senior Indebtedness, compromise, extend, increase, accelerate, renew or forbear to enforce payment of any or all Senior Indebtedness, or permit the Borrower to incur additional Senior Indebtedness, 3 4 all without notice to Creditor and without affecting in any manner the unconditional obligations of Creditor under this Agreement. 12. Creditor acknowledges that the Bank has the right to sell, assign, transfer, negotiate or grant participations or any interest in, any or all of the Senior Indebtedness and any related obligations, including without limit this Agreement. In connection with the above, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the Bank now or later has or acquires relating to Creditor and this Agreement, however obtained. Creditor further agrees that the Bank may disclose such documents and information to the Borrower. Creditor agrees that the Bank may provide information relating to this Subordination Agreement or to the undersigned to the Bank's parent, affiliates, subsidiaries and service providers. 13. No waiver or modification of any of its rights under this Agreement shall be effective unless the waiver or modification shall be in writing and signed by an authorized officer on behalf of the Bank, and each waiver or modification shall be a waiver or modification only with respect to the specific matter to which the waiver or modification relates and shall in no way impair the rights of the Bank or the obligations of Creditor to the Bank in any other respect. 14. This Agreement shall bind and be for the benefit of Creditor and the Bank and their respective successors and assigns, and shall be construed according to the laws of the State of California without regard to conflict of laws principles. If this Agreement is executed by two or more persons, it shall bind each of them individually as well as jointly. Creditor further agrees, upon Bank's request to enter into a new subordination agreement with any person refinancing the Senior Indebtedness or assuming Bank's rights and obligations with respect to the Senior Indebtedness (plus an additional principal amount of not more than $4,000,000), which agreement will contain substantially the terms and condition of this Agreement. 15. The term "Borrower", as used in this Agreement, includes any person, corporation, partnership or business entity which succeeds to the interests or business of the Borrower named above, and the terms "Senior Indebtedness" and "Subordinated Indebtedness" include indebtedness of any successor Borrower to the Bank and Creditor. 16. Creditor agrees to reimburse the Bank for any and all costs and expenses (including, without limit, court costs, legal fees, and reasonable attorney fees whether inside or outside counsel is used, whether or not suit is instituted and, if instituted, whether at the trial or appellate level, in a bankruptcy, probate or administrative proceeding, or otherwise) incurred in enforcing any of the duties and obligations of Creditor under this Agreement. 17. Creditor waives any defense against the enforceability of this Agreement based upon or arising by reason of the application by the Borrower of the proceeds of any Indebtedness for purposes other than the purposes represented by the Borrower to the Bank or intended or understood by the Bank or Creditor. Creditor waives all rights to require the Bank to marshall the Collateral or any other property the Bank may at any time have as security for the Indebtedness and waives all right to require the Bank to first proceed against any guarantor or other person before proceeding against the Collateral. 4 5 18. The relative priorities of the Bank and Creditor in the Collateral as set forth in this Agreement control irrespective of the time, method or order of attachment or perfection of the liens and security interests acquired by the parties in the Collateral and irrespective of the priorities as would otherwise be determined by reference to the Uniform Commercial Code or other applicable laws. Creditor shall not contest the validity, priority or perfection of the Bank's security interest in the Collateral (regardless of whether the Bank's security interest in the Collateral is valid or perfected). The priorities of any liens or security interests of the parties in any property of the Borrower other than the Collateral are not affected by this Agreement and shall be determined by reference to applicable law. The Bank's rights under this Agreement are in addition to, and not in substitution of, its rights under any other subordination agreement with Creditor. 19. Special Provisions: * None if left blank. THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTION ALONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT. IN WITNESS WHEREOF, Creditor has caused this Agreement to be executed as of October 16, 1998 (date) Vertex Technology Fund Pte. Ltd. CREDITOR'S ADDRESS CREDITOR BY:___________________________ _____________________________ SIGNATURE OF STREET ADDRESS ITS:___________________________ _____________________________ TITLE (if applicable) CITY STATE ZIP BY:___________________________ SIGNATURE OF ITS:___________________________ TITLE (if applicable) 5 6 Versant Corporation ("Borrower"), accepts notice of subordination created by this Agreement and agrees that it will take no action inconsistent with this Agreement and that, except with the prior written approval of Bank, no payment or distribution shall be made by Borrower on or with respect to the Subordinated Indebtedness, so long as this Agreement remains in effect. Borrower agrees that the Bank may, at its option, without notice and without limiting Bank's other rights, upon any breach by Creditor of, or purported termination by the Creditor of, this Agreement, declare all Senior Indebtedness to be immediately due and payable and/or terminate any commitments of Bank to Borrower. Versant Corporation BORROWER'S ADDRESS BORROWER BY:___________________________ _____________________________ SIGNATURE OF STREET ADDRESS ITS:___________________________ _____________________________ TITLE (if applicable) CITY STATE ZIP BY:___________________________ SIGNATURE OF ITS:___________________________ TITLE (if applicable) BY:___________________________ SIGNATURE OF ITS:___________________________ TITLE (if applicable) BY:___________________________ SIGNATURE OF ITS:___________________________ TITLE (if applicable) 6 EX-10.33 8 SPECIAL SITUATIONS FUND COMMON STOCK 1 EXHIBIT 10.33 COMMON STOCK AND WARRANT PURCHASE AGREEMENT This COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of December 28, 1998 by and among Versant Corporation, a California corporation (the "COMPANY"), and the parties listed on the Schedule of Investors attached to this Agreement as Exhibit A (each hereinafter individually referred to as an "INVESTOR" and collectively referred to as the "INVESTORS"). R E C I T A L S A. The Company is currently in need of funds for working capital purposes. B. The Investors are willing to purchase shares of the Company's Common Stock, and warrants to purchase Common Stock, as provided in this Agreement. NOW THEREFORE, the parties hereby agree as follows: 1. PURCHASE AND SALE. Each Investor agrees, severally and not jointly, to purchase from the Company the number of shares of the Company's Common Stock (the "SHARES"), no par value, set forth beside such Investor's name on Exhibit A at a price of $2.00 per share, together with a warrant to purchase from the Company the number of shares of the Company's Common Stock set forth beside such Investor's name on Exhibit A (each, a "WARRANT" and collectively, the "WARRANTS"), at an exercise price of $2.25 per share, for the warrant purchase price associated with such Warrant, in substantially the form attached hereto as Exhibit B and the Company agrees to sell to each Investor the Shares and a Warrant on the terms set forth herein. 2. CLOSING. The purchase and sale of the Shares and Warrants will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Suite 800, Palo Alto, California, at 11:00 a.m. Pacific Time, on December 28, 1998 or at such other time and place as the Company and Investors who have agreed to purchase a majority of the Shares listed on Exhibit A mutually agree upon, either orally or in writing (which time and place are referred to in this Agreement as the "CLOSING"). At the Closing, the Company will deliver to each Investor a certificate for the Shares and a Warrant against delivery to the Company by such Investor of the full purchase price of such Shares and Warrant, paid by a check payable to the Company's order or wire transfer of funds to the Company. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Investor that, except as set forth in the Schedule of Exceptions (the "SCHEDULE OF EXCEPTIONS") attached to this Agreement as Exhibit C (which Schedule of Exceptions shall be deemed to be representations and warranties to the 2 Investors by the Company under this Section 3), the statements in the following paragraphs of this Section 3 are all true and complete: 3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted. Each of the Company's subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted. Each of the Company and its subsidiaries is qualified to do business as a foreign corporation in each jurisdiction where failure to be so qualified would have a material adverse effect on its financial condition, business, prospects or operations. 3.2 Due Authorization. All corporate action on the part of the Company, its officers, directors and shareholders, necessary for the authorization, execution and delivery of, and the performance of all obligations of the Company under, this Agreement, the Warrants and the Registration Rights Agreement (as defined in Section 5.7 below) and the authorization, issuance, reservation for issuance and delivery of all the Shares and the Common Stock that is issuable under exercise of the Warrants (the "EXERCISE SHARES") has been taken or will be taken prior to the execution of this Agreement, and this Agreement, the Warrants and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except as may be limited by: (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditor's rights generally; and (ii) the effect of rules of law governing the availability of equitable remedies. 3.3 Corporate Power. The Company has all requisite legal and corporate power to execute and deliver this Agreement, the Warrants and the Registration Rights Agreement, to issue the Shares and the Exercise Shares, and to carry out and perform all its obligations under this Agreement, the Warrants and the Registration Rights Agreement. 3.4 Proceedings. There is no pending action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), prosecution, hearing, or investigation, commenced, brought, conducted or heard by or before, any governmental body or any arbitrator or arbitration panel ("PROCEEDING"), and to the Company's knowledge, no person or entity has threatened to commence any Proceeding, (i) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the transactions contemplated by this Agreement, the Warrants or the Registration Rights Agreement or (ii) that might result, either individually or in the aggregate, in any material adverse change in the business, assets, financial condition, results of operations or prospects of the Company. The Company is not party or subject to the provisions of any order, writ, injunction, judgment, stipulation or decree of any court, administrative agency, commission, regulatory authority or other governmental agency or instrumentality that are likely -2- 3 to have a material adverse effect on the business, assets, financial condition, results of operations or prospects of the Company. 3.5 Non-Contravention; Consents; No Liens. Neither the execution and delivery of this Agreement, the Warrants or the Registration Rights Agreement, nor the consummation or performance of any of the transactions contemplated by this Agreement, the Warrants or the Registration Rights Agreement, will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of (i) any of the provisions of the Company's Articles of Incorporation or Bylaws, or (ii) any resolution adopted by the Company's shareholders, the Company's Board of Directors or any committee of the Company's Board of Directors; (b) contravene, conflict with or result in a violation of, or give any governmental body or other person the right to challenge any of the transactions contemplated by this Agreement, the Warrants or the Registration Rights Agreement or to exercise any remedy or obtain any relief under, any federal, state, local, municipal, foreign or other law, statute, legislation, ordinance, rule, regulation or ruling that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any governmental body, or any order to which the Company, or any of the assets owned or used by the Company, is subject; (c) contravene, conflict with or result in a material violation or breach of, or result in a material default under, any of the Company's material agreements; or (d) result in the creation of any lien, charge or encumbrance upon any asset of the Company. With the exception of any necessary filings pursuant to federal and state securities laws, and except as disclosed on the Schedule of Exceptions, the Company will not be required to make any filing with or give any notice to, or to obtain any consent from, any person in connection with the execution and delivery of this Agreement, the Warrants and the Registration Rights Agreement or the consummation or performance of any of the transactions contemplated by this Agreement, the Warrants and the Registration Rights Agreement. 3.6 Brokers. The Company has not agreed or become obligated to pay, and has not taken any action that likely would result in any person claiming to be entitled to receive, any brokerage commission, finder's fee or similar commission or fee in connection with any of the transactions contemplated by this Agreement. 3.7 Full Disclosure; SEC Reports; SEC Matters. (a) This Agreement (including all exhibits hereto) does not contain any untrue statement of material fact and does not omit to state any fact necessary to make any of -3- 4 the representations, warranties or statements contained herein on behalf of the Company not misleading with respect to the Company. (b) As of the date of this Agreement, the Company has provided the Investors or their counsel with full and complete access to all of the Company's records and other documents and data requested by them. (c) The Company has filed all reports required to be filed with the Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all such reports and amendments thereto, collectively, the "COMPANY SEC REPORTS"). None of such Company SEC Reports, as of their respective dates (as amended through the date hereof), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The Company has filed all material contracts required to be filed with the SEC pursuant to the Item 601 of Regulation S-K under the Securities Act of 1933, as amended (the "1933 ACT") and the Exchange Act. (e) The Company is eligible to file Form S-3 registration statements under the 1933 Act with the SEC in connection with offerings of outstanding Company securities to be offered for the account of any person other than the Company, so long as such person is not a registered broker-dealer. 3.8 Valid Issuance. The Shares and the Exercise Shares, when issued in compliance with the terms of this Agreement and the Warrants, will be validly issued, fully paid and nonassessable and will be free of any liens or encumbrances. 3.9 Capitalization. As of the date of this Agreement, the capitalization of the Company consists of the following: (a) Preferred Stock. A total of 3,000,000 authorized shares of preferred stock, no par value per share, none of which is issued and outstanding. (b) Common Stock. A total of 30,000,000 authorized shares of common stock, no par value per share (the "Common Stock"), of which 9,449,305 shares are issued and outstanding. (c) Options, Warrants, Reserved Shares. Except for: (i) the 216,988 shares of Common Stock reserved for issuance upon the exercise of outstanding options under the Company's 1989 Stock Option Plan; (ii) the 1,863,485 shares of Common Stock reserved for issuance under the Company's 1996 Equity Incentive Plan under which options to purchase 1,796,634 shares are outstanding; (iii) the 99,337 shares of Common Stock available for issuance under the Company's 1996 Employee Stock Purchase Plan; (iv) the 125,000 shares of Common Stock reserved for issuance under the Company's 1996 Directors Stock Option Plan under which -4- 5 options to purchase 75,000 shares are outstanding; and (v) the 1,880,000 shares of Common Stock reserved for issuance upon the conversion of an outstanding Convertible Subordinated Secured Promissory Note of the Company, there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock. 3.10 No Material Adverse Change. Since September 30, 1998, the business of the Company has been operated in the ordinary course and substantially consistent with past practice, and, except as disclosed in the Company SEC Reports, there has not been any material adverse change in the business, assets, financial condition, results of operations or prospects of the Company. 4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS. Each Investor hereby represents and warrants to, and agrees with, the Company that: 4.1 Authorization. This Agreement, the Warrant to be purchased by such Investor and the Registration Rights Agreement constitute such Investor's valid and legally binding obligation, enforceable in accordance with their respective terms except as may be limited by: (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally, and (ii) the effect of rules of law governing the availability of equitable remedies. The Investor represents that such Investor has full power and authority to enter into this Agreement, the Warrant to be purchased by such Investor and the Registration Rights Agreement. 4.2 Purchase for Own Account. The Shares and Warrant to be purchased by such Investor hereunder and the Exercise Shares will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. 4.3 Disclosure of Information. Such Investor believes it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Shares and Warrant to be purchased by such Investor under this Agreement. Such Investor further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and Warrant and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Investor or to which such Investor had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Section 3. 4.4 Investment Experience. Such Investor is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. -5- 6 4.5 Restricted Securities. Such Investor understands that the Shares, Warrants and Exercise Shares are characterized as "restricted securities" under the 1933 Act and Rule 144 promulgated thereunder inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the 1933 Act and applicable regulations thereunder such securities may be resold without registration under the 1933 Act only in certain limited circumstances. 4.6 No Solicitation. At no time was such Investor presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares, Warrants or Exercise Shares. 4.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Shares, Warrants or Exercise Shares unless and until: (a) there is then in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) (i) such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) such Investor shall have furnished the Company, at the expense of such Investor or its transferee, with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such securities under the 1933 Act. Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be required: (i) for any transfer of any Shares, Warrants or Exercise Shares in compliance with SEC Rule 144; (ii) for any transfer of any Shares, Warrants or Exercise Shares by an Investor to any affiliate (as that term is defined in Rule 405 promulgated under the 1933 Act) of such Investor; (iii) for any transfer of any Shares, Warrants or Exercise Shares by an Investor that is a partnership or a corporation to (A) a partner of such partnership or a shareholder of such corporation or (B) the estate of any such partner or shareholder; or (iv) for the transfer by gift, will or intestate succession by any Investor to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing; provided that in each of the foregoing cases the transferee agrees in writing to be subject to the terms of this Section 4 to the same extent as if the transferee were an original Investor hereunder. 4.8 Legends. It is understood that the certificates evidencing the Shares, Warrants or Exercise Shares will bear the legend set forth below: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE -6- 7 SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. 5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations of each Investor under Section 2 of this Agreement are subject to the fulfillment or waiver, on or before the Closing, of each of the following conditions, which conditions may be waived by written, oral or telephone communication to the Company, its counsel or to counsel to the Investors: 5.1 Representations and Warranties True. Each of the representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing and shall have obtained all approvals, consents and qualifications necessary to complete the purchase and sale described herein. 5.3 Compliance Certificate. The Company shall have delivered to the Investors at the Closing a certificate signed on its behalf by its Chief Executive Officer or Chief Financial Officer certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there shall have been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company not previously disclosed to the Investors. 5.4 Securities Exemptions. The offer and sale of the Shares, Warrants and Exercise Shares to the Investors pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act and the registration and/or qualification requirements of all applicable state securities laws. 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Investor and to the Investors' counsel, and they shall each have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. -7- 8 5.6 No Material Change. There shall have been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company since September 30, 1998. 5.7 Registration Rights Agreement. The Company shall have executed and delivered a Registration Rights Agreement substantially in the form attached hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT"). 5.8 Delivery of Shares and Warrants. The Company shall have delivered to such Investor a certificate for the Shares and the Warrant to be purchased by such Investor pursuant to this Agreement. 6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment or waiver on or before the Closing of each of the following conditions by such Investor: 6.1 Representations and Warranties. The representations and warranties of such Investor contained in Section 4 shall be true and correct on the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. Such Investor shall have delivered to the Company the purchase price in accordance with the provisions of Section 2. 6.3 Securities Exemptions. The offer and sale of the Shares, Warrants and Exercise Shares to the Investors pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act and the registration and/or qualification requirements of all applicable state securities laws. 6.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and to the Company's legal counsel, and the Company shall have received all such counterpart originals and certified or other copies of such documents as it may reasonably request. 7. MISCELLANEOUS. 7.1 Governing Law. This Agreement shall be governed by and construed under the internal laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York, without reference to principles of conflict of laws or choice of laws. -8- 9 7.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.3 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with a recognized national courier service, fees prepaid and addressed to the party to be notified, in the case of the Company, at 6539 Dumbarton Circle, Fremont, California 94555, and in the case of an Investor at the address indicated for such party on Exhibit A, or at such other address as such party may designate by ten (10) days advance written notice to all other parties. 7.4 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and holders of at least a majority of the aggregate of the Shares and the Exercise Shares then issued or issuable. Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any Shares, Warrants or Exercise Shares at the time outstanding, each future holder of such securities, and the Company. 7.5 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior understandings and agreements with respect to such matters. 7.6 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. 7.7 Headings. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto, all of which exhibits are incorporated herein by this reference. 7.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be enforced to the maximum extent possible consistent with applicable law and the balance of the Agreement shall remain in full force and effect. 7.9 Further Assurances. From and after the date of this Agreement, upon the request of the Investor or the Company, the Company and the Investor shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. -9- 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. VERSANT CORPORATION SPECIAL SITUATIONS FUND III LP By:_______________________________ By::_______________________________ Name:_____________________________ Name::_____________________________ Title:____________________________ Title::____________________________ SPECIAL SITUATIONS CAYMAN LP SPECIAL SITUATIONS TECHNOLOGY FUND LP By:_______________________________ By::_______________________________ Name:_____________________________ Name::_____________________________ Title:____________________________ Title::____________________________ [SIGNATURE PAGE TO COMMON STOCK AND WARRANT PURCHASE AGREEMENT.] -10- 11 EXHIBIT A SCHEDULE OF INVESTORS
Shares of Shares of Stock Common Stock Warrant Total Common Stock Purchase Subject to Purchase Purchase Investor Purchased Price Warrant Price Price - -------- ------------ ---------- ------------ ---------- ------------- Special Situations Fund III LP 472,500 $ 945,000 236,250 $29,531.25 $ 974,531.25 153 East 53rd Street 51st Floor New York, NY 10022 Special Situations Cayman LP 157,500 $ 315,000 78,750 $ 9,843.75 $ 324,843.75 153 East 53rd Street 51st Floor New York, NY 10022 Special Situations 70,000 $ 140,000 35,000 $ 4,375.00 $ 144,375.00 Technology Fund LP 153 East 53rd Street 51st Floor New York, NY 10022 ---------- ---------- ---------- ---------- ------------- Total 700,000 $1,400,000 350,000 $43,750.00 $1,443,750.00
12 EXHIBIT C SCHEDULE OF EXCEPTIONS Versant issued 245,586 shares of its Common Stock in connection with its purchase of Soft Mountain S.A. Pursuant to the terms of the Soft Mountain agreement, Versant was obligated to register such shares with the SEC. The Soft Mountain agreement provides that if Versant does not register the shares by December 31, 1998, then Versant is obligated to pay the holders of such shares 6,190,000 French Francs in cash, by January 31, 1999, in return for such shares. Versant does not expect to be able to comply with its obligation to register the shares by December 31, 1998. Versant believes that it will be able to obtain the consent of the Soft Mountain registration rights holders to postpone Versant's obligation to file a registration statement to such shares until April 9, 1999, in exchange for the payment to such persons of up to $60,000 in cash and up to 50,000 shares of Versant Common Stock. Versant sold a convertible secure subordinated promissory note to Vertex Technology Fund Pte Ltd in the principal amount of $3,619,000. The note is convertible into Common Stock at the price of $1.925 per share. Versant is obligated to register the shares issuable upon conversion of the promissory note within 90 days of the closing of the sale of the note (October 16, 1998). Versant does not expect to be able to comply with such obligation, and believes that Vertex will agree to postpone Versant's obligation to file the registration statement until April 9, 1999. Versant is a defendant in various securities litigations, as described in Versant's filings with the SEC. -12- EX-10.34 9 SPECIAL SITUATIONS FUND STOCK WARRANT 1 EXHIBIT 10.34 SPECIAL SITUATIONS FUND STOCK WARRANT EXHIBIT B THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. Warrant to Purchase __________ Shares of Common Stock (Subject to Adjustment) VERSANT CORPORATION COMMON STOCK PURCHASE WARRANT VERSANT CORPORATION, a California corporation (the "Company"), hereby certifies that, for value received, ________________ is entitled, subject to the terms set forth below, to purchase from the Company, on the terms hereof, _________ fully paid and nonassessable shares of Common Stock of the Company. The purchase price per share of such Common Stock shall be $2.25 (the "Exercise Price"). The number and character of such shares of Common Stock are subject to adjustment as provided below. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: 1 2 (a) The term "Company" includes any corporation which shall succeed to or assume the obligations of the Company hereunder. (b) The term "Common Stock" shall mean the Common Stock of the Company, and any other securities or property of the Company or of any other person (corporate or otherwise) which the holder of this Warrant at any time shall be entitled to receive on the exercise hereof, in lieu of or in addition to Common Stock, or which at any time shall be issuable in exchange for or in replacement of Common Stock. (c) The term "Blackout Period" shall mean any period during which the ability of the holder of this Warrant to resell the Common Stock issued or issuable upon exercise of this Warrant pursuant to the Registration Statement (as defined in the Registration Rights Agreement) has been suspended, pursuant to Section 2.4.3 of the Registration Rights Agreement or otherwise. (d) The term "Registration Rights Agreement" shall mean that certain Registration Rights Agreement among the Company, the initial holder of this Warrant and certain third parties dated as of December 28, 1998. 1. Initial Exercise Date; Expiration. This Warrant may be exercised at any time or from time to time. It shall expire upon the earlier of (i) December 28, 2001, (ii) an acquisition of the Company (whether by merger, consolidation, tender offer or otherwise) in which the Company's shareholders prior to the acquisition own less than a majority of the surviving corporation, or the sale of all or substantially all of the Company's assets (any of such transactions, an "Acquisition"), or (iii) 15 business days after the Company gives notice to the holder that the Company's stock price on the Nasdaq National Market or other primary market for the Company's stock has closed with a closing bid price above $4.00 for ten consecutive business days (the earlier of all such dates, the "Expiration Date"). After the Expiration Date, this Warrant shall terminate, and shall be void and of no further force and effect; provided, however, that if the Expiration Date is triggered by (i) or (iii) above and falls during or within 30 days after a Blackout Period, this Warrant shall not terminate until 30 days after the end of such Blackout Period; and provided, further, that for the Expiration Date to be triggered by (iii) above, the Company must furnish the above-mentioned notice to the holder within five business days following the ten consecutive business day trading period specified in (iii) above. 2. Exercise of Warrant; Partial Exercise. This Warrant may be exercised in full or in part by the holder hereof by surrender of this Warrant, with the form of subscription attached hereto and the completion of an appropriate investment representation letter, as may be reasonably required by the Company, duly executed by such holder, to the Company at its principal office, accompanied by payment, in cash, by certified or official bank check payable to the order of the Company or by wire transfer, of the purchase price of the shares of Common Stock to be purchased hereunder. For any partial exercise hereof, the holder shall designate in the subscription the number of shares of Common Stock that it wishes to purchase. On any such partial exercise, the Company at its expense shall forthwith issue and deliver to the holder hereof a new warrant of like tenor, in the name of the holder hereof, which shall be exercisable for such 2 3 number of shares of Common Stock represented by this Warrant which have not been purchased upon such exercise. 3. When Exercise Effective. The exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in Section 2 and at such time the person in whose name any certificate for shares of Common Stock shall be issuable upon such exercise, as provided in Section 4, shall be deemed to be the record holder of such Common Stock for all purposes. 4. Delivery on Exercise; Penalty for Failure to Deliver. As soon as practicable, and in any event within three business days, after the exercise of this Warrant in full or in part, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Common Stock to which such holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current market value of one full share as determined in good faith by the Board of Directors. If the Company fails to fulfill its obligations under the previous sentence, and if, as a result, the holder of this Warrant is obligated to and does buy shares in the market to meet an obligation to deliver shares of the Common Stock, then the Company shall pay to the holder of this Warrant, as liquidated damages, the amount, if any, by which the cost of purchasing such shares in the market exceeds the net proceeds received by such holder from the sale of the shares which such holder anticipated receiving upon exercise of this Warrant. 5. Adjustment of Exercise Price and Number of Shares. The number and character of the shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) and the Exercise Price therefor, are subject to adjustment upon the occurrence of the following events: 5.1 Adjustment for Stock Splits, Stock Dividends, etc. The Exercise Price of this Warrant and the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, or similar event affecting the number of outstanding shares of Common Stock (or such other stock or securities). For example if there should be a two-for-one (2-for-1) stock split, the Exercise Price would be divided by two (2) and the number of shares that may be purchased pursuant hereto would be doubled. 5.2 Adjustment for Other Dividends and Distributions. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to the Common Stock (or any shares of stock or other securities at the time issuable upon exercise of the Warrant) payable in (i) securities of the Company (other than shares of Common Stock) or (ii) assets (excluding cash dividends paid or payable solely out of retained earnings), then in each case, the holder of this Warrant on exercise hereof at any time after the consummation, effective date or record date of 3 4 such event, shall receive, in addition to the Common Stock (or such other stock or securities) issuable on such exercise prior to such date, the securities or such other assets of the Company to which such holder would have been entitled upon such date if such holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 5.3 Adjustment for Reorganization, Consolidation, Merger, etc. In case of any consolidation or merger of the Company with or into any other corporation, entity or person, or any other corporate reorganization, other than an Acquisition, in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization (any such transaction being hereinafter referred to as a "Reorganization"), then, in each case, the holder of this Warrant, on exercise hereof at any time after the consummation or effective date of such Reorganization (the "Effective Date"), shall receive, in lieu of the Common Stock issuable on such exercise prior to the Effective Date, the stock and other securities and property (including cash) to which such holder would have been entitled upon the Effective Date if such holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). Nothing in this Section 5.3 shall limit the expiration provisions set forth in Section 1 hereof. 5.4 Reclassification or Recapitalization. If the Company's Common Stock (or any other shares of stock issuable at any time upon exercise of this Warrant) shall be changed into shares of any other class or series of the Company's stock, whether pursuant to reclassification, recapitalization or similar change, then the holder of this Warrant, upon exercise hereof, at any time after the effective date of such reclassification, recapitalization or similar event, shall receive, in lieu of the Common Stock issuable (or any other shares of stock then issuable upon exercise of this Warrant) on exercise immediately prior to such date, the stock and/or other securities and/or property to which such holder would have been entitled upon such date if such holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 5.5 Price-Based Anti-Dilution. The Exercise Price of this Warrant in effect at any time and the number of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of the following events: (a) In the event that the Company shall issue or sell any shares of Common Stock (except as provided in Section 5.5(d) hereof) for a consideration per share less than the Exercise Price in effect immediately prior to such issue or sale, then the Exercise Price, as of the date of such issue or sale, shall be reduced to such lesser price (calculated to the nearest cent) as shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to the issuance or sale of such additional shares and (ii) the number of shares of Common Stock which the aggregate consideration received for the issuance or sale of such additional shares would purchase at the Exercise Price then in effect, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after the issuance or sale of such additional shares. 4 5 (b) For the purposes of Section 5.5(a) above, the following subparagraphs (i) to (v), inclusive, shall be applicable: (i) If at any time the Company shall issue or sell any rights to subscribe for, or any rights or options to purchase, Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being hereinafter called "Convertible Securities"), whether or not such rights or options or the right to convert or exchange any such Convertible Securities shall be immediately excercisable, and the price per share for which Common Stock shall be issuable upon the exercise of such rights or options or upon conversion or exchange of such Convertible Securities (determined by dividing (1) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights or options, plus, in the case of any such rights or options which shall relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (2) the total number of shares of Common Stock issuable upon the exercise of such rights or options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options) shall be less than the Exercise Price in effect immediately prior to the time of the issue or sale of such rights or options then the total number of shares of Common Stock issuable upon the exercise of such rights or options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such rights or options shall (as of the date of granting of such rights or options) be deemed to be outstanding and to have been issued for such price per share, and except as provided in Section 5.5(c) no further adjustments of the Exercise Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities, upon the exercise of such rights or options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) If at any time the Company shall issue or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder shall be immediately exercisable, and the price per share for which Common Stock shall be issuable upon such 5 6 conversion or exchange (determined by dividing (1) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (2) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Exercise Price in effect immediately prior to the time of such issue or sale, then the total number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share, and, except as provided in paragraph Section 5.5(c) no further adjustments of the Exercise Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. In addition, if any issue or sale of such Convertible Securities shall be made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the Exercise Price shall have been or shall be made pursuant to other provisions of this Section 5.5(b), no further adjustment of the Exercise Price shall be made by reason of such issue or sale. (iii) If at any time any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions or discounts paid or allowed by the Company in connection therewith. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined by the Board of Directors, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions or discounts paid or allowed by the Company in connection therewith. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such 6 7 Common Stock or Convertible Securities shall be issued in connection with any merger of another corporation into the Company, the amount of consideration therefor shall be deemed to be the fair value of such merged corporation as determined by the Board of Directors reduced by all cash and other consideration (if any) paid by the Company in connection with such merger. (iv) If at any time the Company shall take a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock or in Convertible Securities, or (2) to subscribe for or purchase Common Stock or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (v) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, provided that such shares are neither issued, sold or otherwise distributed by the Company, (c) If the purchase or exercise price provided for in any right or option referred to in Section 5.5(b)(i), or the rate at which any Convertible Securities referred to in Section 5.5(b)(i) or (ii) shall be convertible into or exchangeable for Common Stock, shall change or a different purchase or exercise price or rate shall become effective at any time or from time to time, then, upon such change becoming effective, the Exercise Price then in effect hereunder shall forthwith be increased or decreased to such Exercise Price as would have been in effect had the adjustments made upon the granting or issuance of such rights or options or Convertible Securities been made upon the basis of (i) the issuance of the number of shares of Common Stock theretofore actually delivered upon the exercise of such options or rights or upon the conversion or exchange of such Convertible Securities consideration received therefor and (ii) the granting or issuance at the time of such change of any such options, rights or Convertible Securities then still outstanding for the consideration, if any, received by the Company therefor and to be received on the basis of such changed price. (d) The Company shall not be required to make any adjustment to the Exercise Price in the case of: (i) options or shares granted or issued pursuant to any employee incentive plan approved by the Company's Board of Directors as of the date hereof, including, without limitation, options currently outstanding or granted in the future under the 7 8 Company's 1996 Employee Stock Purchase Plan, 1996 Directors Stock Option Plan or 1996 Equity Incentive Plan. (ii) the issuance of shares of Common Stock pursuant to the exercise of any warrants or conversion of any convertible notes outstanding on the date hereof; (iii) the issuance of shares of Common Stock pursuant to the Common Stock and Warrant Purchase Agreement between the Company and the original holder of this Warrant; and (iv) the issuance of shares of Common Stock upon the exercise of any of the Warrants. (e) Whenever the Exercise Price payable upon exercise of this Warrant shall be adjusted pursuant to this Section 5.5, the number of shares purchasable upon exercise hereof simultaneously shall be adjusted by multiplying the number of shares issuable immediately prior to such adjustment by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price, as adjusted. 5.6 Certificate as to Adjustments. In case of any adjustment or readjustment in the number, price or kind of securities issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the holder of this Warrant in the form of a certificate, setting forth such adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. 6. Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Common Stock, free from all preemptive rights therein, which will be sufficient to permit the exercise of this Warrant, and (c) shall take all such action as may be necessary or appropriate in order that all shares of Common Stock as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. 7. Replacement of Warrants. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such 8 9 mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 8. Transfer. Subject to the transfer conditions referred to in the legend endorsed hereon, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof upon surrender of this Warrant with a properly executed assignment (in the form annexed hereto) at the principal office of the Company. Upon any partial transfer, the Company will at its expense issue and deliver to the holder hereof a new Warrant of like tenor, in the name of the holder hereof, which shall be exercisable for such number of shares of Common Stock which were not so transferred. 9. No Rights or Liability as a Shareholder. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. No provisions hereof, in the absence of affirmative action by the holder hereof to purchase Common Stock, and no enumeration herein of the rights or privileges of the holder hereof shall give rise to any liability of such holder as a shareholder of the Company. 10. Notices. (a) Prior to any merger, consolidation, sale of all or substantially all of the Company's assets, or any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend (excluding cash dividends paid or payable solely out of retained earnings), or other distribution, the Company will provide to the holder of this Warrant at least twenty (20) days prior to the closing of such event or the earliest record date specified therein, a notice specifying: (i) The date on which any such record is to be taken for the purpose of such dividend or distribution, and the amount and character of such dividend or distribution; or (ii) The expected closing date of any merger, consolidation or sale of assets, and that upon the closing of such event, this Warrant will automatically expire if not previously exercised. (b) All notices referred to in this Warrant shall be in writing and shall be delivered personally or by certified or registered mail, return receipt requested, postage prepaid or by Federal Express or other recognized express courier and will be deemed to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the holder of this Warrant, at such holder's address as it appears in the records of the Company (unless otherwise indicated by such holder). 11. Amendment. This Warrant is one of a series of Warrants providing for the purchase, in the aggregate, of up to 350,000 shares of the Company's Common Stock (the "Warrant Series"). The provisions of this Warrant may be amended and/or waived, either prospectively or retroactively, with the written approval of the Company and the holder(s) of Warrant(s) to purchase a majority of the shares of Common Stock purchasable upon exercise of 9 10 all of the outstanding Warrants in the Warrant Series. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any of the Warrants at the time outstanding and the Company. The Warrant(s) may only be amended in writing. 12. Miscellaneous. This Warrant is being delivered in the State of New York and shall be governed by and construed and enforced in accordance with the internal laws of the State of New York (without reference to any principles of the conflicts of laws). The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. 13. Entire Agreement. This Warrant, together with all attachments hereto, constitutes the entire understanding and agreement of the Company and the holder of this Warrant with respect to the subject matter hereof and supersedes all prior understandings and agreements with respect to such matters. Dated: December 28, 1998 VERSANT CORPORATION By: ____________________________________ Name: __________________________________ Title: _________________________________ [SIGNATURE PAGE TO WARRANT] 10 11 ATTACHMENT A TO WARRANT FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) To: VERSANT CORPORATION The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Warrant for, and to purchase thereunder, ___________* shares of Common Stock of VERSANT CORPORATION, and herewith makes payment of $___________ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______ _______________________ , whose address is ____________________________________. ___________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ___________________________________________ (Print Warrantholder Name) ___________________________________________ ___________________________________________ (Address) Dated: __________________ * Insert here the number of shares as to which the Warrant is being exercised. 11 12 ATTACHMENT B TO WARRANT FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto ______________ the right represented by the within Warrant to purchase shares of Common Stock of VERSANT CORPORATION, to which the within Warrant relates, and appoints __________________________ Attorney to transfer such right on the books of _________________________ with full power of substitution in the premises. ___________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ___________________________________________ (Print Warrantholder Name) ___________________________________________ ___________________________________________ (Address) Dated: ________________ 12 EX-10.35 10 SPECIAL SITUATIONS FUND REGISTRATION RIGHTS AGRMT 1 EXHIBIT 10.35 EXHIBIT D VERSANT CORPORATION REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made as of this 28th day of December, 1998, by and between Versant Corporation, a California corporation (the "Company") and the entities listed on Exhibit 1 attached hereto (each, a "Purchaser"), the purchasers of the Company's Common Stock and Warrants pursuant to that certain Common Stock and Warrant Purchase Agreement dated of even date herewith (the "Purchase Agreement"). 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the shares of the Company's Common Stock, no par value. 1.3 "Form S-3" shall mean Form S-3 promulgated by the Commission or any substantially similar form then in effect. 1.4 "Holder" shall mean any holder of record of Registrable Securities or any transferee or assignee of record of such Registrable Securities. 1.5 "Purchasers" shall mean collectively, the Purchasers, their assignees and transferees, and individually, a Purchaser and any transferee or assignee of such Purchaser. 1.6 The terms "Register," "Registered" and "Registration" refer to a registration effected by preparing and filing a registration statement ("Registration Statement") in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such Registration Statement. 1.7 "Registrable Securities" shall mean the Common Stock issued pursuant to the Purchase Agreement and issuable upon exercise of the Warrant (as defined in the Purchase Agreement), excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which the rights hereunder are not assigned in accordance with this Agreement, or any Registrable Securities sold to the public or sold pursuant to Rule 144 promulgated under the Securities Act. 2 1.8 "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2 and 3 hereof, including without limitation, all federal and state registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such Registration. 1.9 "Registration Termination Date" shall mean, with respect to any Registrable Securities, the earliest of (i) December 28, 2002, (ii) the date that such Registrable Securities shall have been Registered and sold or otherwise disposed of in accordance with the intended method of distribution by the seller or sellers thereof set forth in the registration statement covering such securities or transferred in compliance with Rule 144, and (iii) the date as of which the Company shall have notified the Holder, in writing, that it has determined that such Registrable Securities may be sold pursuant to paragraph (k) of Rule 144 (or any successor provision). The termination date specified in (i) above shall be extended for a period equal to the number of days, occurring after the effective date and prior to the termination date of the Registration Statement described in Section 2.1 below, during which a Holder's ability to resell its Registrable Securities under the Registration Statement is suspended pursuant to Section 2.4.3 hereof or otherwise. 1.10 "Rule 144" shall mean Rule 144 promulgated by the Commission pursuant to the Securities Act. 1.11 "Securities Act" shall mean the Securities Act of 1933, as amended. 1.12 "Shares" shall mean Common Stock. 1.13 "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement, together with the fees of any counsel to the selling shareholders. 2. S-3 Registration. 2.1 Registration. The Company covenants and agrees with the Purchaser that the Company will prepare and file with the Commission a Registration Statement on Form S-3 or other applicable form covering the Registrable Securities by April 7, 1999, and use its best efforts to have the Registration Statement declared effective as soon as possible thereafter. Such Registration Statement also may include other shares of the Company's Common Stock, in the Company's discretion. 2.2 Blue Sky. The Company will use its best efforts to Register and qualify the Registrable Securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders for the distribution of such securities; provided, however, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2 3 2.3 Expenses of Registration. All Registration Expenses incurred in connection with the Registration pursuant to Section 2 shall be borne by the Company. All Selling Expenses shall be borne by the persons who sell the Shares generating said Selling Expenses. 2.4 S-3 Registration Procedures. 2.4.1 Advice By Company. The Company will keep each Holder advised as to the initiation and completion of the Registration. At its expense the Company will (a) use its best efforts to keep any Registration pursuant to Section 2 effective until the Registration Termination Date and (b) furnish promptly to each Holder such number of copies of prospectuses (including preliminary prospectuses), and all amendments and supplements thereto, in conformity with the requirements of the Securities Act, and such other documents as any such Holder from time to time may reasonably request. 2.4.2 Amendments. The Company will prepare and file with the Commission such amendments and prospectus supplements, including post-effective amendments, to the Registration Statement filed pursuant to Section 2 as the Company determines may be necessary or appropriate, and use its best efforts to have such post-effective amendments declared effective as promptly as practicable; cause the related prospectus to be supplemented by any prospectus supplement, and as so supplemented, to be filed with the Commission; and notify the Holders and the underwriter thereof, if any, promptly when a prospectus, any prospectus supplement or post-effective amendment must be filed or has been filed and, with respect to any post-effective amendment, when the same has become effective. 2.4.3 Blackout Period. Notwithstanding any other provision hereof, the Company may delay the Holders' ability to resell Registrable Securities pursuant to the Registration Statement if the Company delivers a certificate in writing to the Holders to the effect that a delay in such sale is necessary because, in the good faith and reasonable judgment of the Company's Board of Directors, a sale pursuant to the Registration Statement would require the public disclosure of information that could have a significant adverse effect on the Company, or could constitute a violation of the federal securities laws. In such an event, the Company shall notify the Holders promptly after it is determined that such circumstances no longer exist. The Company shall not be entitled to delay the Holders' ability to resell Registrable Securities more than 45 days in any calendar year. 3. Piggyback Registrations. 3.1 Registration. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2 of this Agreement or to any employee benefit plan or a corporate reorganization pursuant to Rule 145 promulgated under the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by 3 4 such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within ten (10) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include any or all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. 3.2 Underwriting. If a registration statement under which the Company gives notice under this Section 3 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude Registrable Securities as it sees fit. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder", as defined in this sentence. 3.3 Expenses of Registration. All Registration Expenses incurred in connection with the Registration pursuant to Section 3 shall be borne by the Company. All Selling Expenses shall be borne by the persons who sell the Shares generating said Selling Expenses. 3.4 Registration Procedures. 3.4.1 Advice By Company. The Company will keep each Holder advised as to the initiation and completion of the Registration. At its expense the Company will furnish promptly to each Holder such number of copies of prospectuses (including preliminary prospectuses), and all amendments and supplements thereto, in conformity with the requirements of the Securities Act, and such other documents as any such Holder from time to time may reasonably request. 4 5 3.4.2 Amendments. The Company will prepare and file with the Commission such amendments and prospectus supplements, including post-effective amendments, to the Registration Statement filed pursuant to Section 3 as the Company determines may be necessary or appropriate, and use its appropriate efforts to have such post-effective amendments declared effective; cause the related prospectus to be supplemented by any prospectus supplement, and as so supplemented, to be filed with the Commission; and notify the Holders and the underwriter thereof, if any, promptly when a prospectus, any prospectus supplement or post-effective amendment must be filed or has been filed and, with respect to any post-effective amendment, when the same has become effective. 3.4.3 Blue Sky. The Company will use its best efforts to Register and qualify the Registrable Securities covered by the Registration Statement under such other securities or Blue Sky laws of such United States jurisdictions as shall be reasonably requested by the Holders for the distribution of such securities; provided, however, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 4. Information Furnished by Holder. It shall be a condition precedent to the Company's obligations under this Agreement as to any Holder that (i) such Holder furnish to the Company in writing such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request; and (ii) such Holder is not a securities market professional, i.e., a market maker, specialist, ordinary broker dealer, member of the National Association of Securities Dealers, Inc. or a registered representative thereof, or an affiliate of any of the foregoing. 5. Indemnification. 5.1 Company's Indemnification of Holders. The Company will indemnify each Holder, each of its officers, directors and constituent partners, and each person controlling such Holder, with respect to which Registration of Registrable Securities has been effected pursuant to this Agreement, and each underwriter thereof, if any, and each of its officers, directors, constituent partners, and each person who controls such underwriter, against all claims, losses, damages or liabilities (or actions in respect thereof) suffered or incurred by any of them, to the extent such claims, losses, damages or liabilities arise out of or are based upon any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or any related Registration Statement incident to any such Registration, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to actions or inaction required of the Company in connection with any such Registration; and the Company will reimburse each such Holder, each such underwriter and each person who controls any such Holder or underwriter, and each other indemnitee named above, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 5.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action 5 6 if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); and provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to the Company by such Holder, underwriter, controlling person or other indemnified person and stated to be for use in connection with the offering of securities of the Company. Notwithstanding the above, the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the Registration Statement becomes effective or a prospectus is filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to such person and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. 5.2 Holder's Indemnification of Company. Each Holder will indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's Shares covered by a Registration Statement, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other Holder, each of its officers, directors, and constituent partners and each person controlling such other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) suffered or incurred by any of them and arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in such Registration Statement or related prospectus, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of any rule or regulation promulgated under the Securities Act applicable to such Holder and relating to action or inaction required of such Holder in connection with the Registration of Securities pursuant to such Registration Statement; and will reimburse the Company, such other Holders, such directors, officers, partners, persons, underwriters and controlling persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement or prospectus in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use in connection with the offering of Shares of the Company; provided, however, that each Holder's liability under this Section 5.2 shall not exceed such Holder's proceeds from the offering of Shares made in connection with such Registration. 5.3 Indemnification Procedure. Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action which may give rise to a claim for indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 5, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such action, and shall be entitled to select counsel for the defense of such action with the approval of any parties entitled 6 7 to indemnification, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, the parties entitled to indemnification shall have the right to employ separate counsel (reasonably satisfactory to the indemnifying party) to participate in the defense thereof, but the fees and expenses of such counsel shall be the expense of such indemnified parties unless the named parties to such action or proceedings include both the indemnifying party and the indemnified parties and the indemnifying party or such indemnified parties shall have been advised by counsel that there are one or more legal defenses available to the indemnified parties which are different from or additional to those available to the indemnifying party (in which case, if the indemnified parties notify the indemnifying party in writing that they elect to employ separate counsel at the reasonable expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of the indemnified parties, it being understood, however, that the indemnifying party shall not be liable for the reasonable fees and expenses of more than one separate counsel at any time for all indemnified parties, whether under this agreement or otherwise). 5.4 Contribution. If the indemnification provided for in this Section 5 from an indemnifying party is unavailable to an indemnified party hereunder in respect to any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party and the parties' relative intent, knowledge, access to information supplied by such indemnifying party or indemnified party and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with the investigating or defending any action, suit, proceeding or claim. Notwithstanding anything to the contrary contained in this Section 5.4, the aggregate of the amount paid pursuant to this Section 5.4 and pursuant to Section 5.2 by a party that is a Holder shall not exceed such Holder's proceeds from the offering of Shares made in connection with the Registration that gives rise to Holder's liability. 6. Covenants of the Company. The Company agrees to: 6.1 Notice of Defect. Notify the Holders at any time when a prospectus relating to Registrable Securities covered by the Registration Statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The 7 8 Company shall promptly amend or supplement the Registration Statement to correct any such untrue statement or omission. 6.2 Notice of Stop Order. Notify the Holders of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. 6.3 Inspection. Make available for inspection by the Holders, and the counsel, accountants or other agents retained by the Holders, all pertinent financial and other records, corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holders in connection with the Registration, subject to appropriate confidentiality obligations. 6.4 Listing. If the Common Stock is then listed on a national securities exchange or national market system, use its best efforts to cause the Registrable Securities to be listed on such exchange or market system. 6.5. Assistance. Take all other reasonable actions necessary to expedite and facilitate disposition by the Holders of the Registrable Securities pursuant to the Registration Statement. 6.6 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the Commission that may at any time permit the Holders to sell securities of the Company to the public without registration, the Company agrees to: 6.6.1 for at least four years from the date hereof, make and keep public information available, as those terms are understood and defined in Rule 144; 6.6.2 for at least four years from the date hereof, file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities and Exchange Act of 1934 (the "1934 Act"); and 6.6.3 furnish to each Holder, so long as such Holder owns any Registrable Securities, forthwith upon written request (a) a written statement by the Company whether it has complied with the reporting requirements of Rule 144, the Securities Act and the 1934 Act, (b) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (c) such other information as may be reasonably requested in availing the Holders of any rule or regulation of the Commission which permits the selling of any such securities without registration. 8 9 7. Miscellaneous. 7.1 Notice. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered or sent by nationally recognized express courier, addressed (i) if to the Company, at Versant Corporation, 6539 Dumbarton Circle, Fremont, California 94555; Attention: Chief Executive Officer and (ii) if to a Purchaser, at the address set forth on Exhibit 1, or at such other address as each such party furnishes by notice given in accordance with this Section 7.1. 7.2 Amendment and Waiver. Any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and Holders representing at least a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 7.2 will be binding upon each Holder of Registrable Securities then outstanding, each future Holder of such securities and the Company. 7.3 Governing Law; Severability. This Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York, as such laws are applied by New York courts to agreements entered into and to be performed in New York by and between residents of New York. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. 7.4 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. 9 10 IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the date first written above. VERSANT CORPORATION SPECIAL SITUATIONS FUND III LP By:_______________________________ By::_______________________________ Name:_____________________________ Name::_____________________________ Title:____________________________ Title::____________________________ SPECIAL SITUATIONS CAYMAN LP SPECIAL SITUATIONS TECHNOLOGY FUND LP By:_______________________________ By::_______________________________ Name:_____________________________ Name::_____________________________ Title:____________________________ Title::____________________________ [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] 10 11 EXHIBIT 1 Special Situations Fund III LP 153 East 53rd Street 51st Floor New York, NY 10022 Special Situations Cayman LP 153 East 53rd Street 51st Floor New York, NY 10022 Special Situations Technology Fund LP 153 East 53rd Street 51st Floor New York, NY 10022 EX-21.01 11 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.01 SUBSIDIARIES OF THE REGISTRANT
Subsidiary and Name under which Subsidiary Does Business Jurisdiction of Incorporation - ------------------------ ----------------------------- Versant GmbH (Europe) Germany Versant SARL France Versant Ltd. United Kingdom Versant Pty Ltd. Australia Soft Mountain S.A. France Versant India India
EX-23.01 12 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-KSB into the Company's previously filed Registration Statements, File Nos. 333-08537 and 333-29947 (both filed on Form S-8). ARTHUR ANDERSEN LLP San Jose, California March 31, 1999 EX-27.01 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 3,564 0 6,213 335 0 10,760 13,605 6,224 20,669 14,063 0 0 0 45,727 (43,872) 20,669 23,233 23,233 0 9,739 32,719 0 (640) (19,917) 18 (19,935) 0 0 0 (19,935) (2.16) (2.16) For Purposes Of This Exhibit, Primary Means Basic.
-----END PRIVACY-ENHANCED MESSAGE-----