-----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, JWH32sqT0VVLWPc/yAqEgYAX69x5DKRqH61VKFwpPtSRRVoeZiiDLM+My6dxs+op 68A+zU24e+jBiCOvSD3oyw== 0000950149-00-000609.txt : 20000328 0000950149-00-000609.hdr.sgml : 20000328 ACCESSION NUMBER: 0000950149-00-000609 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENLIGHTEN SOFTWARE SOLUTIONS INC CENTRAL INDEX KEY: 0000919175 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943008888 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-23446 FILM NUMBER: 579407 BUSINESS ADDRESS: STREET 1: 999 BAKER WAY STE 390 CITY: SAN MATCO STATE: CA ZIP: 94404-1578 BUSINESS PHONE: 4155780700 FORMER COMPANY: FORMER CONFORMED NAME: SOFTWARE PROFESSIONALS INC DATE OF NAME CHANGE: 19940217 10KSB 1 FORM 10KSB 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-KSB ------------------------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-23446 ENLIGHTEN SOFTWARE SOLUTIONS, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) CALIFORNIA 94-3008888 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
999 BAKER WAY, FIFTH FLOOR, SAN MATEO, CALIFORNIA 94404 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (650) 578-0700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF EACH CLASS COMMON STOCK, NO PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's 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. [ ] The registrant's revenues for the fiscal year ended December 31, 1999 were $3,244,400. The approximate aggregate market value of the registrant's Common Stock held by non-affiliates on February 28, 2000 was $29,504,551. This amount excludes shares held by directors, executive officers and holders of 5% or more of the outstanding Common Stock since such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of common shares outstanding as of February 28, 2000 was 4,235,841. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive proxy statement for the 2000 Annual Meeting are incorporated by reference into Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I. ITEM 1. DESCRIPTION OF BUSINESS Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words "anticipates," "believes," "expects," "intends," "future" and similar expressions constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from historical results or those anticipated. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in "Management's Discussion and Analysis or Plan of Operations." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. OVERVIEW We provide software products that automate administrative tasks and monitor critical performance and operational characteristics for commercial servers and workstations. Our products provide a single console management view of customers' mixed technology environments consisting of Linux, Unix and Windows. Our products enable integrated, coordinated operations and management of networked and web based servers and workstations. Our products are designed for distributed computing environments in the range of ten to 1,000 servers and workstations. Our core product, the Enlighten(R) Distributed Systems Manager or EnlightenDSM(TM), allows companies to manage their mission critical servers and workstations by enabling information technology ("IT") staffs to standardize the management of diverse Linux, Unix and Windows systems and to monitor the on-going performance and availability of many different systems running together. Our software manages products from vendors such as Compaq Computer Corporation, Hewlett-Packard Company, International Business Machines Corporation ("IBM"), Intel Corporation ("Intel"), Microsoft Corporation, The Santa Cruz Operation, Inc., Silicon Graphics, Inc., Sun Microsystems, Inc. ("Sun"), Red Hat, Inc. ("Red Hat"), TurboLinux, Inc. ("TurboLinux"), Caldera Systems, Inc. and SuSE, Inc. Our award winning EnlightenDSM product suite is a fully integrated, cross-platform software solution. The key elements of our strategy include enabling the integration of Linux into the corporate environment, focusing on the mid-sized organization and departments of larger companies, adding timely effective manageability to web based application environments and distributing our products through third- party relationships such as software vendors, hardware vendors, Linux distributors, systems management service providers, and Linux appliance manufacturers. Enlighten Software Solutions, Inc. was incorporated in California in June 1986 as LAB, Inc. In June 1986, LAB, Inc. changed its name to Software Professionals, Inc. In May 1996, Software Professionals changed its name to Enlighten Software Solutions, Inc. Unless the context otherwise requires, any reference to "Enlighten," "we," "our" and "us" in this Annual Report on Form 10-KSB refers to Enlighten Software Solutions, Inc., a California corporation, and its subsidiaries and predecessors. Enlighten's principal executive offices are located at 999 Baker Way, Fifth Floor, San Mateo, California 94404. Enlighten's telephone number is (650) 578-0700 and its facsimile number is (650) 578-0118. RECENT DEVELOPMENTS FOR ENLIGHTEN In 1999, we continued adding OEM partners and introduced versions of our EnlightenDSM product for certain distributions of the Linux open source operating system. Linux is a free, open source alternative to proprietary Unix operating systems. The Linux operating system is bundled with complimentary products, packaged, sold and supported by many different companies. These products are commonly known as Linux distributions. During 1999, we released version 3.4 of our product which operates on the Linux operating systems distributed by Red Hat, Inc. and TurboLinux, Inc., entered into an agreement with Intel to incorporate the Linux version of our technology into Intel's LANDesk(R) product for its System Management Division, entered into an agreement with IBM for IBM to integrate the EnlightenDSM product into IBM Suites for Solaris and AIX and entered into an agreement with Sun to produce a seamless integration between 2 3 a unique product made up of certain administrative portions of the EnlightenDSM product and Sun's Management Center products, (formerly Sun Enterprise SyMON). With version 3.4, EnlightenDSM allowed event monitoring and system management across each of the major Unix operating systems, Windows NT/98/95 and the rapidly expanding Linux operating system. Key Management Changes Mr. Bill Bradley was promoted to Chief Executive Officer in December 1999 after joining Enlighten in August, 1998 as Vice President of Business Development and in September 1999 becoming President and Chief Operating Officer. Mr. Bradley possesses over twenty years of sales, marketing and management experience. His emphasis has been high-technology, particularly in the area of new business development. From October 1997 through August 1998, Mr. Bradley served as a consultant to Enlighten focusing on business development, strategic planning and marketing. Mr. Bradley served as President of Design Technology, Inc., a software design and consulting firm in Denver, Colorado, from July 1995 through October 1997. He started his career at IBM in the Data Processing Division and is a graduate of Colorado College. Mr. Bradley replaced David D. Parker as President and CEO, who held those positions since 1997. Mr. Parker, a Director of Enlighten, was named Co-Chairman of the Board of Directors. Additionally, Mr. Parker will continue to serve in various marketing roles with Enlighten. Mr. Stephen Giusti was promoted to Vice President, Finance and Administration and Chief Financial Officer in December 1999 after joining Enlighten in August 1999 as Controller. From January 1998 to August 1999, Mr. Giusti served as Accounting and Financial Reporting Supervisor at Cadence Design Systems, Inc. From January 1991 to December 1997, Mr. Giusti served various positions at the public accounting firm of Meredith, Cardozo, and Lanz, LLP, most recently as Manager. Mr. Giusti is a Certified Public Accountant in the State of California. Mr. Giusti replaced Michael A. Morgan as Vice President and CFO, who held those positions since 1991. Mr. Morgan remains a Director and Secretary of Enlighten. OEM Bundling Agreements In October 1999, we entered into an agreement with Intel Corporation to integrate the Linux version of the EnlightenDSM product into Intel's LANDesk(R) Server Manager product. The LANDesk(R) Server Manager can be fully integrated into Intel's LANDesk(R) Management Suite, the industry-leading system management tool for Microsoft and Novell networks. Under this agreement, we will receive a certain percent of the license revenues Intel records from the sale of each copy of LANDesk(R) Server Manager for Linux shipped by Intel or its resellers. In August 1999, we entered into an agreement with TurboLinux, Inc., in which TurboLinux will bundle a single user copy of the EnlightenDSM product with each copy of TurboLinux's workstation, server and TurboCluster Linux distributions. Under this agreement, we will receive a certain amount for each unit of EnlightenDSM shipped with revenue-generating versions of TurboLinux's Linux distribution, up to a certain percent of these revenues. In January 1999, we entered into an agreement with International Business Machines, Inc. ("IBM") to integrate the EnlightenDSM product into IBM Suites for Solaris and AIX. Under this agreement, we will receive a fixed percentage of the total IBM Suites for Solaris and IBM Suites for AIX revenues. Other OEM Developments In January 1999, we entered into an agreement with Sun Microsystems, Inc. to produce a product that will seamlessly integrate into the Sun Management Center (formerly Sun Enterprise SyMON). We will sell this product directly to Sun's Sun Management Center customers and will add certain administrative tools from the EnlightenDSM product to complement the existing event monitoring software that is the Sun Management Center product. Under this agreement, we will also work with Sun to cooperatively market our complementary administrative product to Sun Management Center customers. 3 4 INDUSTRY BACKGROUND The most dynamic changes in the industry continue to be in the market consisting of networked computer systems comprised of servers and workstations. These computer systems have traditionally been based upon Unix and NT operating systems. In the last year Linux has moved in to compete with the growth of these existing systems. At the same time many companies are increasingly using these servers and their associated workstations for more time sensitive or mission critical applications that are integral to the organization's day-to-day operations. This trend is being accelerated by the increased use of the Internet between businesses, between businesses and customers and within companies to automate and communicate more efficiently. In more and more cases today the Internet and the web-based applications that companies build to exploit it are the business itself. Taken together, customers face the addition of Linux to the already complex mix of many flavors of Unix and Windows and the increased need for immediate, flexible and easy to use computing solutions that provide business benefits quickly. The Linux Operating System and the accelerated adoption of this platform in customer IT departments are of high interest to Enlighten. Linux is an Open Source operating system meaning that it is both free to download from the Internet and open to modification and enhancement by users and other interested parties. Linux is interesting because, according to International Data Corporation, it has a growth rate twice that of traditional Unix and Windows systems yet it lacks the sophisticated tools and utilities for management and instrumentation that accompany traditional commercial products. Native Linux management tools typically address the management of a single Linux machine one at a time and do not address the management of Linux, Unix and Windows networks that need to function collectively. Commercial adoption of Linux is being promoted by companies such as Red Hat, SuSE, TurboLinux, VA Linux, Linuxcare, Silicon Graphics, IBM and others. The commercial providers of Linux fall into three primary categories. The first is Linux Distributors. These companies take the freely available Linux operating system and package it with enhancements that add commercial value and make it easier to install and use. The second is Linux Service Providers. These companies sell installation, customization, development and ongoing support services that relate to and depend on Linux. The third is Linux Solution Providers that combine the Linux operating system with other hardware or software components to provide a turnkey solution. As an alternative to traditional Unix operating systems, Linux systems have potential to provide robust, reliable and scalable commercial computing performance at a much lower price point. Working in the same environment, Unix and Linux comprise the open systems marketplace that offers several benefits to customers, such as common standards, allowing for combinations of hardware and software from a variety of vendors. Other benefits include lower price points than mainframes, cost effective networking and a large pool of experienced technical personnel. However, managing the operations of large client/server systems or massive rack mounted servers in an Internet Service Provider ("ISP") or Application Service Provider ("ASP") environment can be difficult and labor intensive. As corporate customers build mission critical applications and Internet based relationships on distributed Linux, Unix and NT systems, they are demanding sophisticated yet quick and easy to deploy management and administration tools. The diversity of systems and applications has increased significantly in recent years. The introduction and proliferation of the Linux operating system into existing Unix and NT environments, the increased scope of applications from core business transactional software to decision support, groupware and Internet/Intranet products, and the advancement of requirements of a centralized information technology, or IT, department to manage systems in remote physical locations has greatly expanded the systems management expertise required within IT organizations of these companies. Additionally, an inherent characteristic of open systems is a lack of complete integration of the various vendors' products. The development of standards such as Simple Network Management Protocol, or SNMP, the leading protocol for network management and the leading standard for information collection in multi-vendor computing environments, provide a standard framework for systems management products in open environments, but these standards must be integrated and managed. Many hardware manufacturers have been slow to provide effective multi-vendor solutions to manage their own, let alone their competitor's hardware, creating a market need for truly heterogeneous system administration solutions. 4 5 While open systems have produced significant advantages, the management of distributed, heterogeneous open systems presents a major challenge. Add to that the increased demands to reduce time to deployment and time to market that are imposed by the Internet and web based applications and businesses face the prospect of managing increasingly complex networks of resources with less time and skill to make them productive and keep them available. The responsibility for managing these open systems has become the domain of technicians who typically use limited system utilities and historically prefer "home grown" routines and manual procedures. The market needs of open systems customers are currently being addressed either through manual procedures and routines of a company's internal IT organization, or by one of three types of solutions: (i) point products, or stand-alone products designed to address one particular function or requirement; (ii) interfaced products, or a set of point products loosely coupled by a common interface but not truly integrated; and (iii) enterprise systems management frameworks, or large monolithic products designed to manage a customer's entire computing infrastructure from mainframe systems, to Unix/NT/Linux systems, to desktop PCs. Many products serving this market were developed by porting dated mainframe technology and architecture to the Unix environment. These solutions are typically expensive to acquire and implement due to the extensive efforts associated with installing and configuring these products to a customer's particular environment. THE ENLIGHTEN SOFTWARE SOLUTION We offer a middle-tier framework for event monitoring and systems administration for Linux, Unix and Windows environments. Our products are suited for quick, effective implementation to provide a management infrastructure that matches today's needs for immediate, flexible solutions in the Internet business environment. Our mission is to provide the industry's most pervasive software solutions to help enterprises monitor, manage and administer distributed, heterogeneous computers simply and inexpensively. We intend to be a market leader for easy to use, out-of-the-box, broad-based functionality for event monitoring and systems administration across major open systems platforms. While numerous standards are being introduced and companies are vying to position themselves in the open systems management market, we are positioning our EnlightenDSM product suite as the one product that is vital and affordable to open systems managers in mixed Linux, Unix and Windows environments. Our systems management solution differentiates itself from other companies' systems management approaches. We believe that systems managers demand management tools that are simple to use, easy to install, scalable and customizable, intuitive to learn and reasonably priced. The EnlightenDSM product suite is targeted to the broadest segment of the open systems market: customers with ten to 1,000 servers and workstations from a variety of the most popular vendors. We believe the product's key strengths that address the needs of this market niche are: - Ease of Use: EnlightenDSM is designed to be easily installed and configured. The product is installed and managed from a graphical window. Graphical templates drive the deployment and initial configuration of the product and provide the interface for ongoing monitoring and management once installed. EnlightenDSM adapts its management to the native protocols and storage schemes of each supported platform. This easy to use interface standardizes complex, proprietary rules and procedures between various server vendors. - Time to Deployment and ROI: EnlightenDSM installs and begins operating in hours and can be fully configured with customized event alarms and thresholds and integration with other third-party products in weeks. Return On Investment associated with deployment of systems management begins very early, giving customers immediate benefit. Customers benefit from greater productivity of their professional IT staff because of single-console, graphical management of the entire networked environment. Customers also achieve higher availability of all managed servers and workstations because EnlightenDSM monitors critical operating parameters and will alert operators or take automatic corrective action when necessary. 5 6 - Broad Functionality: EnlightenDSM addresses a broad range of system monitoring and administration needs, alleviating the customer from the need to make a series of investments in "point" product solutions. EnlightenDSM provides a common interface for an integrated product that addresses (i) user account configuration, (ii) printer resource management, (iii) network services configuration and management, (iv) security auditing, (v) disk and file management, (vi) archive management, (vi) systems management and (vii) event generation and monitoring. - Price Performance: We believe our product is generally priced below comparable point products in the market, as well as enterprise framework products. - Open Architecture: EnlightenDSM is based on an architecture which is designed to be easily integrated with most existing point solutions as well as solutions developed by customers internally. The product is also designed to communicate "up" to the enterprise framework products with event mechanisms or easy-to-write scripts in the product's Programmable Event Processor ("PEP"). EnlightenDSM uses Structured Query Language ("SQL") with any Open Database Connectivity ("ODBC") databases and SNMP. The product can operate as an integral part of an enterprise management environment in a larger customer environment, or as the focal point of administration and management in a smaller customer environment, or in divisions/sites of a larger customer environment. EnlightenDSM is scalable to large networks and supports the day-to-day operational requirements of networked systems, such as adding users and nodes, reconfiguring system processes, managing disk storage and managing Internet/Intranet users. We believe our product suite is affordably priced, scalable to match customer needs, designed to install quickly for most configurations, and will integrate with other system console and network administration products, such as those offered by Tivoli, CA Unicenter, Remedy and many others. STRATEGY The following discussion regarding our response to the systems management market and our product and marketing strategy contains forward-looking statements and actual results may vary substantially depending upon a variety of factors, including, but not limited to, the development of emerging markets for systems management and administration software, competition, technological change, changing customer needs, evolving industry standards, any product development delays and our ability to manage future growth and new distribution channels, if any. These and other factors are more fully discussed under the caption "Factors That May Affect Future Results" on page 18. Our objective is to become a market leader in integrated open systems event monitoring and systems administration. To achieve this objective, we have adopted a business strategy incorporating the following elements: The integration of Linux into the corporate environment The management tools and utilities available for the Linux operating system are designed for single machine management only and are typically shareware or freeware that address only one aspect of systems management. In addition, native Linux management tools address Linux platforms only and thus are not beneficial to the existing Unix and Windows environments found at our typical customers. Because our EnlightenDSM product is cross-platform and addresses a broad range of system management and administration needs, IT managers can easily integrate Linux servers and workstations into their corporate environment and use the same tool for a single-console view of the Linux, Unix and Windows systems in their enterprise. These tools enable users to manage resources in a scalable way and enable the further commercialization of Linux in the business environment. Focus on the "under-served" market We believe that most of the products in the enterprise systems management market are currently focused toward Fortune 500 companies that possess the resources necessary to implement a monolithic enterprise-wide 6 7 systems management solution. Mid-sized companies, and smaller sites or departments of larger companies cannot effectively and efficiently implement these solutions. Additionally, these customers require less intrusive, more cost-effective means to manage their Linux, Unix and Windows systems. We believe there are very few products to assist these organizations in managing and monitoring their open systems networks. Our focus for our Linux, Unix and Windows products is this under-served market, defined as sites with ten to 1,000 Linux, Unix or Windows workstations or servers without a large mainframe presence. We feel our low-cost, easy-to-use, non-intrusive workgroup administration and systems monitoring solution is the most effective tool for these companies. Penetrate the market primarily through third-party relationships Our sales and marketing focus is primarily through indirect sales and partner relationships. We have entered into OEM bundling or technology agreements with Silicon Graphics, IBM, Sun, TurboLinux and Intel. Our product architecture and the design, price point and ease of use of the EnlightenDSM product allow it to be effectively bundled with a hardware manufacturer's operating system, integrated into a software vendor's offering, or bundled with a Linux distribution. These relationships are allowing us to penetrate different markets by proliferating our product and technology on thousands of systems. We intend to continue to pursue additional partnering relationships and intend to focus our sales and marketing efforts on the following: - Systems Management and Other Software Application Vendors: We believe our product suite is complementary with several software vendors' applications. EnlightenDSM's architecture is designed to allow integration with other third-party software products with minimal engineering requirements. We intend to pursue relationships with software companies providing systems management, web monitoring and management, clustering, help desk software and other "customer care" applications with which our product could be integrated and sold as a combined solution. - Linux Distributors: Linux distributors can use the same management tools and appreciate the value that EnlightenDSM offers. All of the distributors of Linux share the same base operating system with its need for enhanced management and integration to the existing Unix and Windows environment. - Systems Management Service Providers: We believe that our product suite can be effectively used by third party Linux and Unix systems management consulting and outsourcing service providers to remotely monitor and administer their customers IT infrastructure without those customers having to use their valuable resources on critical corrective issues or mundane administrative functions. We intend to pursue relationships with service providers where our product can be used to increase the quality and efficiency in managing heterogeneous open systems environments. - Linux Hardware and Appliance Manufacturers: We believe that Linux hardware and appliance manufacturers lack effective systems management solutions. A Linux appliance is a hardware device bundled with the Linux operating system and dedicated to a specific purpose. As the competition for this hardware increases and price points drop, we feel these manufacturers will need to add value through the ability to offer solutions to customers that provide lower cost of ownership through ease of use, administration and networked integration for their systems. - Selected End-Users: Our primary focus is to market and distribute our product through indirect channels. However, we maintain a small direct sales force focused on select opportunities where we can provide value through stronger, more dedicated customer relationships. PRODUCTS We offer software products designed to automate the management and administration of computer systems. Set forth below is a summary of our principal product offerings. In the fast-paced Linux/Unix/Windows environment, millions of new computers are being deployed annually. All system administrators must learn to manage networks in which users are added on a regular and continuous basis. The tools these system administrators need to effectively perform their jobs should be 7 8 simple, easy to implement and intuitive; not complex, rules-based systems management software. Our customers routinely use our products to add and manage users in mixed environments from a single, template driven interface to all machines at the same time. In December 1994, we acquired core technology for Unix systems administration products and released two complementary Unix products in the second quarter of 1995. The features of these two products were combined in EnlightenDSM version 2.0, which was released in May 1996. This product was further updated to version 3.2 in 1999 and, in October 1999, we released version 3.4 of EnlightenDSM for Linux distributed by TurboLinux and Red Hat. EnlightenDSM is a standards-based, multi-function management system covering the following disciplines: user administration, file system management, Internet/Intranet management, printer management, security checking, archiving, subsystem monitoring, event generation/tracking and other system functions. EnlightenDSM runs on a variety of open systems computer platforms, including Red Hat Linux, TurboLinux Linux, HP/UX, SUN/Solaris, IBM/AIX, Intel and AMD X86 families, Silicon Graphics/IRIX, Compaq True64 and Microsoft Windows 2000/NT/98/95. Cross-platform functionality enables the management of diverse and distributed systems from a centralized console. EnlightenDSM automatically collects and saves status, configuration, performance and capacity information and makes it available for monitoring by most commercial SNMP managers. The product monitors system resources including peripheral devices, processes, resources and services. Thresholds can be set to generate alarms that warn users of an error or problem about to occur. For example, in some cases our customers use the product to monitor the status of business critical Oracle database servers. The EnlightenDSM product can be programmed to automatically take corrective action and/or provide immediate notification to operators before critical events escalate to cause significant problems. EnlightenDSM monitors and reports changes in system inventory and can track the addition or removal of memory, disk drives, tape drives and other devices, thereby reducing costly downtime and improving system performance. SALES AND DISTRIBUTION Our revenues are derived from three sources: product license fees, product maintenance fees and consulting services. Product license fees During 1999, we marketed our products through a direct field sales force and third-party distributors. Our products were marketed throughout North America, Europe and parts of the Pacific Rim by our product sales organization located at our headquarters in San Mateo, California as well as through our regional field sales office in Denver, Colorado and through independent distributors. Additionally, in November 1999, we launched our Internet e-commerce site which allows customers to purchase and download certain EnlightenDSM products. Product license fees in 1999 consisted primarily of revenue from the granting of perpetual licenses and from the licensing of product upgrades necessary when customers upgrade their system hardware. Revenue from end-user licenses is payable in full at the commencement of the license period and is recognized after all of the following events have occurred: (i) a product evaluation has been shipped to the customer; (ii) the customer elects to purchase the software following an evaluation period; and (iii) the customer signs the related contract. Product license fees represented 55% and 64% of total revenue in 1999 and 1998, respectively. We continue to build our sales, marketing and customer support organizations with a focus on delivery of our products to OEM partners, resellers, system integrators and select end-users. An essential element of our sales and marketing strategy is indirect distribution channels, such as OEMs, ISVs and VARs, as well as other systems management and application software vendors whose products are complementary with ours. In January 1998, we established our first OEM relationship with Silicon Graphics to bundle a subset of features of the EnlightenDSM product with each server and workstation that SGI ships. Since that first agreement, we have entered into agreements with four additional OEM's. In December 1998, we entered into 8 9 an agreement with Sun to produce a product that will seamlessly integrate into the Sun Management Center product (formerly Sun Enterprise SyMON). In January 1999, we agreed with IBM to integrate the EnlightenDSM product into IBM Suites for Solaris and AIX. In August 1999, we entered into an agreement with TurboLinux in which TurboLinux will bundle a single user copy of the EnlightenDSM product with each copy of TurboLinux's workstation, server and TurboCluster Linux distributions. In October 1999, we entered into an agreement with Intel to integrate a subset of the Linux version of the EnlightenDSM product into Intel's LANDesk(R) Server Manager product for Linux shipped by Intel or its resellers. We are currently investing, and intend to continue to invest, significant resources to develop the OEM, ISV and VAR channels. Our efforts to expand our third-party channels are intended to penetrate the market and achieve widespread commercial acceptance of our products as a workgroup administration standard. There can be no assurance that we will be successful in our efforts to increase the revenues represented by this channel. We will be dependent upon these third-party relationships for a significant portion of our revenue for the foreseeable future. There is no assurance that our third-party distributors will effectively distribute and exploit our products. The inability to recruit additional third parties to distribute, market and support our products could have a material adverse affect on our business, operating results and financial condition. A more detailed discussion of these and other risks associated with our business is set forth under the caption "Factors That May Affect Future Results" on page 18 of this report. Product maintenance fees All customers subscribing to our maintenance service agreements are entitled to receive (i) technical support and consultation, primarily over the telephone, and (ii) subsequent product enhancement and maintenance releases we periodically produce. Product maintenance support is provided directly to customers as well as through our authorized distributors. As part of the business model to market through indirect channels, we provide training and education for our third-party distributors to insure technical proficiency with our products and technology. Product maintenance fees consist of all maintenance revenue on new and existing installed software products. We generally charge end users, on an annual basis, for telephone support, product updates and product enhancements. OEM, partner and distributor maintenance is negotiated separately. Product maintenance revenue is recognized ratably over the maintenance contract period (typically one year). Product maintenance fees accounted for 20% and 17% of total revenue in 1999 and 1998, respectively. Consulting services Revenue from consulting services consists of fees charged for contract services, product training and other service activities. This division of our technical support organization provides fee-based consulting services to our customers throughout the United States. Consulting service revenue is recognized when services are performed for time and material contracts and on a percentage of completion basis for fixed price contracts. Consulting services represented 17% and 7% of total revenue in 1999 and 1998, respectively. PRODUCT DEVELOPMENT The computer software industry is characterized by rapid technological change and is highly competitive in regard to timely product innovation. Accordingly, we believe that our future success depends on our ability to enhance current products that meet a wide range of customer needs and to develop new products rapidly to attract new customers and provide additional solutions to existing customers. In particular, we believe we must continue to respond quickly to users' needs for broad functionality and open systems support. We address the needs of current users through regularly scheduled maintenance and enhancement releases. At the same time, we seek to acquire and develop new products to meet the needs of a broader group of users. We provide an integrated workgroup administration and systems management product for open systems currently running on two different Linux distributions, six different Unix-based systems and Microsoft 9 10 Windows 2000/NT/98/95. The EnlightenDSM product consists of the following features: user administration, file system management, Internet/Intranet management, printer management, security checking, archiving, subsystem monitoring and event generation/tracking. Our strategy is to continue to enhance EnlightenDSM's functionality through new releases and new feature development to meet the continually advancing systems administration and management requirements of our customers, including: - increased scalability and performance; - increased integration with other systems management point solutions as well as other enterprise systems management frameworks; - increased levels of automation and ease of use to further reduce administrative costs and overhead; - increased range of supported platforms; and - continued customization for our current and new third-party distributors. There can be no assurance that we will be successful in developing and marketing new features or products that respond to technological change or evolving industry standards, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of any new features or products, or that our new features or products will adequately meet the requirements of the marketplace and achieve market acceptance. Additionally, our product development staff will be under increased pressure as our products are deployed on a significantly greater number and variety of machines by virtue of the Silicon Graphics, IBM, TurboLinux and Intel bundling relationships (or other additional third-party relationships, if any). Due to the complexity of the product and the large number of network configurations in the market, it is extremely difficult to fully test EnlightenDSM in all possible environments and, although we employ a continual effort to assure a quality product, there is no assurance that errors will not be found in the released commercial product resulting in delays of new feature development. If we are unable, due to lack of resources or for technological or other reasons, to develop and introduce new features and 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. See "Factors That May Affect Future Results" on page 18 of this report. As of December 31, 1999, we had twelve (12) professional and technical employees engaged in research and development. During the fiscal years ended December 31, 1999 and 1998, our research and development expenditures were $1,764,300 and $1,692,000, respectively. COMPETITION The systems management market in which we compete is intensely competitive, highly fragmented and rapidly changing. In order to compete, we must enhance our current products, enhance the interoperability of our products with other products, management frameworks and operating systems through a truly open architecture, develop new products in a timely fashion and develop key strategic partnerships with other hardware and software vendors. Many of our competitors in the open systems markets are larger and have greater financial, technical, marketing and other resources than Enlighten. Because there are relatively low barriers to entry in the software market, we expect additional competition from other established and emerging companies. Increased competition is likely to result in price reductions, reduced gross margins and increased difficulty in establishing market share, any of which could have a material adverse affect on our business, operating results and financial condition. See "Factors That May Affect Future Results" on page 18 of this report. Our principal competition in the market for open systems workgroup administration and system management products is from enterprise systems management vendors such as Tivoli, a wholly-owned subsidiary of IBM, and Computer Associates, as well as point products from BMC Software, Inc., Platinum Technologies, Inc., Veritas Software, Inc. and Legato Systems, Inc. We also face competition from internal development groups of prospective end-user customers and OEMs, including operating system vendors, many 10 11 of which have substantial internal programming resources and are capable of developing specific operating system level products for their own needs. In addition, certain operating systems vendors have already incorporated systems management capabilities into their operating system, including HP, Sun, IBM and Microsoft, which reduces such vendors' need for our products. Additional hardware manufacturers may elect to offer similar competitive products in the future. Given our size and the advantages our competition enjoys with respect to size and resources, there can be no assurances we can effectively compete in this market. PRODUCT PROTECTION We rely on a combination of copyright, trade secret and trademark laws and software security measures, along with employee and third-party nondisclosure agreements, to protect our intellectual property rights, products and technology. Our products are typically licensed on a "right to use" basis pursuant to perpetual licenses that restrict the use of the products to the customer's internal purposes. We distribute our software under license agreements that are signed by our end-users. Despite our precautions taken to protect our software, unauthorized parties may attempt to reverse engineer, copy, or obtain and use information we regard as proprietary. Policing unauthorized use of our products is difficult and software piracy is expected to be a persistent problem. Additionally, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. We have entered into source code escrow agreements with some of our customers that require the release of source code to the customer in the event there is a bankruptcy proceeding by or against us, we ceases to do business, or we are unable to fulfill our contractual obligations with respect to support. In the event of a release of the source code, the customer is required to maintain their confidentiality and, in general, to use the source code solely for the purpose of maintaining the software's usability. The provision of source code may increase the likelihood of misappropriation or other misuse of our intellectual property. We are not aware that our products, trademarks, or other proprietary rights infringe the proprietary rights of third parties. However, from time to time, we receive notices from third parties asserting that we have infringed their patents or other intellectual property rights. In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any such claims could be time-consuming, result in costly litigation, cause product shipment delays or lead us to enter into royalty or licensing agreements rather than disputing the merits of such claims. As the number of software products in the industry increases and the functionality of such products further overlap, we believe that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend. An adverse outcome in litigation or similar proceedings could subject us to significant liabilities to third parties, require expenditure of significant resources to develop non-infringing technology, require disputed rights to be licensed from others, or require us to cease the marketing or use of certain products, any of which could have a material adverse effect on our business, operating results and financial condition. See "Factors That May Affect Future Results" on page 18 of this report. EMPLOYEES As of December 31, 1999, we employed 26 people. Of these employees, 13 were engaged in product development, 9 in sales, marketing and customer support and 4 in finance and other administrative departments. We believe our future success depends in large part upon the continued service of our key technical and senior management personnel and our ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense, as certain of these personnel have significant prior industry experience and are in great demand. There can be no assurance that we can retain our key technical and managerial employees or that we can attract, assimilate or retain other highly qualified technical and managerial personnel in the future. None of our employees are subject to any collective bargaining agreements. Each of our employees have executed an agreement not to disclose trade secrets or other confidential information. We believe our employee relations are good. 11 12 ITEM 2. DESCRIPTION OF PROPERTIES Enlighten leases approximately 17,000 square feet of office space in San Mateo, California under a lease which expires in March 2001 and leases a sales and support office in Denver, Colorado under a lease which expires in August 2000. Enlighten believes that its current facilities are adequate for its needs through 2000 and for the foreseeable future and should additional space be needed, it will be available to accommodate the expansion of Enlighten's operations on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS Enlighten is subject to certain legal actions that have arisen in the ordinary course of business. Management believes that the ultimate outcome of these actions will not have a material affect on Enlighten's consolidated financial statements or results of operations, although there can be no assurance as to the outcome of such litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 12 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Since October 23, 1998, Enlighten's Common Stock has been traded on the Nasdaq SmallCap Market under the symbol "SFTW." Prior to such time, Enlighten's Common Stock was traded on the Nasdaq National Market. As of December 31, 1999, there were 36 record holders of the Company's Common Stock. As of the same date, 4,217,978 shares of Common Stock were outstanding and 10,000,000 shares of Common Stock were authorized. The following table sets forth, for the periods indicated, the high and low sale prices per share of Common Stock on the Nasdaq National Market or the Nasdaq SmallCap Market, as applicable:
HIGH LOW ------ ----- 1998 Quarter Ended: March 31, 1998............................................ $ 5.25 $3.00 June 30, 1998............................................. $ 4.50 $2.75 September 30, 1998........................................ $ 3.69 $2.13 December 31, 1998......................................... $ 3.81 $1.91 1999 Quarter Ended: March 31, 1999............................................ $ 4.13 $2.13 June 30, 1999............................................. $ 4.38 $2.56 September 30, 1999........................................ $ 4.00 $2.81 December 31, 1999......................................... $12.75 $2.75
DIVIDEND POLICY Enlighten has never paid cash dividends and does not anticipate paying cash dividends in the foreseeable future. Enlighten anticipates that it will retain earnings, if any, for future growth and expansion of its business. 13 14 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION You should read the following discussion and analysis in conjunction with our financial statements and the notes thereto included elsewhere herein. Except for historical information contained herein, the following discussion contains forward-looking statements based on current expectations that involve certain risks and uncertainties. Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language. Our actual results could differ materially from those discussed herein. Factors that could cause actual results or performance to differ materially or contribute to such differences include, but are not limited to, those discussed below in "Factors That May Affect Future Results," "Disclosures about Market Risk," and "Liquidity and Capital Resources." OVERVIEW Enlighten Software Solutions, Inc. or Enlighten(R) develops, markets, and supports event monitoring and workgroup administration software products. Our product solutions are designed for open systems distributed computing environments in the range of ten to 1,000 servers and clients. Our Enlighten Distributed Systems Manager ("EnlightenDSM(TM)") product allows companies to manage their information systems by enabling systems managers and administrators to control their systems from diverse Linux, Unix and Windows platform vendors such as Compaq Computers Corporation, Hewlett-Packard Company, International Business Machines Corporation ("IBM"), Intel Corporation ("Intel"), Microsoft Corporation, The Santa Cruz Operation, Inc., Silicon Graphics, Inc., Sun Microsystems, Inc. ("Sun"), Red Hat, Inc. ("Red Hat"), and TurboLinux, Inc ("TurboLinux"). Our award winning EnlightenDSM product suite is a fully integrated, cross-platform software solution providing a middle-tier framework that is a standards-based multi-function management system covering the breadth of workgroup administration and systems management disciplines. Our objective is to become a market leader in integrated open systems workgroup administration and systems management. Founded in 1986, we were a leading provider of systems management software on the Tandem platform, providing a range of automated systems management products to over 400 companies in 30 countries. In October 1997, we sold our Tandem product line to New Dimension Software, Inc. (since purchased by BMC Software, Inc.) in order to focus our efforts on our UNIX and Windows product suite. Following the disposition of our Tandem product line, we shifted our sales strategy to one based primarily upon third-party distributors and restructured our sales department as a result of this shift. We continue to build our sales, marketing, and customer support organizations with a focus on delivery of our products to original equipment manufacturer ("OEM") partners, resellers, system integrators, and select end-users. An essential element of our sales and marketing strategy is the development of indirect distribution channels, such as OEMs, independent software vendors ("ISVs"), and value added resellers ("VARs"), as well as other systems management and application software vendors whose products are complementary to our products. VARIABILITY OF QUARTERLY RESULTS We have experienced significant quarterly fluctuations in our operating results and expect that these fluctuations will continue in future periods. These fluctuations have been caused by a number of factors, including the timing of new product or product enhancement introductions by us or our competitors, the development and introduction of new operating systems that require additional development efforts, purchasing patterns of our customers, size and timing of individual orders, the rate of customer acceptance of new products, and pricing and promotion strategies undertaken by us or our competitors. Future operating results may fluctuate as a result of these and other factors, including our ability to continue to develop, acquire, and introduce new products on a timely basis, the timing and level of sales by our OEMs or other third-party licensees of computer systems or software incorporating our products, technological changes in computer systems and environments, quality control of the products sold, our success in shifting our primary sales strategy from direct to indirect channels, and general economic conditions. Additionally, our operating results may be influenced by seasonality and overall trends in the global economy. Because we operate with a relatively small backlog, quarterly sales and operating results generally depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Historically, we have recognized a 14 15 substantial portion of our license revenues in the last month of the quarter. Since our staffing levels and other operating expenses are based upon anticipated revenues, delays in the receipt of orders can cause significant fluctuations in income from quarter to quarter. HISTORICAL RESULTS OF OPERATIONS The following table sets forth the results of operations for Enlighten expressed as a percentage of total revenue. The historical results are not necessarily indicative of results to be expected for any future period.
YEARS ENDED DECEMBER 31, -------------- 1999 1998 ----- ----- Revenue: Product license fees...................................... 54.9% 64.3% Product maintenance fees.................................. 19.8 17.5 Consulting services....................................... 16.6 6.9 Royalties................................................. 8.7 11.3 ----- ----- Total revenue..................................... 100.0 100.0 Cost of revenue............................................. 13.5 17.8 ----- ----- Gross profit...................................... 86.5 82.2 ----- ----- Operating expenses: Research and development.................................. 54.4 45.0 Sales and marketing....................................... 68.1 52.1 General and administrative................................ 29.7 24.7 Gain on sale of Tandem product line....................... -- (13.6) ----- ----- Total operating expenses.......................... 152.2 108.2 ----- ----- Operating loss.................................... (65.7) (26.0) Other income, net........................................... 5.2 4.4 ----- ----- Loss before income taxes.......................... (60.5) (21.6) Income tax benefit.......................................... (0.3) (0.7) ----- ----- Net loss.......................................... (60.2)% (20.9)% ===== =====
Net Revenue Net revenue decreased $514,000, or 14%, to $3,244,400 in 1999, as compared to 1998. This increase was primarily due to lower license revenues from the SGI OEM relationship. Revenue from product license fees decreased $635,500, or 26%, to $1,781,200 in 1999, as compared to 1998. The decrease was primarily attributable to the decrease in license fees from the SGI OEM relationship. License fees from SGI are derived from SGI's Unix server and workstation sales on a per unit shipped basis, of which, SGI had lower units shipped during 1999. License fees from SGI decreased in 1999 when compared to 1998. If these license fees continue to decline, our revenues and financial results may be harmed. Product maintenance fees decreased slightly by $14,300, or 2%, to $641,200, as compared to 1998. This decrease was primarily due to the timing of new maintenance contracts. Consulting services revenue increased by $279,500, or 107%, to $540,100 in 1999, as compared to 1998. This increase was primarily due to non-recurring consulting revenues related to Enlighten's strategic relationships with IBM and Intel. Royalties consist primarily of royalties from BMC Corporation ("BMC"), formerly New Dimensions Software, Inc., from product license fees and product maintenance fees generated by the Tandem product line sold to BMC in October 1997. Total royalties decreased by $143,700, or 34%, to $281,900 in 1999, as compared to 1998. This decrease was primarily due to a lower royalty rate used during 1999 than 1998. Enlighten is entitled to receive royalties from BMC through September 2000. 15 16 Cost of Revenue Cost of revenue consists of royalties paid to third parties, amortization of software development and acquisition costs, product packaging and documentation, software media and the costs of employees and contractors providing consulting services. Cost of revenue decreased by $230,700, or 34%, in 1999, as compared to 1998. This decrease is due primarily to a decrease in royalties paid to third party software vendors and a decrease in packaging and documentation costs due to the distribution of documentation in electronic format and the distribution of software over the Internet. Research and Development Research and development expenses consist of personnel expenses and associated overhead and costs of short-term independent contractors required in connection with product development efforts, less amounts capitalized. Enlighten's investment in research and development, prior to the reduction for capitalization of software development costs, was $1,996,200 and $1,692,000 for 1999 and 1998, respectively, representing 62% and 45% of total revenue for 1999 and 1998, respectively. The increase of $304,200 in 1999, as compared to 1998, was primarily attributable to higher employee related costs due to increases in headcount and increases in costs related to acquisitions of development computer hardware and software. Enlighten capitalized approximately $231,900 of software development costs in 1999 which represented approximately 12% of total research and development expenditures incurred in that year. There were no software development costs capitalized in 1998. The amount of capitalized software development costs in any given period may vary depending on the exact nature of the development performed. Costs incurred in the research and development of new software products are expensed as incurred until technological feasibility is established. Enlighten expects research and development expenses to continue to increase in absolute dollars as Enlighten continues to invest in the enhancement of existing products and the development of new products. Sales and Marketing Sales and marketing expenses include costs of sales and marketing personnel, advertising and promotion expenses, customer service and technical support, travel and entertainment, and other selling and marketing costs. Sales and marketing expenses increased by $249,900, or 13%, to $2,208,700 in 1999, as compared to 1998. This increase was primarily due to increases in temporary services, recruiting expenses and advertising costs. General and Administrative General and administrative expenses, which include personnel costs for finance, administration, information systems, and general management, as well as professional fees, legal expenses, and other administrative costs, increased by $35,400, or 4%, to $965,100 in 1999, as compared to 1998. The increase is primarily due to compensation costs on stock options granted to consultants to Enlighten, partially offset by decreases in employee related costs. Gain on sale of Tandem product line On October 1, 1997, Enlighten sold its Tandem product line to BMC. Enlighten recognized a gain on the sale of the operating assets of the Tandem product line of approximately $515,500 and $2,158,000 in 1998 and 1997, respectively. Enlighten received approximately $2.5 million in cash, of which $1.6 million was received in 1997, and the rights to receive royalties on Tandem related products for a period of three years. The sale of the Tandem product line also included the transfer to BMC of approximately 12 employees associated with Enlighten's Tandem operation. 16 17 Other income, net Other income and expense includes interest income net of interest expense and gains and losses on foreign currency transactions. Interest income is primarily derived from short term interest-bearing securities and money market accounts. Other income, net remained relatively consistent at $169,900 in 1999, as compared to 1998. Income tax benefit Enlighten's tax benefit recognized in 1999 of $10,400 is primarily due to federal income tax refunds partially offset by minimum state tax expenses. In 1998, Enlighten recognized a tax benefit of $41,400 as a result of receiving Federal tax refunds on net operating loss carrybacks in excess of amounts previously provided for by Enlighten. The tax benefit was partially offset by a $15,200 tax expense incurred as a result of the U.K. operations. No tax benefit, other than those stated above, were recognized in these years due to the uncertainty related to Enlighten's ability to recognize a tax benefit for loss and credit carryforwards. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, our cash and cash equivalents and short term investments were $1,293,100, representing 36% of total assets as compared with $3,185,600, or 65%, of total assets, at December 31, 1998. Cash equivalents are highly liquid investments with original maturities of ninety days or less. Our short term investments are primarily highly liquid investment grade commercial paper. Our working capital was $2,045,100 and $3,274,300 as of December 31, 1999 and 1998, respectively. We had no debt as of December 31, 1999 and 1998, other than normal trade payables and accrued liabilities. Our operating activities used cash of $2,075,500 in 1999, compared to cash used by operating activities of $1,334,200 in the prior year. The increase in cash used by operating activities was principally caused by increases in net losses and accounts receivable and a decrease in accrued and other liabilities, partially offset by an increase in trade accounts payable and depreciation and amortization expense. Our investing activities have consisted primarily of short-term investments, capitalization of software development costs, and additions to capital equipment. Investing activities provided cash of $668,800 in 1999, compared with using cash of $684,000 in 1998. The increase is primarily due to an increase in sales of short-term investments, partially offset by capitalized software development costs and equipment acquisitions. Financing activities provided cash of $552,300 in 1999, compared with cash provided of $2,512,100 in the prior year. The decrease is primarily due to cash provided by the 1998 public offering of common stock, partially offset by the proceeds from the exercise of employee stock options and the employee stock purchase plan. Our existing capital resources are adequate to maintain our current operations through December 2000. However, we will require substantial additional financing to implement our current plans to expand our operations and fund our long term product development. We have been actively seeking financing to expand our operations and recently signed a letter of intent with an investment banker for a private placement of an aggregate of up to $6,000,000 of our common stock. This financing is expected to close on or prior to May 31, 2000 but there can be no assurance that this financing will take place. If the planned financing fails to close and we are unable to obtain alternative financing as needed our long term product development and commercialization programs would be delayed or prevented and we may be required to curtail our operations. 17 18 FACTORS THAT MAY AFFECT FUTURE RESULTS Certain statements contained in this Annual Report on Form 10-KSB, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "intends," "expects" and words of similar import, constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Actual results could vary materially from those expressed in those statements. Readers are referred to "Products," "Sales and Distribution," "Product Development," "Competition," "Product Protection" and "Management's Discussion and Analysis or Plan of Operation" sections contained herein as well as the factors described below, which identify some of the important factors or events that could cause actual results or performance to differ materially from those contained in the forward looking statements. OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE FROM QUARTER TO QUARTER AND IF WE FAIL TO MEET THE EXPECTATIONS OF INVESTORS OR ANALYSTS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY We have experienced significant quarterly fluctuations in operating results and expect that these fluctuations will continue in future periods. These fluctuations have been caused by a number of factors, including the timing of new product or product enhancement introductions by us or our competitors, the development and introduction of new operating systems that require additional development efforts, purchasing patterns of our customers, size and timing of individual orders, the rate of customer acceptance of new products and pricing and promotion strategies undertaken by us or our competitors. Future operating results may fluctuate as a result of these and other factors, including our ability to continue to develop, acquire and introduce new products on a timely basis, the timing and level of sales by our OEM or other third-party licensees of computer systems or software incorporating our products, technological changes in computer systems and environments, quality control of the products sold, our success in shifting our primary sales strategy from direct to indirect channels and general economic conditions. Additionally, our operating results may be influenced by seasonality and overall trends in the global economy. Because we operate with a relatively small backlog, quarterly sales and operating results generally depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Historically, we have recognized a substantial portion of our license revenues in the last month of the quarter, particularly the last week. Since our staffing levels and other operating expenses are based upon anticipated revenues, delays in the receipt of orders can cause significant fluctuations in income from quarter to quarter. WE MAY NOT BE SUCCESSFUL IN THE OPEN SYSTEMS MARKET Through 1997, we derived a substantial portion of our revenue from our Tandem-based products. However, we sold all rights to our Tandem technology in October 1997. The future success of our business is substantially dependent on our ability to generate significant revenue from our Linux, Unix and Windows product offering. In January 1998, we signed an OEM bundling agreement with Silicon Graphics under which Silicon Graphics bundles a limited version of our product on each Unix system shipped. In December 1998, we entered into an agreement with IBM to integrate the EnlightenDSM product into IBM Suites for Solaris and AIX. In January 1999, we entered into an agreement with Sun Microsystems to produce a product that will seamlessly integrate into the Sun Management Center product (formerly Sun's Enterprise SyMON). In September 1999, we signed a software license and distribution agreement with TurboLinux in which TurboLinux will bundle a single user copy of the EnlightenDSM product with its Linux operating system distributions. In October 1999, we signed a software license agreement with Intel in which we will integrate a subset of the Linux version of the EnlightenDSM product into Intel's LANDesk(R) Server Manager product. While significant, there can be no assurance that we will be successful in our efforts to generate significant revenue from these agreements. Additionally, the open systems market is characterized by rapid technological growth and intense competition. We may not have the financial or personnel resources to effectively capitalize on, and continue with, our early and limited success in this market. 18 19 WE ARE DEPENDENT ON RESELLERS AND IF WE ARE NOT SUCCESSFUL IN EXPANDING DISTRIBUTION CHANNELS, OUR ABILITY TO MAINTAIN OR INCREASE OUR REVENUES WILL BE HARMED In 1997, we began to shift a majority of our sales and marketing resources toward third-party resellers in the United States and internationally. Our growth will be dependent on our ability to continue to expand our third-party distribution channel to market, sell and support our software products. We are currently investing, and intend to continue to invest, significant resources to develop this channel, which could materially adversely affect our operating margins. We have only limited experience in marketing our products through distributors. Additionally, we will have no control over our third-party distributors, their shipping dates, or volumes of systems shipped by our OEM and other third-party customers. There can be no assurance that we will be successful in our efforts to generate significant revenue from this channel, nor can there be any assurance that we will be successful in recruiting new organizations to represent us and our products. Additionally, we have become more dependent on our third-party distributors for the technical support and consultation to end users. We will need to increase our training and education efforts related to our third-party distributors to enable such third parties to obtain the technical proficiency and knowledge with respect to our products. Despite these efforts, we may not be able to successfully train our third party distributors to enable them to provide adequate technical support to the customer base. This may result in, among other things, increased workload on our internal support and engineering staff, or poor customer acceptance of the products, or both, either of which would significantly harm our business. In January 1998, we signed an OEM bundling agreement with Silicon Graphics under which Silicon Graphics will bundle a limited version of our product on each Unix system shipped. In December 1998, we entered into an agreement with IBM to integrate the EnlightenDSM product into IBM Suites for Solaris and AIX. In January 1999, we entered into an agreement with Sun Microsystems to produce a product that will seamlessly integrate into the Sun Management Center product (formerly Sun's Enterprise SyMON). In September 1999, we signed a software license and distribution agreement with TurboLinux in which TurboLinux will bundle a single user copy of the EnlightenDSM product with its Linux operating system distributions. In October 1999, we signed a software license agreement with Intel in which we will integrate a subset of the Linux version of the EnlightenDSM product into Intel's LANDesk(R) Server Manager product. While we believe that these arrangements will be beneficial, there can be no assurance that we will be able to deliver our products to these companies in a timely manner or that these companies will license our products in volumes anticipated by us. Further, these agreements are our only significant third-party distribution agreements to date. While our strategy is to obtain additional resellers to reduce the dependence on these vendors, we may not be able to successfully attract additional vendors to distribute our products. Any such failure would result in our having expended significant resources with little or no return on its investment, which would significantly harm our business. These additional investments and responsibilities will require us to expend substantial resources and may require us to divert employees from other projects to provide the support services and development efforts required to provide products and services to these third party vendors and other new third parties, if any. OUR MARKET IS SUBJECT TO INTENSE COMPETITION AND CONTINUED COMPETITION IN OUR MARKET MAY LEAD TO A REDUCTION IN OUR PRICES, REVENUES AND MARKET SHARE We experience intense competition from other systems management companies and the market is rapidly changing. We believe that our ability to compete successfully depends on a number of factors, including the performance, price and functionality of our products relative to those of our competitors. Most of our competitors are larger and have greater financial, technical, marketing, support and other resources than us. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements than us. In addition, the software industry is characterized by low barriers to entry. There can be no assurance that our current competitors or any new market entrants will not develop systems management products that offer significant performance, price, or other advantages over our technology. In addition, operating system vendors could introduce new or upgrade existing operating systems or environments that include systems management functionality offered by us, which could render our products obsolete and 19 20 unmarketable. We may not be able to successfully compete against current or future competitors which could significantly harm our business. 100% OF OUR LICENSE REVENUE IS DERIVED FROM A SINGLE PRODUCT FAMILY AND IF THOSE PRODUCTS FAIL TO ACHIEVE AND MAINTAIN MARKET ACCEPTANCE, OUR BUSINESS MAY BE SIGNIFICANTLY HARMED We expect that a substantial majority of our revenue in future periods will be derived from our EnlightenDSM products. These products have accounted for 100% of our license revenue since October 1, 1997. We expect that the EnlightenDSM product family and its extensions and derivatives will continue to account for a substantial majority, if not all, of our revenue for the foreseeable future. Broad market acceptance of EnlightenDSM is, therefore, critical to our future success. Failure to achieve broad market acceptance of EnlightenDSM, as a result of competition, technological change, or otherwise, would significantly harm our business. Our future financial performance will depend in significant part on the successful development, introduction and market acceptance of EnlightenDSM and its product enhancements. There can be no assurance that we will be successful in marketing EnlightenDSM or any new products, applications or product enhancements, and any failure to do so would significantly harm our business. THE MARKET FOR OUR PRODUCTS IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE MAY NOT BE ABLE TO DEVELOP OR MARKET NEW PRODUCTS TO RESPOND TO SUCH CHANGE The market for our products is characterized by rapid technological developments, evolving industry standards and rapid changes in customer requirements. The introduction of products embodying new technologies, including new operating systems, applications, hardware products, systems management frameworks and network management platforms, the emergence of new industry standards, or changes in customer requirements could render our existing products obsolete and unmarketable. As a result, our success depends upon our ability to continue to enhance existing products, respond to changing customer requirements and rapidly develop and introduce new products that keep pace with technological developments and emerging industry standards. Additionally, other operating systems, such as Windows NT, may significantly affect deployment of Unix and Linux systems for business critical applications. A significant portion of our revenue will continue to be derived from Unix and Linux based computer systems for the foreseeable future. While we have ported our products to the Windows NT platform, the product requires customers to control systems management for their heterogeneous environment from Unix and Linux based systems. A significant decline in sales of Unix and Linux based systems would decrease the demand for our products and would significantly harm our business. Finally, we may not be successful in developing and marketing, on a timely basis, product enhancements or new products that respond to technological change or evolving industry standards, we may experience difficulties that could delay or prevent the successful development, introduction and sale of these products, and any such new products or product enhancements may not adequately meet the requirements of the marketplace and achieve market acceptance. IF THE OPEN SYSTEMS MANAGEMENT MARKET FAILS TO GROW, OUR BUSINESS WOULD BE SIGNIFICANTLY HARMED For the foreseeable future, all of our business will be in the open systems (Linux, Unix and Windows NT) management market, which is still an emerging market. Our future financial performance will depend in large part on continued growth in the number of companies adopting systems management solutions for their client/server computing environments. The market for systems management solutions may not continue to grow. If the systems management market fails to grow or grows more slowly than we currently anticipate, or in the event of a decline in unit price or demand for our products, as a result of competition, technological change, or other factors, our business would be significantly harmed. During recent years, segments of the computer industry have experienced significant economic downturns characterized by decreased product demand, production overcapacity, price erosion, work slowdowns and layoffs. Our operations may in the future experience substantial fluctuations from period-to-period as a consequence of such industry patterns, general economic conditions affecting the timing of orders from major customers and other factors affecting capital spending. Such factors may significantly harm our business. 20 21 WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FURTHER SIGNIFICANT LOSSES AND CANNOT ASSURE YOU THAT WE WILL ACHIEVE PROFITABILITY We have incurred significant operating losses each of the last five fiscal years and cannot be certain that we will realize sufficient revenue to achieve profitability. We expect to continue to incur significant losses for the foreseeable future and these losses may be higher than our current losses. We cannot be certain when or if we will achieve profitability. Failure to become and remain profitable may adversely affect the market price or our common stock and our ability to raise capital and continue operations. See "Management's Discussion and Analysis or Plan of Operation." FURTHER CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING During the last five years we have financed our operations primarily through sales of equity securities and the sale of our Tandem product line. Our existing capital resources are adequate to maintain our current operations through December 2000. However, we will require substantial additional financing to implement our current plans to expand our operations and fund our long-term product development. We have been actively seeking financing to expand our operations and recently signed a letter of intent with an investment banker for a private placement of an aggregate of up to $6,000,000 of our common stock. This financing is expected to close on or prior to May 31, 2000 but there can be no assurance that this financing will take place. If the planned financing fails to close and we are unable to obtain alternative financing as needed, our long- term product development and commercialization programs would be delayed or prevented and we may be required to curtail our operations. A SIGNIFICANT PERCENTAGE OF OUR REVENUES IS ATTRIBUTED TO SALES TO ONE OF OUR CUSTOMERS Our largest customer accounts for a substantial percentage of our revenues. During 1999, approximately 60% of our revenues consisted of license fees received under our OEM relationship with Silicon Graphics to bundle a subset of features of the EnlightenDSM product with each Unix server and workstation that SGI ships. License fees from SGI decreased in 1999 when compared to 1998. If these license fees continue to decline, our revenues and financial results may be harmed. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA See Consolidated Financial Statements included herein beginning on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 22 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 9 is set forth in Enlighten's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders under the captions "Directors and Executive Officers" and "Section 16(b) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION The information required by this Item 10 is set forth in Enlighten's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders under the caption "Executive Compensation and Other Matters" and is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 11 is set forth in Enlighten's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders under the caption "Stock Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 12 is set forth in Enlighten's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders under the caption "Certain Relationships and Related Transactions" and is incorporated herein by reference. 22 23 PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a)(1) Financial Statements: Independent Auditors' Report................................ F-1 Consolidated Balance Sheets: December 31, 1999 and 1998................................ F-2 Consolidated Statements of Operations: Years ended December 31, 1999 and 1998.................... F-3 Consolidated Statements of Shareholders' Equity: Years ended December 31, 1999 and 1998.................... F-4 Consolidated Statements of Cash Flows: Years ended December 31, 1999 and 1998.................... F-5 Notes to Consolidated Financial Statements.................. F-6
(a)(2) Exhibits: See Exhibits Index on Page 24. The Exhibits listed in the accompanying Exhibits Index are filed or incorporated by reference as part of this report. Exhibit Nos. 10.24, 10.26, 10.28, 10.29, 10.31, 10.36 and 10.37 are compensatory plans or arrangements. (b) Reports on Form 8-K: None 23 24 EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 The Registrant's Amended and Restated Articles of Incorporation as filed with the Secretary of State of the State of California on May 21, 1996 (incorporated by reference to Exhibit 3.1 to the Registrant's Form S-1 Registration Statement (No. 33-75388) which became effective April 19, 1994 (the 1994 Form S-1)). 3.2 The Registrant's By Laws, as currently in effect (incorporated by reference to Exhibit 3.2 to the Registrant's Form S-1 Registration Statement (No. 33-75388) which became effective April 19, 1994). 10.01 The Registrant's Form of Indemnity Agreement for officers and directors (incorporated by reference to Exhibit 10.1 of the 1994 Form S-1). 10.02 The Registrant's First Amended and Restated 1992 Stock Option Plan (incorporated by reference to Exhibit 10.2 of the 1994 Form S-1). 10.03 The Registrant's 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 of the 1994 Form S-1). 10.20 Lease, dated February 24, 1995, by and between Registrant and Mariner's Island Ltd. for the Registrant's offices at 999 Baker Way, Fifth Floor, San Mateo, California (incorporated by reference to Exhibit 10.20 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994 (the 1994 Form 10-KSB)). 10.24* Termination and Change in Control Agreement, dated April 24, 1996, by and between Enlighten Software Solutions, Inc. and Michael A. Morgan (incorporated by reference to Exhibit 10.24 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996 (the 1996 Form 10-KSB)). 10.26* Nonqualified Stock Option Agreement, dated December 27, 1996, by and between Enlighten Software Solutions, Inc. and Mark Himelstein (incorporated by reference to Exhibit 10.26 of the Registrant's 1996 Form 10-KSB). 10.27 Agreement dated as of September 22, 1997, by and among Enlighten Software Solutions, Inc., Peter J. McDonald, and New Dimension Software, Inc (incorporated by reference to Exhibit 10.27 of the Registrant's Current Report on Form 8-K dated October 1, 1997). 10.28* Employment letter, dated July 3, 1997, by and between Enlighten Software Solutions, Inc. and Mike Seashols (incorporated by reference to Exhibit 10.28 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1997 (the 1997 Form 10-KSB)). 10.29* Employment letter, dated August 28, 1997, by and between Enlighten Software Solutions, Inc. and David D. Parker (incorporated by reference to Exhibit 10.29 of the Registrant's 1997 Form 10-KSB). 10.30 Agreement dated as of January 21, 1998, by and between Enlighten Software Solutions, Inc. and Silicon Graphics, Inc (incorporated by reference to Exhibit 10.30 of the Registrant's 1997 Form 10-KSB). 10.31* Employment letter, dated July 15, 1998, by and between Enlighten Software Solutions, Inc. and Bill Bradley (incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1998 (the 1998 Form 10-KSB)). 10.32* Employment letter, dated January 15, 1999, by and between Enlighten Software Solutions, Inc. and Tim Gardner (incorporated by reference to Exhibit 10.32 of the Registrant's 1998 Form 10-KSB). 10.33 Agreement dated as of December 31, 1998, by and between Enlighten Software Solutions, Inc. and International Business Machines Corporation (incorporated by reference to Exhibit 10.33 of the Registrant's 1998 Form 10-KSB).
24 25
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.34 Agreement dated as of September 28, 1999, by and between Enlighten Software Solutions, Inc. and TurboLinux, Inc. (incorporated by reference to Exhibit 10.33 of the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999). 10.35 Agreement dated as of October 21, 1999, by and between Enlighten Software Solutions, Inc. and Intel Corporation. 10.36* Employment letter, dated November 24, 1999, by and between Enlighten Software Solutions, Inc. and Bill Bradley. 10.37* Employment letter, dated December 8, 1999, by and between Enlighten Software Solutions, Inc. and Stephen E. Giusti. 21.1 Subsidiaries of the Company. 23.1 Consent of KPMG LLP. 27.1 Financial Data Schedule.
- --------------- * Compensatory or employment arrangement. 25 26 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. ENLIGHTEN SOFTWARE SOLUTIONS, INC. /s/ BILL BRADLEY -------------------------------------- Bill Bradley President and Chief Executive Officer 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 ---- ----- ---- /s/ BILL BRADLEY President and March 24, 2000 - ----------------------------------------------------- Chief Executive Officer Bill Bradley (Principal Executive Officer) /s/ STEPHEN E. GIUSTI Vice President, Finance March 24, 2000 - ----------------------------------------------------- and Administration Stephen E. Giusti and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ MICHAEL SEASHOLS Co-Chairman of the Board March 24, 2000 - ----------------------------------------------------- Michael Seashols /s/ DAVID D. PARKER Co-Chairman of the Board March 24, 2000 - ----------------------------------------------------- David D. Parker /s/ PETER J. MCDONALD Director March 24, 2000 - ----------------------------------------------------- Peter J. McDonald /s/ PETER J. SPRAGUE Director March 24, 2000 - ----------------------------------------------------- Peter J. Sprague /s/ MICHAEL A. MORGAN Director March 24, 2000 - ----------------------------------------------------- Michael A. Morgan
26 27 INDEPENDENT AUDITORS' REPORT The Board of Directors Enlighten Software Solutions, Inc.: We have audited the consolidated financial statements of Enlighten Software Solutions, Inc. and subsidiary as listed in the index under Item 13(a)(1). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Enlighten Software Solutions, Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Mountain View, California February 4, 2000 F-1 28 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 ASSETS
1999 1998 ----------- ----------- Current assets: Cash and cash equivalents................................. $ 1,045,600 $ 1,900,000 Short-term investments.................................... 247,500 1,285,600 Accounts receivable, less allowance for doubtful accounts of $50,000 and $25,000, respectively................... 1,285,500 653,400 Prepaid expenses and other assets......................... 60,900 140,200 ----------- ----------- Total current assets.............................. 2,639,500 3,979,200 Property and equipment, net................................. 402,700 588,600 Software development costs, net............................. 208,400 92,200 Other assets................................................ 312,100 269,400 ----------- ----------- $ 3,562,700 $ 4,929,400 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable.................................... $ 177,000 $ 202,500 Accrued and other current liabilities..................... 335,600 458,600 Deferred revenue.......................................... 81,800 43,800 ----------- ----------- Total current liabilities......................... 594,400 704,900 Commitments and contingencies Shareholders' equity: Preferred stock, 1,000,000 shares authorized, none issued and outstanding........................................ -- -- Common stock, no par value, 10,000,000 shares authorized, 4,217,978 and 3,899,761 issued and outstanding at December 31, 1999 and 1998, respectively............... 8,410,400 7,591,500 Deferred stock-based compensation........................... (85,000) -- Accumulated other comprehensive income (loss)............... (32,200) 5,600 Accumulated deficit......................................... (5,324,900) (3,372,600) ----------- ----------- Total shareholders' equity........................ 2,968,300 4,224,500 ----------- ----------- $ 3,562,700 $ 4,929,400 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-2 29 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998 ----------- ---------- Revenue: Product license fees...................................... $ 1,781,200 $2,416,700 Product maintenance fees.................................. 641,200 655,500 Consulting services....................................... 540,100 260,600 Royalties................................................. 281,900 425,600 ----------- ---------- Total revenue..................................... 3,244,400 3,758,400 Cost of revenue: Product licenses.......................................... 335,200 550,500 Product maintenance....................................... 8,100 7,100 Consulting services....................................... 95,600 112,000 ----------- ---------- Total cost of revenue............................. 438,900 669,600 ----------- ---------- Gross margin......................................... 2,805,500 3,088,800 Operating expenses: Research and development.................................. 1,764,300 1,692,000 Sales and marketing....................................... 2,208,700 1,958,800 General and administrative................................ 965,100 929,700 Gain on sale of Tandem product line....................... -- (515,500) ----------- ---------- Total operating expenses.......................... 4,938,100 4,065,000 ----------- ---------- Operating loss.................................... (2,132,600) (976,200) Other income, net........................................... 169,900 165,400 ----------- ---------- Loss before income tax benefit.................... (1,962,700) (810,800) Income tax benefit.......................................... (10,400) (25,400) ----------- ---------- Net loss.......................................... $(1,952,300) $ (785,400) =========== ========== Basic and diluted net loss per share........................ $ (0.49) $ (0.22) =========== ========== Shares used in computing basic and diluted net loss per share..................................................... 4,022,600 3,508,258 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-3 30 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999 AND 1998
ACCUMULATED COMMON STOCK DEFERRED OTHER TOTAL COMPREHENSIVE ---------------------- STOCK-BASED COMPREHENSIVE ACCUMULATED SHAREHOLDERS' LOSS SHARES AMOUNT COMPENSATION INCOME (LOSS) DEFICIT EQUITY ------------- --------- ---------- ------------ ------------- ----------- ------------- Balance at December 31, 1997........ 2,963,635 $5,079,500 $ -- $ -- $(2,587,200) $ 2,492,300 Stock options exercised.............. 184,449 242,100 -- -- -- 242,100 Employee stock purchase plan shares issued..... 51,677 52,600 -- -- -- 52,600 Stock offering, net...... 700,000 2,217,300 -- -- -- 2,217,300 Unrealized gain on investments............ $ 5,600 -- -- -- 5,600 -- 5,600 Net loss................. (785,400) -- -- -- -- (785,400) (785,400) ----------- --------- ---------- --------- -------- ----------- ----------- Comprehensive loss....... $ (779,800) =========== Balance at December 31, 1998........ 3,899,761 7,591,500 -- 5,600 (3,372,600) 4,224,500 Stock options exercised.............. 278,824 483,100 -- -- -- 483,100 Employee stock purchase plan shares issued..... 27,145 69,200 -- -- -- 69,200 Warrants exercised....... 12,248 -- -- -- -- -- Warrants issued for services............... -- 42,600 -- -- -- 42,600 Deferred stock-based compensation........... -- 224,000 (224,000) -- -- -- Compensation expense..... -- -- 139,000 -- -- 139,000 Unrealized loss on investments............ $ (37,800) -- -- -- (37,800) -- (37,800) Net loss................. (1,952,300) -- -- -- -- (1,952,300) (1,952,300) ----------- --------- ---------- --------- -------- ----------- ----------- Comprehensive loss....... $(1,990,100) =========== Balance at December 31, 1999........ 4,217,978 $8,410,400 $ (85,000) $(32,200) $(5,324,900) $ 2,968,300 ========= ========== ========= ======== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 31 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998 ----------- ----------- Cash Flows from Operating Activities: Net loss.................................................. $(1,952,300) $ (785,400) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 408,700 504,500 Gain on sale of Tandem product line.................... -- (515,500) Loss on disposal of property and equipment............. 2,500 -- Provision for doubtful accounts........................ 25,000 (100,000) Compensation expense for warrants issued............... 42,600 -- Compensation expense for stock options issued.......... 139,000 -- Changes in operating assets and liabilities: Accounts receivable.................................. (657,100) (313,000) Refundable income taxes.............................. -- 127,000 Prepaid expenses and other assets.................... 26,600 265,700 Trade accounts payable............................... 274,100 68,500 Accrued and other liabilities........................ (422,600) (270,400) Deferred revenue..................................... 38,000 (315,600) ----------- ----------- Net cash used in operating activities............. (2,075,500) (1,334,200) Cash Flows from Investing Activities: Purchases of short-term investments....................... -- (1,200,000) Sales of short-term investments........................... 1,000,300 206,000 Proceeds from sale of Tandem product line................. -- 515,500 Capitalization of software development costs.............. (232,000) -- Purchases of property and equipment....................... (99,500) (205,500) ----------- ----------- Net cash provided by (used in) investing activities..................................... 668,800 (684,000) Cash flows from financing activities: Proceeds from public offering of stock, net............... -- 2,217,400 Proceeds from issuance of stock........................... 552,300 294,700 ----------- ----------- Net cash provided by financing activities......... 552,300 2,512,100 ----------- ----------- Net (decrease) increase in cash and cash equivalents........ (854,400) 493,900 Cash and cash equivalents at beginning of year.............. 1,900,000 1,406,100 ----------- ----------- Cash and cash equivalents at end of year.................... $ 1,045,600 $ 1,900,000 =========== =========== Supplemental cash flow information and disclosure of non-cash investing and financing activities: Income taxes paid......................................... $ 1,100 $ 800 =========== =========== Warrants issued........................................... $ 42,600 $ -- =========== =========== Deferred stock-based compensation......................... $ 224,000 $ -- =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 32 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Enlighten Software Solutions, Inc. develops, markets, and supports products that automate administrative tasks and monitor critical performance and operational characteristics for commercial servers and workstations. Our products provide a single console management view of customers' mixed technical environments consisting of Linux, Unix and Windows. Enlighten's products enable integrated, coordinated operations and management of networked and web based servers and workstations. Enlighten's products are designed for distributed computing environments in the range of ten to 1,000 servers and clients. Founded in 1986, Enlighten was a leading provider of systems management software on the Tandem platform, providing a range of automated systems management products to over 400 companies in 30 countries. In 1997, Enlighten sold its Tandem product line to BMC Corporation ("BMC") formerly New Dimension Software, Inc., in order to focus efforts on its EnlightenDSM product suite. Enlighten recognized a gain on the sale of the operating assets of the Tandem product line of approximately $515,500 and $2,158,000 in 1998 and 1997, respectively. In addition, BMC is required to pay Enlighten royalties through September 2000 from BMC's licensing and support of the Tandem software products. Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of Enlighten Software Solutions, Inc. and its wholly-owned subsidiary, a sales corporation in Europe. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year consolidated financial statement balances have been reclassified to conform to the 1999 presentation. Revenue Recognition Enlighten recognizes product license revenue upon shipment if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and product returns are reasonably estimable. Product license revenues that are contingent upon sale to an end-user by OEMs are recognized upon receipt of quarterly reports of shipments from OEMs. Enlighten recognizes revenue from maintenance fees for ongoing customer support and product updates ratably over the contract period, generally one year. Payments for maintenance fees are generally made in advance and are non-refundable. Consulting service revenue is recognized when services are performed for time and material contracts and on a percentage of completion basis for fixed price contracts. Cash Equivalents and Short Term Investments Enlighten considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents. Enlighten has classified its investments in commercial paper and U.S. Treasury notes as "held-to-maturity." All such investments mature in less than one year and are stated at amortized cost, which approximates fair value. Interest income is recorded using an effective interest rate, with the associated discount or premium amortized to interest income. Additionally, Enlighten has classified its investments in preferred stock and municipal bonds as "available-for-sale." Such investments are recorded at market value based on quoted market prices, with unrealized gains and losses reported as a component of other comprehensive loss. The cost of securities sold is determined based on the specific identification method. F-6 33 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 Property and Equipment Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, generally five years. Leasehold improvements are amortized on a straight-line basis over the lease term or the estimated useful life of the asset, whichever is less. Enlighten reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property and equipment is measured by comparison of its carrying amount to future net undiscounted cash flows the property and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property and equipment exceeds its fair value. To date, Enlighten has made no impairment adjustments to the carrying values of its property and equipment. Software Development Costs Software development costs incurred subsequent to the determination of product technological feasibility are capitalized. Technological feasibility is established at the completion of detail program design and testing. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgement by management with respect to certain external factors including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology. Costs related to computer software development incurred prior to establishing product technological feasibility are expensed as incurred. Amortization of capitalized software development costs begins when the products are available for general release to customers and is computed on a straight-line basis over the remaining estimated economic life of the product, generally two to three years. Enlighten periodically assesses the recoverability of these intangible assets by comparing their amortized cost to the net realizable value of the related products. The amount by which the unamortized costs exceed the net realizable value is written off. Foreign Currency Translation The functional currency for Enlighten's foreign subsidiary is the U.S. dollar. Accordingly, this entity remeasures monetary assets and liabilities at year-end exchange rates while nonmonetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the year, except for depreciation which is remeasured at historical rates. Transaction gains and losses are recognized in income in the period of occurrence. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Stock Based Compensation Enlighten uses the intrinsic value-based method to account for all of its employee stock-based compensation plans. F-7 34 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 Fair Value of Financial Instruments and Concentration of Credit Risk The fair value of Enlighten's cash, cash equivalents, accounts receivable, and accounts payable approximate the carrying amount due to the relatively short maturity of these items. The fair value of Enlighten's short term investments are based on quoted market prices. Financial instruments that potentially subject Enlighten to concentrations of credit risk consist principally of short term investments and trade account receivables. Enlighten has investment policies that limit the amount of credit exposure to any one financial institution and restrict placement of these investments to financial institutions evaluated as credit worthy. Substantially all of Enlighten's accounts receivable are derived from sales to large OEM partners and select end-users. Enlighten performs ongoing credit evaluations of its customers' financial condition and does not require collateral. Enlighten maintains allowances for potential credit losses and such losses have been within management's expectations. Other Comprehensive Loss Unrealized gains or losses on investments represent the only component of comprehensive loss which is excluded from net loss. Comprehensive loss has been presented in the consolidated statement of shareholders' equity. As of December 31, 1999 and 1998, the tax effects allocated to the component of other comprehensive loss and accumulated other comprehensive loss balances were not significant. Income Taxes Enlighten accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by an allowance to an amount whose realization is more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net Loss Per Share Basic net loss per share is based on the weighted average number of all common shares issued and outstanding, and is calculated by dividing net loss by the weighted average shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding plus all potentially dilutive common shares outstanding. Potentially dilutive common shares included in the dilution calculation consist of dilutive shares issuable upon the exercise of outstanding common stock options computed using the treasury stock method. For the periods in which Enlighten had losses, potential common shares from common stock options are excluded from the computation of diluted net loss per share as their effect would be antidilutive. F-8 35 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 The following is a reconciliation of the weighted average common shares used to calculate basic net loss per share to the weighted average common and potentially dilutive common shares used to calculate diluted net loss per share:
1999 1998 --------- --------- Weighted average common shares used to calculate basic net loss per share............................................ 4,022,600 3,508,258 Stock options............................................. -- -- Warrants.................................................. -- -- --------- --------- Weighted average common and potentially dilutive common shares used to calculated diluted net loss per share...... 4,022,600 3,508,258 ========= =========
Dilutive weighted average stock options and warrants to purchase 495,108 and 474,364 shares of common stock for the years ended December 31, 1999 and 1998, respectively, were outstanding but not included in the computation of diluted earnings per common share because they are anti-dilutive as a result of Enlighten's net loss. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal years beginning after June 15, 2000, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- An Amendment of FASB Statement No. 133." SFAS No. 133 requires Enlighten to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow and foreign currency hedges and establishes respective accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption, Enlighten will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. Enlighten is evaluating its expected adoption date and currently expects to comply with the requirements of SFAS 133 in fiscal year 2001. Enlighten does not expect the adoption will be material to Enlighten's financial position or results of operations since Enlighten does not participate in such investments or activities. In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 requires recognition of revenue using the "residual method" in a multiple-element software arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the "residual method," the total fair value of the undelivered elements is deferred and recognized in accordance with SOP 97-2. Enlighten will be required to implement SOP 98-9 for the year ending December 31, 2000. Enlighten does not expect the adoption will have a material impact on Enlighten's financial position, results of operations or cash flows. F-9 36 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 (2) CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS Cash and cash equivalents consisted of the following:
1999 1998 ---------- ---------- Cash and cash equivalents................................... $ 87,300 $ 833,900 Money market funds.......................................... 958,300 1,066,100 ---------- ---------- $1,045,600 $1,900,000 ========== ==========
Short term investments consisted of the following:
1999 1998 -------- ---------- Equity securities........................................... $247,500 $ 285,600 Municipal bonds............................................. -- 1,000,000 -------- ---------- $247,500 $1,285,600 ======== ==========
(3) PROPERTY AND EQUIPMENT A summary of property and equipment follows:
1999 1998 ---------- ---------- Equipment................................................... $1,173,700 $1,090,100 Furniture and fixtures...................................... 285,900 285,900 Leasehold improvements...................................... 142,200 142,200 ---------- ---------- 1,601,800 1,518,200 Less accumulated depreciation and amortization.............. 1,199,100 929,600 ---------- ---------- $ 402,700 $ 588,600 ========== ==========
(4) SOFTWARE DEVELOPMENT COSTS A summary of software development costs follows:
1999 1998 -------- -------- Software development costs.................................. $648,400 $416,400 Less accumulated amortization............................... 440,000 324,200 -------- -------- $208,400 $ 92,200 ======== ========
(5) INCOME TAX BENEFIT Income tax benefit consist of:
CURRENT DEFERRED TOTAL -------- --------- -------- YEAR ENDED DECEMBER 31, 1999: Federal......................................... $(11,500) $ -- $(11,500) State........................................... 1,100 -- 1,100 Foreign......................................... -- -- -- -------- --------- -------- $(10,400) $ -- $(10,400) ======== ========= ========
F-10 37 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998
CURRENT DEFERRED TOTAL -------- -------- -------- YEAR ENDED DECEMBER 31, 1998: Federal.......................................... $(40,600) $ -- $(40,600) State............................................ 800 -- 800 Foreign.......................................... 14,400 -- 14,400 -------- -------- -------- $(25,400) $ -- $(25,400) ======== ======== ========
Enlighten's income tax benefit differed from the expected income tax benefit computed by applying the statutory U.S. federal income tax rate (34%) to loss before income tax benefit as a result of the following:
1999 1998 --------- --------- Provision computed at federal statutory rate................ $(667,300) $(275,700) State income tax, net of federal tax effect................. (114,400) 500 Change in valuation allowance............................... 835,700 229,900 Foreign taxes............................................... -- 14,400 Other....................................................... (64,400) 5,500 --------- --------- $ (10,400) $ (25,400) ========= =========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
1999 1998 ----------- ----------- Deferred tax assets: Reserves not currently deductible....................... $ 47,500 $ 95,300 Credit carryforward..................................... 664,300 500,500 Loss carryforward....................................... 1,603,000 851,100 ----------- ----------- Total deferred tax assets....................... 2,314,800 1,446,900 Valuation allowance....................................... (2,178,600) (1,342,900) ----------- ----------- Net deferred tax assets......................... 136,200 104,000 ----------- ----------- Deferred tax liabilities: Software development costs.............................. 83,000 37,000 Depreciation and amortization........................... 53,200 67,000 ----------- ----------- Total deferred tax liabilities.................. 136,200 104,000 ----------- ----------- Net deferred tax assets......................... $ -- $ -- =========== ===========
The net change in the total valuation allowance for the year ended December 31, 1999 was a net increase of $835,700. Management has determined that such portion of deferred tax assets may not be realized. Enlighten has federal and state net operating loss carryforwards of approximately $5,412,400 and $2,940,000, respectively, that may be used to offset future taxable income and federal and state research tax credits of approximately $528,600 and $295,500, respectively, that may be used to offset future tax liabilities. The federal net operating loss and research credit carryforwards will expire primarily in 2018 and 2019 and the state net operating loss carryforward will expire primarily in 2003 and 2004. F-11 38 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 (6) ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities consisted of the following:
1999 1998 -------- -------- Accrued employee compensation............................... $152,600 147,300 Deferred rent............................................... 38,300 51,600 Royalty payable............................................. 16,400 45,400 Other....................................................... 128,300 214,300 -------- -------- $335,600 $458,600 ======== ========
(7) SHAREHOLDERS' EQUITY Preferred Stock The Board of Directors has the authority to issue, without further action by the shareholders, up to 1,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, and the number of shares constituting any series or the designation of such series. Employee Stock Option Plan As of December 31, 1999, Enlighten had authorized 2,000,000 shares of Common Stock for issuance under the 1992 Employee Stock Option Plan (the Option Plan). The Option Plan may be administered by the Board of Directors or a committee of the Board, which determines the terms of the options granted under the Option Plan, including exercise price, number of shares subject to each option, and the exercisability thereof. The vesting periods determined by the Board of Directors generally provides for shares to vest ratably over 3.5 years and expire over 10 years. A summary of the status of all of Enlighten's stock option plans as of and during the years ended December 31, 1999 and 1998 follows:
1999 1998 --------------------- --------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE --------- -------- --------- -------- Outstanding at beginning of year................. 1,066,793 $2.21 922,924 $1.87 Granted.......................................... 748,750 $3.55 393,750 $2.71 Exercised........................................ (278,824) $1.73 (184,449) $1.37 Forfeited........................................ (257,230) $2.88 (65,432) $2.76 --------- --------- Outstanding at end of year....................... 1,279,489 $2.97 1,066,793 $2.21 ========= ========= Options exercisable at year end.................. 473,644 $2.35 468,618 $2.09 ========= ========= Options available for future grant............... 489,185 980,705 ========= =========
F-12 39 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 A summary of the status of all Enlighten's stock option plans at December 31, 1999 follows:
OPTIONS OUTSTANDING ------------------------------------ OPTIONS EXERCISABLE WEIGHTED ----------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF AT CONTRACTUAL EXERCISE AT EXERCISE PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE - -------------- ----------- ----------- -------- ------------ -------- $0.01 - $ 1.00.. 650 7.4 $1.00 650 $ 1.00 $1.01 - $ 2.00.. 378,122 7.8 $1.79 243,532 $ 1.79 $2.01 - $ 3.00.. 355,001 8.2 $2.69 146,471 $ 2.55 $3.01 - $ 4.00.. 475,716 9.1 $3.37 57,991 $ 3.26 $4.01 - $ 5.00.. 25,000 4.1 $4.68 25,000 $ 4.68 $5.01 - $10.00.. 45,000 9.9 $9.75 -- $ -- --------- ------- Total.. 1,279,489 473,644 ========= =======
Employee Stock Purchase Plan Under Enlighten's 1994 Employee Stock Purchase Plan (the Purchase Plan) a total of 200,000 shares of common stock remain reserved for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not be less than 1% nor exceed 10% of an employee's compensation, not to exceed shares with a fair market value of $25,000. The price of stock purchased under the Purchase Plan must be at least 85% of the lower of the fair market value of the common stock at the beginning of each six-month offering period or at the end of the present purchasing period. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically upon termination of employment with Enlighten. Warrants In April 1994, in connection with Enlighten's initial public offering, Enlighten issued warrants to purchase up to 100,000 shares of Common Stock at an exercise price of $6.60, of which warrants to purchase up to 85,000 shares expired on April 19, 1999. In April 1999, terms of the warrants to purchase up to 15,000 shares were amended to extend their expiration to April 2001. The fair value of the extension of this warrant as determined using the Black-Scholes option pricing model was not significant using the following assumptions: an expected life of 2 years, risk-free interest rate of 5.50%, 135.8% expected volatility, and no dividend yield. In June 1995, in connection with its facility lease, Enlighten issued warrants to purchase up to 50,000 shares of Common Stock at an exercise price of $5.50. In December 1999, Enlighten issued 12,248 shares of Common Stock pursuant to the net exercise of warrants to purchase 50,000 shares of Common Stock at $5.50 per share. In January 1999, in connection with product marketing consulting performed, Enlighten issued warrants to purchase up to 25,000 shares of Common Stock at an exercise price of $2.50. Upon notice of exercise by the holders of the warrants, Enlighten, at the holders option, may settle such exercise by either issuing the full amount of shares and receiving cash proceeds or issuing a net amount of shares with no cash proceeds. The fair value of these warrants, as determined using the Black-Scholes option pricing model, was $42,600, using the following assumptions: an expected life of 2 years, risk-free interest rate of 5.50%, 135.8% expected volatility, and no dividend yield. These warrants expire in January 2001. F-13 40 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 Accounting for Stock-Based Compensation Plans Enlighten has elected to use the intrinsic value-based method in accounting for its Plan. Accordingly, no compensation cost has been recognized in the accompanying consolidated financial statements for options granted to employees. The exercise price of each option equaled or exceeded the fair value of the underlying common stock as of the grant date for each option. Had compensation cost for Enlighten's stock options been determined in a manner consistent with SFAS No. 123, Enlighten's net loss and net loss per share as reported would have been increased to the pro forma amounts indicated below:
1999 1998 ------- ------- Net loss (In thousands): As reported............................................... $(1,952) $ (785) ======= ======= Pro forma................................................. $(2,636) $(1,302) ======= ======= Basic and diluted net loss per share: As reported............................................... $ (0.49) $ (0.22) ======= ======= Pro forma................................................. $ (0.66) $ (0.37) ======= =======
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 1999 -- an expected life of 3.5 years, risk-free interest rates of 5.50%, 135.8% expected volatility, and no dividend yield; 1998 -- an expected life of 3.5 years, risk-free interest rates of 4.62%, 117.3% expected volatility, and no dividend yield. The weighted-average fair value of options granted during the year was $2.98 and $2.25 for the years ended December 31, 1999 and 1998, respectively. (8) COMMITMENTS Leases Enlighten leases office space and certain office equipment under noncancelable leases expiring through 2003. Future minimum lease payments under these leases aggregate approximately $522,100, $169,300, $1,500 and $700 in 2000, 2001, 2002 and 2003. Enlighten will receive payments totaling $124,900 in 2000 under an office space sublease agreement. Rent expense was $311,600 and $279,300 in 1999 and 1998, respectively. Royalties Enlighten has license agreements with unrelated third parties covering certain of its products requiring royalty payments ranging from 10% to 50% of product license and maintenance fees. Royalties related to these agreements were $130,500 and $201,200 in 1999 and 1998, respectively. Legal Proceedings Enlighten is subject to certain legal actions that have arisen in the ordinary course of business. Management believes that the ultimate outcome of these actions will not have a material affect on Enlighten's consolidated financial statements or results of operations, although there can be no assurance as to the outcome of such litigation. F-14 41 ENLIGHTEN SOFTWARE SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 (9) SEGMENT REPORTING AND MAJOR CUSTOMERS SFAS No. 131 establishes standards for the way in which public companies disclose certain information about operating segments in Enlighten's financial reports. Based on the criteria of SFAS No. 131, Enlighten operates in one segment and accordingly has provided only the required enterprise wide disclosures. For the years ended December 31, 1999 and 1998, sales to one customer accounted for approximately 60% and 65% of total revenues, respectively. Enlighten's operations outside of the United States consisted solely of a sales corporation in the United Kingdom. Domestic operations are responsible for the design, development, and licensing of all products. Following are selected financial data, categorized by primary geographic area:
1999 1998 ---------- ---------- Revenues: United States............................................. $3,235,400 $3,722,800 International............................................. 9,000 35,600 ---------- ---------- $3,244,400 $3,758,400 ========== ========== Long Lived Assets: United States............................................. $ 611,100 $ 680,800 International............................................. -- -- ---------- ---------- $ 611,100 $ 680,800 ========== ==========
F-15 EX-10.35 2 SOFTWARE DEVELOPMENT & LICENSE AGREEMENT 1 EXHIBIT 10.35 SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT BETWEEN INTEL CORPORATION AND ENLIGHTEN SOFTWARE SOLUTIONS, INC. EFFECTIVE DATE: 10/21/99 AGREEMENT No.: 1308605 Parties: Intel Corporation (including all majority owned subsidiaries and affiliates, hereinafter "Intel") 2200 Mission College Blvd. Santa Clara, CA 95052 Licensor (hereinafter "Enlighten") Enlighten Software Solutions, Inc. 999 Baker Way, 5th Floor San Mateo, CA 94402 This Software Development And License Agreement ("Agreement") sets forth the terms under which Enlighten agrees to develop, license and deliver the Licensed Software to Intel in accordance with the provisions contained in the following exhibits which are included in and made a part of this Agreement. Enlighten and Intel are each referred to in the Agreement as a "Party," and collectively as the "Parties: Exhibit "A" - General Terms and Conditions Exhibit "B" - Licensed Software Descriptions and Specifications Exhibit "C" - Compensation Provisions Exhibit "D" - Maintenance and Support Obligations Exhibit "E" - Certificate of Originality Exhibit "F" - Statement of Work Exhibit "G" - Corporate Non-Disclosure Agreement Exhibit "H" - Source Code Provisions AGREED INTEL CORPORATION ENLIGHTEN SOFTWARE SOLUTIONS, INC. /s/ Ed Ekstrom /s/ Bill Bradley - ------------------------------- ---------------------------------- Signature Signature Ed Ekstrom Bill Bradley - ------------------------------- ---------------------------------- Printed Name Printed Name CPG Vice President, SMD General Manager President - ------------------------------- ---------------------------------- Title Title 10/21/99 10/21/99 - ------------------------------- ---------------------------------- Date Date INTEL / ENLIGHTEN CONFIDENTIAL Page 1 2 EXHIBIT "A" GENERAL TERMS AND CONDITIONS 1. DEFINITIONS 1.1 General Definitions. (a) "DERIVATIVE WORKS" means, for purposes of this Agreement, any work that would be deemed a Derivative Work under the Copyright Act, Title 17 of the U.S. Code and any analogous provisions under applicable patent or trade secret law. (b) "DEVELOPMENT TOOLS" means those Enlighten proprietary software development tools licensed to Intel by Enlighten to facilitate the integration, modification, and support of the Licensed Software. Development Tools are set forth in Exhibit B. (c) "DISTRIBUTORS" means Intel's resellers, distributors, original equipment manufacturers ("OEMs"), value-added resellers ("VARs"), system integrators, dealers, agents, and subdistributors. (d) "END-USER DOCUMENTATION" shall mean any end user installation and user guides, manuals, and other technical information in printed and machine-readable form that is normally provided by Enlighten to end users of the Licensed Deliverables. End User Documentation specifically excludes Technical Documentation. (e) "FIRST CUSTOMER SHIPMENT" means the date of first commercial shipment by Intel of the Integrated Intel Product to a Distributor or end user. (f) "ENLIGHTEN INTELLECTUAL PROPERTY RIGHTS" means Enlighten's rights (including under licenses from third parties), now or hereafter existing, in any (i) patents and patent applications, (ii) copyrights in the Licensed Products, and (iii) trade secrets in or necessary to the Licensed Deliverables. (g) "INTEGRATED INTEL PRODUCT(S)" means the Intel Product(s) into which the Licensed Deliverables are integrated in accordance with this Agreement. The initial Intel Product(s) to include the Licensed Deliverables shall be the Linux version of Intel's LANDesk(R) Server Manager product as created under Exhibit F (SOW). Upon Intel's request, the Parties may mutually agree to add additional Intel Integrated Products to this Agreement subject to mutual written agreement by the Parties as to an applicable SOW and the applicable royalties for such additional Intel Integrated Product(s). (h) "INTEL ENABLING TECHNOLOGY" means the Intel proprietary technology as defined and set forth in Exhibit A, which will be used, modified and/or integrated by Enlighten with the Licensed Deliverables (or portions thereof) in developing the Intel Integrated Product as set forth in Exhibit F (SOW). (i) "INTEL INTELLECTUAL PROPERTY RIGHTS" means Intel's rights (including under licenses from third parties), now or hereafter existing, in any (i) patents and patent applications, (ii) copyrights in the Intel Enabling Technology, and (iii) trade secrets in or necessary to the Intel Enabling Technology. (j) "INTEL PRODUCTS" means any or all current and future Intel products and/or services that are developed, provided, rendered, manufactured, marketed, distributed, licensed, or sold by or for Intel and/or its Distributors. INTEL / ENLIGHTEN CONFIDENTIAL Page 2 3 (k) "INTEL UNIQUE TECHNOLOGY" means that subset of the Licensed Deliverables to be developed by Enlighten pursuant to Exhibit F (SOW) which consists of technology that is unique to the Intel environment. Intel shall receive an exclusive license, including Licensed Software Source Code rights, to Intel Unique Technology. (l) "LICENSED DELIVERABLES" means the Licensed Software, Development Tools, Intel Unique Technology, Technical Documentation, End User Documentation and all other deliverables set forth in Exhibit B that Enlighten develops, delivers and licenses to Intel under this Agreement for the fees paid in accordance with Exhibit C. (m) "LICENSED SOFTWARE" means Enlighten's current software programs and technology, including all component parts thereof, and Update(s) thereto provided to Intel by Enlighten in Object Code form, which are included with the Licensed Deliverables as described in Exhibit B. (n) "NET REVENUES" means the amount Intel receives from sales of any Integrated Intel Product, less any returns, discount allowances, third party sales commissions, duties, taxes, freight and/or insurance, if any, irrespective of how such Intel Integrated Product is distributed (e.g. - initial sale, product upgrade, software maintenance agreement, maintenance renewal agreement, etc.). For purposes of this Net Revenue definition, sales of Intel Integrated Products shall also include any amounts received by Intel for distribution of the Intel Integrated Product to Intel Product customers when bundled by Intel with other Intel Products and/or third party offerings as set forth in Exhibit C. Amounts received by a Party as deposits or advances will not be deemed to have been received until recognition of the revenue of the product to the party making the deposits or advances have been made against such deposits or advances. In determining amounts due in situations where Intel receives a partial payment covering multiple Intel Products, such partial payments will be prorated over all Intel Products included in the invoice and the prorated portion attributable to the Intel Integrated Product(s) will be included in Net Revenue definition as defined above. Amounts received by the party in foreign currencies will be deemed converted into United States Dollars at the average exchange rates used by the party in its financial statements for the month of receipt. (o) "OBJECT CODE" means software, including all computer programming code in binary form, that is directly executable by a computer after suitable processing but without the intervening steps of compilation or assembly, and all help, message, overlay files, whether in electronic or hard copy form. (p) "SOURCE CODE" means the software code from which Object Code is compiled. Source Code includes the commented software source code and design documentation for the relevant software, machine readable form, that are used to develop or test the software. Source Code includes, for example, relevant electronically readable source documentation, design documents, data models, help materials, tutorial programs necessary to compile the Source Code into executable, fully-functioning Object Code. (q) "TECHNICAL DOCUMENTATION" means any engineering and interface documentation in connection with the Source Code for Licensed Deliverables and includes, without limitation, the Licensed Deliverables identified in Exhibit B as the High Level Architectural Specification and the Low Level Design Specification for the Enlighten Event Router and the Management Directory Plug-In. Any delivery of Source Code must be accompanied by Technical Documentation sufficient to enable compilation of the Source Code into Object Code. (r) "UPDATE" means any Major, Minor Releases, and Incremental Releases as provided under the Enterprise Support Exhibit D provided under this Agreement. INTEL / ENLIGHTEN CONFIDENTIAL Page 3 4 2. LICENSE GRANTS: 2.1 Licensed Software Object Code: Subject to the terms and conditions of this Agreement, Enlighten hereby grants to Intel a non-exclusive, world-wide, royalty-bearing, irrevocable (except for material breach) and assignable license under Enlighten's Intellectual Property Rights to, use, copy, modify, perform and display the Licensed Software in Object Code form and to create Derivative Works therewith in the form of Integrated Intel Products and to distribute and sell access to the resulting Integrated Intel Product, either directly or indirectly through Intel's Distributors. Notwithstanding the foregoing, the license for Intel Unique Technology shall be exclusive to Intel. Additionally, Intel shall be accorded the royalty free right and interest in all of the aforementioned license rights to include and distribute those portions of the Licensed Deliverables with the console of Intel's LANDesk Management Suite product as further set forth in Exhibit B; notwithstanding the foregoing, and for the avoidance of any doubt, the foregoing sentence shall not affect the payment of applicable royalties as specified under Exhibit C 2.2 Development Tools Object Code: Enlighten hereby grants to Intel a non-exclusive, world-wide, irrevocable (except for material breach) and assignable, internal license under Enlighten's Intellectual Property Rights to use, copy (up to the number of Licenses purchased from Enlighten), perform and display the Development Tools in Object Code form for the purpose of developing and integrating the Licensed Software with the Intel Product(s) listed in Section 1 (g) above, to form and support Derivative Works in the form of Integrated Intel Products. 2.3 End User Documentation: Subject to the terms and conditions of this Agreement, Enlighten hereby grants to Intel a royalty free, non-exclusive, irrevocable (except for material breach) assignable, worldwide license, under Enlighten's Intellectual Property rights for any works of authorship embodied in the End User Documentation to (a) copy and modify the Documentation for the purpose of creating Documentation for the Integrated Intel Products; (b) have the End User Documentation copied and modified for the purpose of creating Documentation for the Integrated Intel Products; (c) incorporate the whole or parts of the End User Documentation into other similar materials prepared by or for Intel for the purpose of creating Documentation for the Integrated Intel Products; and (d) distribute the End User Documentation and copies thereof, in whole or in part, by any means now known or developed in the future. 2.4 Technical Documentation: Subject to the terms and conditions of this Agreement, Enlighten hereby grants to Intel a non-exclusive, assignable, world-wide, irrevocable, non-royalty bearing, internal license under Enlighten's Intellectual Property Rights to make, use, copy, modify, perform and display the Technical Documentation and Derivative Works therefrom. 2.5 Licensed Software Source Code: Subject to Terms and Conditions of this Agreement, and more specifically Section 8.3 (c) and provided that a triggering condition as set forth in Exhibit H has occurred, Enlighten hereby grants to Intel a non-exclusive, world-wide, irrevocable, non-royalty bearing, non-transferable, license under Enlighten's Intellectual Property Rights to, use, copy, modify, perform and display the Licensed Software in Source Code to support the pre-existing Integrated Intel Product. Notwithstanding the foregoing, Intel shall be provided such Source Code license rights for all Intel Unique Technology regardless of whether a triggering condition has occurred with the additional provisions that such Source Code license to Intel Unique Technology shall be exclusive to and transferable by Intel. 2.6 Intel Enabling Technology: Intel hereby grants to Enlighten a non-exclusive, world-wide, irrevocable (except for material breach) internal license under Intel's Intellectual Property Rights to use, copy, modify, perform and display the Intel Enabling Technology and Technical Documentation for the sole and exclusive purpose of developing the Intel Integrated Product pursuant to Exhibit F (SOW). INTEL / ENLIGHTEN CONFIDENTIAL Page 4 5 3. OWNERSHIP 3.1 Ownership of the Licensed Deliverables: Subject to the licenses granted to Intel pursuant to this Agreement, all rights, title and interest in and to the Licensed Deliverables, are and shall at all times remain Enlighten's or Enlighten's supplier's sole and exclusive property. 3.2 Ownership of Derivative Works: Subject to the licenses granted to each party by the other party pursuant to this Agreement, all rights, title and interest in and to any material contributed by or for a Party in the creation of Derivative Works under this Agreement, shall at all times remain with such Party and/or its suppliers, subject to the other Party's ownership interests in the original preexisting work. Notwithstanding the foregoing, all Derivative Works of the Intel Unique Technology created by or for Enlighten shall be the sole and exclusive property of Intel and Enlighten shall assign to Intel all Enlighten Intellectual Property Rights in such Intel Software Derivative Works necessary to perfect Intel's ownership interest therein. 3.3 Ownership of Intel Enabling Technology: Subject to the licenses granted to Enlighten pursuant to this Agreement, all rights, title and interest in and to the Intel Enabling Technology shall at all times remain the sole and exclusive property of Intel or Intel's suppliers. 3.4 Ownership of Licensed Software: Licensed Software delivered to either party in Object Code form may not be reverse compiled, reverse assembled, reverse engineered, used, executed, copied, or modified except as stated in this Agreement. Each party must abide by all proprietary rights on the Object Code software and its related documentation. 4. COMPENSATION Intel will compensate Enlighten according to the Compensation Provisions set forth in Exhibit C. 5. MAINTENANCE AND SUPPORT OBLIGATION Enlighten will provide engineering support and maintain and support the Licensed Software and all Updates according to the provisions and period set forth in Exhibit D. 6. WARRANTIES: 6.1 Enlighten makes the following representations and warranties to Intel in connection with the Licensed Software: (a) The Licensed Software will perform in substantial conformance with the specifications set forth in Exhibit B (the "Specification") and any applicable Statement of Work ("SOW") and that the Licensed Software does not contain errors that prohibit its operation in material conformance therewith. If the Licensed Software fails to conform to either the Specification or any applicable Statement of Work upon delivery to Intel and testing by Intel, Enlighten agrees to use reasonable efforts to modify the Licensed Software to conform therewith, in a timely manner, in accordance with Section 5 of this Agreement. (b) To the best of Enlighten's knowledge, the Licensed Software does not contain any viruses at the time of delivery to Intel. (c) Enlighten has the right to license the Licensed Deliverables to Intel free of any claims, liens or conflicting rights in favor of any third party. Enlighten further represents and warrants that none of the Licensed Deliverables are designated by Enlighten or its third party licensors as Open Source or are otherwise subject to the General Public License or analogous license agreements used to make the Licensed Deliverables or Derivative Works thereof available as Open Source. INTEL / ENLIGHTEN CONFIDENTIAL Page 5 6 (d) Enlighten has no reason to believe that the Licensed Deliverables violates any intellectual property right of any third party. Enlighten will complete and provide to Intel Exhibit E and Enlighten represents that all such information provided to Intel is true and complete in all respects. (e) Enlighten warrants that the Licensed Software when used in accordance with their associated documentation, shall be Year 2000 Capable. "Year 2000 Capable" shall mean that the Licensed Software is capable of correctly processing, providing and/or receiving data within and between the 20th and 21st centuries, provided that all other products (for example, hardware, software, firmware, and/or user data) used with the Licensed Software properly exchange accurate date data with it. The foregoing statement shall not apply to a prior version of a Licensed Software if a more recent version of such Licensed Software is Year 2000 Capable. In the event that a Licensed Software is not Year 2000 Capable as specified above, Intel's sole remedy shall be for Enlighten to repair or replace the Licensed Software, or if neither of the foregoing is commercially practical, refund the amounts received by Enlighten from Intel for the affected Licensed Software. (f) EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH ABOVE, THE LICENSED SOFTWARE AND THE ACCOMPANYING WRITTEN MATERIALS ARE PROVIDED "AS IS" WITHOUT EXPRESS OR IMPLIED WARRANTY OF ANY KIND. ENLIGHTEN FURTHER DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ENLIGHTEN DOES NOT WARRANT THAT THE LICENSED SOFTWARE WILL BE ERROR FREE OR WILL OPERATE WITHOUT INTERRUPTION. 7. INTELLECTUAL PROPERTY INDEMNIFICATION [___] 8. TERM AND TERMINATION 8.1 Term: The term of this Agreement shall be Three (3) years beginning on the Effective Date, which term shall be automatically renewed at the end of such initial term on the anniversary date of the Effective Date for additional one (1) year renewal terms, unless terminated by either Party in writing at least ninety days (90) before any renewal date. Any reference to the "Agreement Term" in the Agreement shall be deemed to include any applicable annual renewal term following the initial three-year term. 8.2 Termination: (a) Either Party shall have the right to terminate this Agreement should the other Party materially default in the performance of any of its obligations if, within thirty (30) days after written notice, the defaulting Party has failed to cure the default. (b) In the event that this Agreement is terminated due to Enlighten's material breach, Enlighten agrees that Intel shall have the right to continue to use the Licensed Deliverables, and Trademarks in accordance with the terms set forth in this Agreement for the shorter of: (i) such time that Intel is able to find and design-in an alternative product containing substantially the same functionality as that supplied by Enlighten hereunder, or (ii) nine (9) months. (c) After initial acceptance, in the event that, in Intel's sole discretion, the Licensed Software fails to meet Intel's product requirements for the Intel Integrated Product(s) at any time during the Agreement Term, Intel may, upon One Hundred Eighty (180) days prior written INTEL / ENLIGHTEN CONFIDENTIAL Page 6 7 notice to Enlighten, terminate this Agreement. In the event of such termination by Intel, Intel shall forfeit any payments made to Enlighten as of the date of the notice. 8.3 Effects of Termination or Expiration: In the event of termination or the expiration of this Agreement, the following provisions will apply: (a) Post-termination Support: If this Agreement is terminated for any reason, Enlighten shall continue to provide Support to Intel's Customer Support personnel as set forth in Exhibit D during such time as Intel is allowed to clear its channel of any remaining inventory as set forth in provision (d) below, and provided that Intel continues to remit payment to Enlighten for such Support in the form of royalties as defined in this Agreement. (b) Return of Intel Enabling Technology: In the event of expiration or termination of this Agreement for any reason, Enlighten shall promptly return or destroy, at Intel's option, all copies of the Intel Enabling Technology, regardless of form and certify to Intel in writing of the compliance with such return or destruction. (c) Source Code Access Upon Termination: In the event of termination due to any condition set forth in Exhibit H which would trigger Intel's rights to access and use the Source Code pursuant to the Source Code Provisions set forth in Exhibit H, Intel shall receive the Source Code license set forth in Section 2.5. (d) Other Survival Provisions: The pertinent provisions governing Survival in Section 8.4 below will also survive. (e) Licenses: If this Agreement expires or is terminated for any reason other than as set forth in Section 8.2 (c) above, Intel will receive a sell-through period of [___] from the date of expiration or termination during which it may continue to exercise its license rights under Section 2 above subject to Intel's payment of applicable royalties. In addition, any and all licenses granted to end-users as of the date of any expiration or termination shall survive. 8.4 The following provisions shall survive any expiration or termination of this Agreement: 1. Definitions; 2. License Grants (but only for a period of 18 months following any Agreement expiration or termination) 3. Ownership; 4. Compensation (but only to the extent that such compensation terms would normally apply to other surviving Agreement provisions (e.g. - License Grants), 5. Maintenance and Support Obligations, 7. Intellectual Property Indemnification; 9. Confidentiality and Non-disclosure, and 10. General Provisions. Additionally, Intel shall have the right to possess and use a reasonable number of archive copies of the Licensed Deliverables for the sole purpose of providing end user customer support and maintenance for the Intel Integrated Product(s) following any expiration or termination of the Agreement. 9. CONFIDENTIALITY AND NON-DISCLOSURE 9.1 CONFIDENTIALITY GENERALLY: The existence, terms, and conditions of this Agreement and either party's Source Code are confidential and neither Party may make any disclosures regarding this Agreement without the express prior written consent of the other, with the following exceptions: a. subject to (b) below, as otherwise may be required by law or legal process, to legal and financial advisors in their capacity of advising a Party in such matters; or b. during the course of litigation so long as the disclosure of such terms and conditions are restricted in the same manner as is the confidential information of other litigating Parties and so long as (i) the restrictions are embodied in a court-entered Protective Order and (ii) the disclosing Party informs the other Party in writing in advance of the disclosure; or INTEL / ENLIGHTEN CONFIDENTIAL Page 7 8 c. in confidence to its legal counsel, accountants, banks and financing sources and their advisors solely in connection with complying with financial transactions or to procure financing from prospective investors. To the extent that this Agreement must be filed with any government regulatory agency, both parties will use reasonable efforts to maintain the terms of confidentiality as set forth herein, including, but not limited to, redacting the Agreement such that only those portions mandated by the government agency are disclosed and obtaining the non-disclosing Party's review and input prior to any such filing. 9.2 CONFIDENTIAL INFORMATION: Disclosures of confidential and proprietary information by either Party to the other Party shall be governed by the Intel Corporate Non-disclosure Agreement ("CNDA") number 5035068, and related Confidential Information Transmittal Records ("CITR(s)") or other appropriate written non-disclosure agreements as may be mutually agreed to and executed by the Parties. Attached as Exhibit G is the aforementioned CNDA. 10. LIMITATION OF LIABILITY [___] 11. GENERAL PROVISIONS 11.1 Assignment. Except for the assignment of the Agreement by Enlighten pursuant to the sale or transfer of all or substantially all of Enlighten's assets, Enlighten may not assign this Agreement or any obligations, rights, or benefits hereunder without the express written consent of Intel which shall not be unreasonably withheld. Intel, following acceptance of the Licensed Deliverables, at its sole discretion, may assign this Agreement or any obligations, rights, or benefits hereunder without the consent of Enlighten provided that Intel has fully paid up all existing monetary obligations which are due and owing to Enlighten pursuant to Exhibit C of this Agreement as of the date of any such assignment. 11.2 Compliance with Laws. Notwithstanding anything contained in this Agreement to the contrary, the obligations of the Parties shall be subject to all laws, present and future, of any government having jurisdiction over the Parties, and to orders, regulations, directions or requests of any such government. 11.3 Dispute Resolution. All disputes arising directly under the express terms of this Agreement or the grounds for termination thereof shall be resolved as follows: The senior management of both Parties shall meet to attempt to resolve such disputes. If the senior management cannot resolve the disputes, either Party may make a written demand for formal dispute resolution and specify therein the scope of the dispute. Within thirty days after such written notification, the Parties agree to meet for one day with an impartial mediator and consider dispute resolution alternatives other than litigation. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one-day mediation, either Party may begin litigation proceedings. 11.4 Export. In the event product is exported from the United States or exported/re-exported from a foreign destination by either Party, such exporting Party shall ensure that the distribution and export/re-export of product is in compliance with all laws, regulations, orders, or other restrictions of the U.S. Export Administration Regulations. As of the Effective Date of this Agreement, Enlighten represents and warrants that, to the best of its knowledge, the Licensed Deliverables, alone and not in combination with any other technology or product, do not require any special export licenses or other U.S. Government regulatory approvals prior to export from the United States. 11.5 Force Majeure. Neither Party shall be responsible for its failure to perform due to causes beyond its reasonable control such as acts of God, fire, theft, war, riot, embargoes, or acts of civil or INTEL / ENLIGHTEN CONFIDENTIAL Page 8 9 military authorities. If delivery or services are to be delayed by such contingencies, Enlighten shall immediately notify Intel in writing, and Intel may, at its option, either (i) extend time of performance or (ii) terminate the uncompleted portion of the order at no cost to Intel. 11.6 Governing Law. Any claim arising under or relating to this Agreement shall be governed by the internal substantive laws of the State of Delaware or federal courts located in Delaware, without regard to principles of conflict of laws. Jurisdiction. Each Party hereby agrees to jurisdiction and venue in the courts of the State of California for all disputes and litigation arising under or relating to this Agreement. 11.7 Independent Development. This Agreement does not preclude Intel or Enlighten from evaluating, acquiring from third parties not a party to this Agreement, independently developing or marketing similar technologies or products, or making and entering into similar arrangements with other companies. Neither Party is obligated by this Agreement to make such products or technologies available to the other. 11.8 Notice. All notices required or permitted to be given hereunder shall be in writing, shall make reference to this Agreement, and shall be delivered by hand, or dispatched by prepaid air courier or by registered or certified airmail, postage prepaid, addressed as follows: Notices to Intel: Notices to Enlighten: Intel Corporation Enlighten Corporation Attn: General Counsel --------------------------- 2200 Mission College Blvd. 999 Baker Way, 5th Floor Santa Clara, CA 95052 --------------------------- San Mateo, CA 94402 --------------------------- Attn: Mr. Bill Bradley --------------------------- With copies to: Intel Corporation Attn: Legal Dept. 734 E. Utah Valley Drive American Fork, UT 84003 Intel Corporation Attn: Post Contract Management, MS JF3-149 2111 N.E. 25th Hillsboro, OR 97124 Such notices shall be deemed served when received by addressee or, if delivery is not accomplished by reason of some fault of the addressee, when tendered for delivery. Either Party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such Party at such changed address. 11.9 Relationship of Parties. The Parties hereto are independent contractors. Neither Party has any express or implied right or authority to assume or create any obligations on behalf of the other or to bind the other to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be construed to create a partnership, joint venture, employment or agency relationship between Enlighten and Intel. 11.10 Remedies. Except as set forth in Section 7.3 and 10, then (i) the remedies set forth in this Agreement are in addition to those available to either Party at law or in equity, and (ii) all rights and remedies, legal or equitable, whether conferred hereunder, or by any other instrument or law will be cumulative and may be exercised singularly or concurrently. INTEL / ENLIGHTEN CONFIDENTIAL Page 9 10 11.11 Residuals. Notwithstanding anything herein to the contrary, either Party may use Residuals for any purpose, including use in the development, manufacture, promotion, sale and maintenance of its products and services; provided that this right to Residuals does not represent a license under any patents or copyrights of the disclosing Party. The term "Residuals" means information of a general nature, such as general knowledge, ideas, concepts, know-how, professional skills, work experience or techniques (not specifics such as exact implementations) that is retained in the unaided memories of the receiving Party's employees who have had access to the disclosing Party's information pursuant to the terms of this Agreement. An employee's memory is unaided if the employee has not intentionally memorized the information for the purpose of retaining and subsequently using or disclosing it. 11.12 Severability. The terms and conditions stated herein are declared to be severable. If any paragraph, provision, or clause in this Agreement shall be found or be held to be invalid or unenforceable in any jurisdiction in which this Agreement is being performed, the remainder of this Agreement shall be valid and enforceable and the Parties shall use good faith to negotiate a substitute, valid and enforceable provision which most nearly effects the Parties' intent in entering into this Agreement. 11.13 Waiver. Failure by either Party to enforce any term of this Agreement shall not be deemed a waiver of future enforcement of that or any other term in this Agreement or any other agreement that may be in place between the Parties. 11.14 Entire Agreement. The terms and conditions of this Agreement, including its exhibits, constitutes the entire agreement between the Parties with respect to the subject matter hereof, and merges and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions. Neither of the Parties shall be bound by any conditions, definitions, warranties, understandings, or representations with respect to the subject matter hereof other than as expressly provided herein. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. No oral explanation or oral information by either Party hereto shall alter the meaning or interpretation of this Agreement. No amendments or modifications shall be effective unless in a writing signed by authorized representatives of both Parties. These terms and conditions will prevail notwithstanding any different, conflicting or additional terms and conditions which may appear on any purchase order, acknowledgment or other writing not expressly incorporated into this Agreement. In the event of any conflict between the terms and conditions set forth in this Exhibit A and any other Exhibit of this Agreement, the Exhibit A terms and conditions shall govern, unless the other Exhibit expressly states that it governs. This Agreement may be executed in two (2) or more counterparts, all of which, taken together, shall be regarded as one and the same instrument. INTEL / ENLIGHTEN CONFIDENTIAL Page 10 11 EXHIBIT "B" LICENSED SOFTWARE DESCRIPTION AND SPECIFICATIONS DESCRIPTION OF LICENSED DELIVERABLES The following table lists the deliverables classified as Licensed Deliverables. The relevant sections of Exhibit F (SOW) and the applicable sections of the License Grant are also shown. [___] INTEL UNIQUE TECHNOLOGY The following table lists the deliverables classified as Intel Unique Technology. The relevant sections of Exhibit F (SOW) and the applicable sections of the License Grant are also shown. [___] DESCRIPTION OF DEVELOPMENT TOOLS PROGRAM The development tools required to build the developed source code are a combination of commercially available tools and Enlighten proprietary tools. The commercially available tools are: GNU C Compiler (gcc) GNU C++ Compiler (g++) GNU C/C++ Object Module Linker Microsoft Visual C++ Compiler GNU make (gmake) The Enlighten proprietary tools are: EMK Make - Enlighten's Proprietary build system DESCRIPTION OF INTEL ENABLING TECHNOLOGY The following table lists the deliverables classified as Intel Enabling Technology. The relevant sections of Exhibit F (SOW) and the applicable sections of the License Grant are also shown. INTEL / ENLIGHTEN CONFIDENTIAL Page 11 12 [___] SPECIFICATIONS The Licensed Deliverables will meet the specifications set forth in the then current Enlighten data sheet for respective Licensed Deliverable as augmented by any applicable specifications set forth in any Statement of Work agreed upon by the parties under the provisions of this Agreement. Such data sheets and Statements of Work are made part of this Agreement by this reference. INTEL / ENLIGHTEN CONFIDENTIAL Page 12 13 EXHIBIT "C" COMPENSATION AND PAYMENT PROVISIONS Subject to Enlighten's compliance with the terms and conditions of this Agreement and in consideration for the rights and licenses granted by Enlighten and the obligations assumed hereunder, Intel will compensate Enlighten as follows: 1.0 INTEL INTEGRATED PRODUCT ROYALTIES: In connection with Intel's distribution of Intel Integrated Product, Intel will pay Enlighten a royalty based upon [___] pursuant to the following models. Each model is exclusive of the others, based upon the final Beta NRE payment made to Enlighten by Intel pursuant to Section 9 of this Exhibit C. In no case shall Royalties payable to Enlighten under any of the following Royalty models exceed [___] from the Intel Integrated Product: (a) Royalties on the [___] from the Intel Integrated Product(s) will be [___]. Thereafter and continuing for the lifespan of the Intel Integrated Product(s), the royalty shall be [___]. This Royalty model assumes Intel's full payment of the [___] Beta NRE payment without any penalty deductions. (b) In the event that the Beta NRE payment is decreased to [___] as provided in Section 9 (a) below, the royalty on the [___] from the Intel Integrated Product(s) will be [___]. Thereafter and continuing for the lifespan of the Intel Integrated Product(s), the royalty shall be [___]. (c) In the event that the Beta NRE payment is decreased to [___] as provided in Section 9 (a) below, the royalty on the [___] from the Intel Integrated Product(s) will be [___]. Thereafter and continuing for the lifespan of the Intel Integrated Product(s), the royalty shall be [___]. (d) If, in its sole discretion, Intel packages the Intel Integrated Product with other Intel Products or third-Party products or services, and that package is sold as an option, under a single price, to Intel Product customers, then the royalty for such Intel Integrated Product distribution as a component of an "option package" shall be negotiated by the Parties (e) Notwithstanding the provisions of any of the Royalty Models set forth above, for an Intel Product bundle consisting of the Intel Integrated Product with Intel's Remote Server Management card, the royalty rate shall be [___] by Intel from such bundle. [___] 2.0 QUARTERLY REPORTS AND PAYMENTS: During the Term of this Agreement, within fifteen (15) calendar days following the end of any calendar quarter during which Intel sells any Licensed Software in the form of an Integrated Intel Product, or such Licensed Software is credited for return, Intel shall provide a brief report ("Report") of such activity to Enlighten that lists the number of copies of the Licensed Software sold and the applicable royalty therefor, or, as the case may be, returned in that quarter, and the total amount of royalty owed to Enlighten or credited to Intel therefor. If any royalties are due Enlighten in such calendar quarter, Intel shall remit such payment to Enlighten with the corresponding report within forty-five (45) calendar days following the end of such calendar quarter. If any return credits accrue to Intel and if there are no payments against which such credits may be offset, such credits may be carried forward indefinitely by Intel in subsequent accounting periods. Returns: Intel shall be credited the full amount of any royalty accrued on any returned or destroyed copies of the Licensed Software that Intel, in its sole discretion, authorizes for such return or destruction. 3.0 ROYALTY FREE COPIES: Intel shall owe no royalty or other payment to Enlighten in connection with Licensed Software copies that are given to end-users as evaluation copies for a limited duration of time (not to exceed 90 calendar days) and/or for a limited purpose of use. In addition, Intel shall owe no royalty or other payment to Enlighten in connection with any Licensed Software copies used INTEL / ENLIGHTEN CONFIDENTIAL Page 13 14 internally for development or support or given to third Parties for the sole and exclusive purpose of testing, reviewing, or promoting Integrated Intel Products or for philanthropic or charitable reasons. 4.0 CONSULTING SERVICES: The rate for any consulting services provided by Enlighten to Intel pursuant to this Agreement and lasting less than thirty (30) consecutive calendar days shall be [___] per consultant per day plus reasonable travel and lodging expenses (per Intel's standard travel and lodging guidelines which shall be provided to Enlighten upon request). For consulting services on engineering projects/tasks lasting more than thirty (30) consecutive calendar days in duration, the rate shall be [___] per consultant per month, plus reasonable travel and lodging expenses (per Intel's standard travel and lodging guidelines which shall be provided to Enlighten upon request). Additionally, upon execution of this Agreement, Enlighten agrees, at Intel's option, to supply Intel with two (2) consultants for a period of up to six (6) months pursuant to a separate agreement between the Parties. Reasonable travel includes Enlighten employees returning to their homes once a week. 5.0 TRAINING: The rate for any training services provided by Enlighten to Intel pursuant to this Agreement shall be [___] per instructor per day for onsite training services, plus reasonable travel expenses (per Intel's standard travel and lodging guidelines which shall be provided to Enlighten upon request). 6.0 SUPPORT PENALTIES: Under the provisions of Exhibit D (provision A (2)), if during any quarter, any Support penalties are assessed by Intel, each such penalty shall result in a royalty reduction of that quarter's total royalties due from Intel by [___]. Such Support penalties are cumulative and remain in effect until resolved. Assessment of any Support penalties will not affect Intel's right to receive and Enlighten's obligation to provide continued Support and Updates as set forth in the Agreement. 7.0 MFC PRICE: Intel will receive price terms equal to or better than any such price terms offered to any Enlighten customer for substantially the same Enlighten products and/or the same services to the products and/or services being provided to Intel. In connection with this provision, Enlighten represents and warrants that Intel will receive Enlighten's Most Favored Customer Price for all services under such designation and if Intel has a reasonable cause to question such representation and warranty, Intel will have a limited audit right to require Enlighten to produce the applicable terms of such agreements with such other customers upon Intel's request. 8.0 NO OTHER COMPENSATION: Except as specifically set forth in this Exhibit, no other royalty, compensation, contingent payments or reimbursement will be due or payable to or on behalf of Enlighten from Intel in connection with any Enlighten Licensed Deliverable or Derivative Work therefrom or the distribution thereof, or for any Support, Update, NRE, or other services rendered hereunder. 9. INITIAL CUSTOM PRODUCT DEVELOPMENT AND INTEGRATION: Intel agrees to pay Enlighten the sum of [___] for the custom product development and integration work as set forth in the SOW. Payment shall be made [___] which shall be due and payable upon Intel's acceptance of the beta version of the Integrated Intel Product. Upon Intel's acceptance of the final version of the Intel Integrated Product, Intel shall make [___]. (a) In the event that Enlighten's delivery of the beta version of the Intel Integrated Product is more than [___] days late as measured from the scheduled delivery date set forth in the SOW (Exhibit H), the [___] payment due Enlighten as set forth above shall be reduced [___]. In the event that such beta delivery is more than [___] days late, the [___] payment shall be further reduced [___]. Notwithstanding the foregoing, none of the foregoing penalties shall be applicable if the failure of Enlighten to meet the scheduled beta delivery date is directly attributable to Intel's failure to provide the necessary Intel technology to Enlighten. Below are listed the anticipated delivery dates for the respective Intel Enabling Technology: [___] INTEL / ENLIGHTEN CONFIDENTIAL Page 14 15 (b) If Enlighten's Beta Deliverables to Intel are delayed by Intel's failure to deliver the necessary integrating technology to Enlighten in accordance with the Intel delivery schedule as noted in Section 9(a) above, or if Intel is unable to test the Beta Deliverables for any reason, Intel shall not delay the acceptance of the Beta Deliverables or the [___]. In such case, Enlighten will notify Intel within five (5) working days if any late delivery by Intel will prevent Enlighten from meeting the Beta Deliverable date. Such notice shall clearly indicate which of the specific portions of the Beta Deliverables are affected by the late deliverable. Enlighten will use commercially reasonable best efforts to reduce the impact of any such late delivery by Intel, however, the entire Beta Deliverables will be deemed accepted based on the acceptance of the portions of the Beta Deliverables which are independent of the delayed portions of Intel's integrating technology. 10. INITIAL PRODUCT VALIDATION AND INTEGRATION: Enlighten shall provide Intel with engineering resources to complete the initial product validation and integration for the Integrated Intel Product(s) pursuant to the contracted support arrangements. Support prior to the Effective Date of this agreement shall be considered a cost of gaining Intel as a customer and no integration/validation payment will be made for the work done prior to the Effective Date of this agreement. INTEL / ENLIGHTEN CONFIDENTIAL Page 15 16 EXHIBIT "D" SUPPORT REQUIREMENTS Support for Intel's product support team in issues relating to the Enlighten Licensed Deliverables incorporated into Intel Products: 1. Intel takes first-line end-user calls. If Intel is unable to solve a customer's problem, Enlighten will assist Intel by telephone. Such assistance will be available to Intel continuously, at no cost, during Enlighten's normal business hours. The escalation procedure for problems which Intel is unable to resolve is as set forth in provision "A" below. (A) Enlighten provides escalation path for Intel support technicians. Note that all time frames listed below assume that correction of the specified problem is possible within the allowed time frame. Enlighten commits to meeting these time frames. If a fix or workaround is not possible within the allowed time frame, subject to Intel's approval as to timing, Enlighten will work with Intel product support personnel to provide an estimate of the time required to correct the problem and will report regularly to Intel until corrective action is complete. Penalties will be assessed based on failure to meet initial response times and failure to show reasonable effort in correcting problems. (1) Problem severity and expected response time: (a) If a [___] occurs in the Enlighten Deliverable, Enlighten must respond within [___] with an acknowledgment of the error and provide a fix or workaround within [___] is one that results in a user-down situation causing disruption of an end-user's normal network. (b) If an [___] occurs in the Enlighten Deliverable, Enlighten must respond within [___] with an acknowledgment of the error and provide a solution within [___] is one that degrades the basic services of the Intel product and for which no convenient workaround is available. (c) If a [___] occurs in the Enlighten Deliverable, Enlighten must respond within [___] with an acknowledgment of the error and provide a solution within [___] is one that causes end-users to initiate complaints to Intel relating to incorrect or missing information. (d) If a [___] occurs in or a [___] regarding an Enlighten Deliverable, Enlighten must respond within [___] with an acknowledgment of the [___] and will categorize it within [___]. INTEL / ENLIGHTEN CONFIDENTIAL Page 16 17 (e) The milestones below are based on the indicated working days after the problem is reported to Enlighten and all required supporting technical data has been supplied to Enlighten. For purposes of this provision, the required supporting technical data shall be deemed to consist of the following: (i) A description of the error; (ii) How to reproduce the error. If the error consists of a documentation error, where the error may be found; (iii) A description of what is believed the correct result should be; and, (iv) The severity classification of the problem discovered. [___] (2) Penalties: If Enlighten fails to meet any Support milestones as set forth in this Provision (A), Enlighten shall be penalized [___] of the quarterly royalties which would normally have been due from Intel during such quarter in which the failure to meet the support milestone occurs and the respective penalty becomes applicable. Penalties are per each unique technical incident and continue to be applicable from quarter to quarter until such time as Enlighten remedies the incident giving rise to the penalty. 2. TERM OF SUPPORT OBLIGATIONS Enlighten agrees to perform the support obligations set forth herein for the term of the Agreement and for a period of [___] following any termination thereof as set forth in Exhibit A, Section 8.3 unless the term of this Exhibit "D' is otherwise extended by the Parties in writing. 3. Future LICENSED SOFTWARE Requirements and Statements of Work: During the term of this Agreement, Intel and Enlighten mutually agree to meet on a periodic basis, but in no event less than semi annually, to share product directions/roadmaps for their respective products (i.e., the Licensed Software and Integrated Intel Product(s)), channels, market segments and marketing messaging to jointly assess where there may exist differences in either customer requirements and/or roadmap timelines, and to provide input to each other regarding development of each Party's roadmaps/timelines to more effectively align the Licensed Software with Intel's needs for Integrated Intel Product(s). For features and/or functionality which are required by Intel for Intel's Integrated Intel Products and which are not on Enlighten's roadmap for inclusion with the Licensed Software, at Intel's request, Enlighten and Intel shall mutually work to develop an appropriate SOW for the development and inclusion of such features and/or functionality in the Licensed Software. Engineering NRE rates for such SOWs shall be at the rates set forth in Exhibit C. If Enlighten and Intel are unable to agree on any significant aspect of a SOW (e.g., timeline, resources required, price) for any features/functionality required by Intel which is not on Enlighten's roadmap, such issues shall immediately be escalated to the Executive Contacts below for resolution. If the Executive Contacts are unable to reach INTEL / ENLIGHTEN CONFIDENTIAL Page 17 18 resolution, the matter may be further escalated. In the event that Intel requests Enlighten to pull in the availability/inclusion of a specific feature and/or functionality which is included on the Enlighten roadmap for the Licensed Software, the Parties shall, on a case by case basis, mutually agree upon an appropriate SOW, timeline, and NRE. Intel Executive Contact: Enlighten Executive Contact: -------------------------- --------------------------- Printed Name Printed Name -------------------------- --------------------------- Title Title -------------------------- --------------------------- Phone Phone -------------------------- --------------------------- Fax Fax 4. ADDITIONAL ENGINEERING SUPPORT - Enlighten shall provide the following additional support to Intel during the Agreement term. Unless expressly specified otherwise, such support shall be at no additional cost to Intel beyond that specified in section 4.9: A. Support for the Initial Integration of the Licensed Deliverables - Enlighten will provide Intel with all engineering support necessary to perform the initial integration of the Licensed Deliverables with the designated Intel Products as set forth in Exhibit F - Statement of Work. B. Support for Integration of future Licensed Deliverables releases - Enlighten will provide Intel with engineering support to integrate all future Licensed Deliverable releases during the term of the Agreement and any renewal term thereof. Such future releases shall be provided on a timely basis, and shall be "integration enabled" to the same extent as the initial accepted Licensed Deliverables for the Integrated Intel Product provided pursuant to this Agreement and at or before such time that Enlighten makes such release generally available to its other customers. C. Timely notification of errors and provision of maintenance releases - Enlighten shall provide Intel with timely notifications of any errors, anomalies or other such irregularities with the Licensed Deliverables and will provide Intel with all maintenance releases no later than such maintenance releases are provided to Enlighten's other customers. If available, Enlighten will provide Intel with their "beta" maintenance releases to facilitate early issue identification and testing with the Integrated Intel Products. 5. TRAINING If requested by Intel, for each major release of the Licensed Deliverables, Enlighten shall provide Intel with up to one week of training to Intel at the rates set forth in Exhibit C. The parties shall mutually agree upon the timing and location of such training. At a minimum, all such training shall be provided in a timeframe that will support Intel's release of Intel Integrated Products or any Updates thereto. 6. BETA DELIVERABLE ACCEPTANCE PROCESS - Unless otherwise specified in any applicable Statement of Work, the following shall constitute the Acceptance Process for any release of Beta Deliverables. The Parties agree to jointly meet and collaborate on activities and processes which will expedite the development and delivery of the Beta Deliverables so as to meet the dates set forth in the Statement of Work. The provisions governing Intel's Acceptance are as follows: A. Initial Intel Response: On delivery by Enlighten of the Beta Deliverable, Intel has [___] in which to reject or accept the Enlighten Beta Deliverable. During this period, Intel, if desired, will evaluate the Enlighten Beta Deliverable and test it against the relevant Statement of Work, warranty or specifications, if any. Any testing or acceptance of a Enlighten Beta Deliverable by Intel, however, shall not INTEL / ENLIGHTEN CONFIDENTIAL Page 18 19 constitute a waiver of any right should Intel later discover any defect, variation, nonconformity or breach with respect to such Enlighten Beta Deliverable, and neither shall any testing or acceptance by Intel prejudice any other Intel right or Enlighten obligation hereunder, including those under indemnification as discussed in Exhibit A, Section 7. B. Initial Acceptance: If Intel accepts the Enlighten Beta Deliverable, it will promptly notify Enlighten of its acceptance. If Intel fails to accept or reject the Enlighten Beta Deliverable within [___], the Enlighten Beta Deliverable is deemed accepted. C. Initial Rejection: If Intel, for any reason, rejects any Enlighten Beta Deliverable, its rejection must be in writing and must specify the nature of the defect. D. Acceptance Criteria: In order to qualify for acceptance, Enlighten must provide the Beta Deliverables according to the criteria defined below and any other requirements contained in SOW. 1. No known Critical problems remain unresolved; 2. A list of any known Important, Minor or Discretionary problems with an action plan in place to resolve them; and 3. The Deliverable is demonstrated to Intel representatives to illustrate that it meets a satisfactory level of functionality per the SOW. 4. If Enlighten's Beta Deliverables to Intel are delayed by Intel's failure to deliver the necessary integrating technology to Enlighten in accordance with the Intel delivery schedule as noted in Exhibit C, Section 9(a), or if Intel is unable to test the Beta Deliverables for any reason, Intel shall not delay the acceptance of the Beta Deliverables or [___]. In such case, Enlighten will notify Intel within [___] if any late delivery by Intel will prevent Enlighten from meeting the Beta Deliverable date. Such notice shall clearly indicate which of the the specific portions of the Beta Deliverables are affected by the late deliverable. Enlighten will use commercially reasonable best efforts to reduce the impact of any such late delivery by Intel, however, the entire Beta Deliverables will be deemed accepted based on the acceptance of the portions of the Beta Deliverables which are independent of the delayed portions of Intel's integrating technology. 7. LICENSED DELIVERABLES ACCEPTANCE PROCESS - Unless otherwise specified in any applicable Statement of Work, the following shall constitute the Acceptance Process for any release of the Licensed Deliverables by Intel. The Parties agree that Intel's acceptance of the Enlighten Deliverables is a material condition precedent to Intel's obligations under this Agreement. The provisions governing Intel's Acceptance are as follows: A. Initial Intel Response: On receipt by Intel of any Enlighten Licensed Deliverable, Intel has [___] in which to reject or accept the Enlighten Licensed Deliverable. During this period, Intel will evaluate the Enlighten Licensed Deliverable and test it against the relevant Statement of Work, warranty or specifications, if any. In the case of Updates, Intel's acceptance remains in Intel's sole discretion. Any testing or acceptance of a Enlighten Licensed Deliverable by Intel, however, shall not constitute a waiver of any right should Intel later discover any defect, variation, nonconformity or breach with respect to such Enlighten Licensed Deliverable, and neither shall any testing or acceptance by Intel prejudice any other Intel right or Enlighten obligation hereunder, including those under indemnification as discussed in Exhibit A, Section 7. B. Initial Acceptance: If Intel accepts the Enlighten Licensed Deliverable, it will promptly notify Enlighten of its acceptance. If Intel fails to accept or reject the INTEL / ENLIGHTEN CONFIDENTIAL Page 19 20 Enlighten Deliverable within [___], the Enlighten Licensed Deliverable is deemed accepted. C. Initial Rejection: If Intel, for any reason, rejects any Enlighten Licensed Deliverable, its rejection must be in writing and must specify the nature of the defect. D. Intent To Correct: If Intel provides Enlighten with written notice of rejection, Enlighten must respond to Intel within [___] of receiving that notice by communicating its intent to correct the Enlighten Deliverable. If Enlighten fails to indicate such intent, Enlighten will be deemed to be in breach of the Agreement. E. Acceptance Criteria: In order to qualify for acceptance, Enlighten must provide the Licensed Deliverables according to the criteria defined below and any other requirements contained in SOW. 1. No known Critical or Important problems remain unresolved; 2. A list of any known Minor problems with an action plan in place to resolve them; and 3. The Licensed Deliverables are demonstrated to Intel representatives to illustrate high quality per the functionality of the SOW F. Enlighten's Cure: After providing notice to Intel of its intent to correct the rejected Enlighten Deliverable, Enlighten has [___] from the date of its receipt of Intel's notice of initial rejection to correct the Enlighten Licensed Deliverable and to submit the corrected version to Intel for acceptance under the provisions set forth in this Exhibit D, Section 6. Any resubmission of a Enlighten Licensed Deliverable by Enlighten must be made in good faith and must evidence substantial directed efforts to correct Intel's identified basis of the defect. G. Enlighten's Failure To Cure: If at the end of the [___] period, Enlighten has failed to cure the defect in the Enlighten Licensed Deliverables and has failed to show reasonable effort to cure or has failed to secure an executed modification of the Statement of Work from Intel, warranty or specification for that Enlighten Licensed Deliverable, Intel, at its sole discretion, may terminate this Agreement under the provisions of Exhibit A, Section 8 or may send Intel engineering personnel to Enlighten where Enlighten shall provide such Intel personnel with access to the Licensed Deliverable Source Code to assist Enlighten with its efforts to cure the defect. If Intel accesses the Source Code, then Intel will receive the Source Code License described in Exhibit A, Section 2, including the Object Code distribution rights to the Derivative Work which was the subject of the Statement of Work, warranty or specification. In such event, Intel must complete a substantial majority of the work described in the Statement of Work, warranty or specification. If Intel fails to complete a substantial majority of work, then Intel shall receive no license to Enlighten's Intellectual Property Rights in the Enlighten Deliverables from which the Derivative Work was created. INTEL / ENLIGHTEN CONFIDENTIAL Page 20 21 EXHIBIT "E" CERTIFICATE OF ORIGINALITY This questionnaire must be completed by the company official furnishing a software material (program product or offering and related documentation, or other software material) for Intel. One questionnaire can cover one complete product, even if that product includes multiple modules. However, a separate questionnaire must be completed for the code and another for its related documentation (if any). Please do not leave any questions blank. Write "not applicable" or "N/A" if a question is not relevant to the furnished software material. 1. Name of the software material (provide complete identification, including version, release and modification numbers for programs and documentation): ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ 2. Was the software material or any portion thereof written by any Party other than Enlighten, or Enlighten's employees working within their job assignment? Yes X No --- --- If yes, provide the following information: (a) Indicate if the whole software material or only a portion thereof was written by such Party, and identify such portion: [___] (b) Specify for each involved Party: [___] (iv) If the Party is a company, how did it acquire title to the software material (e.g., software material was written by company's employees as part of their job assignment)? In both instances the products were developed by the company's employees within the scope of their employment with each respective company. (v) If the Party is an individual, did s/he create the software material while employed by or under contractual relationship with another Party? Yes No X ----- ----- If Yes, provide name and address of the other Party and explain the nature of the obligations: N/A (c) How did Enlighten acquire title to the software material written by the other Party? Both parties were acquired for a combination of cash and royalties based upon product revenue. As of this writing, both parties have been fully paid for the 1 Intel Confidential 22 products and there are no future commitments for royalties or any other remuneration to either party. 3. Was the software material or any portion thereof derived from any third party's pre-existing materials? Yes No X ----- ----- If yes, provide the following information for each of the pre-existing materials: (a) Name of the materials: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (b) Owner: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (c) How did Enlighten get the right to use the pre-existing material(s)? N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- 4. Identify below, or in an attachment, any other circumstances which might affect Intel's ability to reproduce and market this software product, including: (a) Confidentiality or trade secrecy of pre-existing materials: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (b) Known or possible royalty obligations to others: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (c) Pre-existing materials developed for another Party or customer (including government) where Enlighten may not have retained full rights to the material: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (d) Materials acquired from a person or company possibly not having title to them: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (e) Other circumstances: N/A ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- INTEL / ENLIGHTEN CONFIDENTIAL Page 2 23 COMPANY - -------------------------------- Signature - -------------------------------- Printed Name - -------------------------------- Title - -------------------------------- Date INTEL / ENLIGHTEN CONFIDENTIAL Page 3 24 EXHIBIT F [___] INTEL / ENLIGHTEN CONFIDENTIAL Page 4 25 EXHIBIT H SOURCE CODE PROVISIONS This Exhibit H is intended to be part of the Software License and Development Agreement between Enlighten and Intel ("Agreement"). Within thirty (30) days from the Effective Date of this Agreement, Enlighten and Intel shall execute the Escrow Agreement set forth below with Data Securities International, Inc. In the event of any conflict between the terms of the Escrow Agreement and those of the Agreement, those of the Agreement will control. THIS AGREEMENT ("Escrow Agreement") is executed as of this _________ day of __________________, 1999 by and among Enlighten Software Solutions, Inc. ("Enlighten"), Intel Corporation ("Reseller"), and Data Securities International, Inc., ("Escrow Agent"), as Escrow Agent. The effective date of this Escrow Agreement shall be the date last signed below (the "Effective Date"). WHEREAS Enlighten and Reseller have entered into a Software Development and License Agreement # 1308605 dated October 15, 1999 thereto (collectively, the "Agreement") pursuant to which Enlighten has licensed to Reseller the right to distribute certain Deliverables (as defined in the Agreement and referred to herein as the "Software") and related materials for a certain period of time; WHEREAS the Agreement requires Enlighten and Reseller to enter into an Escrow Agreement with an escrow agent chosen by Enlighten which provides for Enlighten's deposit of one copy of the source code of Software (the "Source Code"), as modified from time to time in accordance with the terms of the Agreement. The Agreement provides that, under circumstances to be specified in this Escrow Agreement, Reseller may obtain the escrowed Source Code from the Escrow Agent solely for the purpose of making modifications, performing maintenance, providing support to end user customers, or making bug fixes, as applicable; WHEREAS Enlighten wishes to insure that development, maintenance and support for Enlighten's Software, as modified from time to time in accordance with the terms of the Agreement are available upon the occurrence of an Escrow Event (as defined in the Agreement); and WHEREAS Escrow Agent is in the business of providing third party software escrow protection by storing, retaining and allowing limited access to proprietary technology, related media and materials. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows: 1. DEPOSIT OF DOCUMENTATION INTEL / ENLIGHTEN CONFIDENTIAL Page 5 26 1.1 The term "Source Code" as used in this Escrow Agreement means the source code, in modifiable form, in human readable format that will enable a third party programmer skilled in the art to be able to modify, maintain or enhance the Software without further assistance or references to other materials. 1.2 Enlighten will place each new release of Software into an escrow account. Reseller's access to such source and object code will be allowed only after an Escrow Event has occurred. Cost of Software Escrow to be borne by Reseller. 1.3 The term "Deposit" as used in this Escrow Agreement means the Source Code deposited with Escrow Agent by Enlighten pursuant to this Escrow Agreement. 2. REVISIONS AND MAINTENANCE 2.1 Enlighten agrees to deposit with Escrow Agent a copy of all new versions of the Source Code prepared by Enlighten within forty-five (45) business days after such new versions are made available to the general public by Enlighten. Such revisions shall be deposited in a sealed package certified by an authorized officer of Enlighten to contain a complete copy of such new versions. 2.2 Escrow Agent shall acknowledge delivery of new versions hereunder by sending written acknowledgment thereof to both Enlighten and Reseller. 3. STORAGE AND SECURITY 3.1 Escrow Agent shall act as custodian of the Deposit until the escrow is terminated pursuant to Section 11 ("Termination") of this Escrow Agreement. Escrow Agent shall establish, under its control, a secure receptacle for the purpose of storing the Deposit. 3.2 The Deposit shall remain the exclusive property of the Enlighten, subject only to the licenses provided in this Escrow Agreement. 3.3 Escrow Agent shall not divulge, disclose or otherwise make available the Deposit to any parties other than those persons duly authorized in writing by a competent officer of Enlighten, except as provided in this Escrow Agreement. 3.4 Escrow Agent shall not permit any person access to the Deposit except as may be necessary for Escrow Agent's authorized representatives to perform under this Escrow Agreement. 3.5 Access to the Deposit shall not be granted without compliance with all security and identification procedures instituted by Escrow Agent. INTEL / ENLIGHTEN CONFIDENTIAL Page 6 27 3.6 Escrow Agent shall have no obligation or responsibility to verify or determine that the Deposit does, in fact, consist of those items which Enlighten is obligated to deliver, under any agreement, and Escrow Agent shall bear no responsibility whatsoever to determine the existence, relevance, completeness, currency, or accuracy of the Deposit. 3.7 Escrow Agent's sole responsibility shall be to accept, store and deliver the Deposit, in accordance with the terms and conditions of this Escrow Agreement. 3.8 If any of the Deposit shall be attached, garnished or levied upon pursuant to an order of court, or the delivery thereof shall be stayed or enjoined by an order of court, or any other order, judgment or decree shall be made or entered by any court affecting the relevant Deposit or any portion thereof, Escrow Agent is hereby expressly authorized in its sole discretion to obey and comply with all orders, judgments or decrees so entered or issued by any court, without the necessity of inquiring whether such court had jurisdiction, and in case Escrow Agent obeys or complies with any such order, judgment or decree, Escrow Agent shall not be liable to Enlighten or any third party by reason of such compliance, notwithstanding that such order, judgment or decree may subsequently be reversed, modified or vacated. 4. RELEASE OF DEPOSIT 4.1 Upon the occurrence of any Escrow Event, Reseller may deliver to Escrow Agent a written notice of such Escrow Event (a "Notice"), and Escrow Agent shall provide a copy of such Notice to Enlighten within one (1) business day of receipt from Reseller. Unless Enlighten shall have provided Contrary Instructions (as defined below) to Escrow Agent within five (5) business days after receipt of Escrow Agent's notice, the relevant Deposit shall be delivered to Reseller by Escrow Agent within the next five (5) business days following the end of such five (5) business day period. Such delivery of the Source Code will terminate all duties and obligations of Escrow Agent to Enlighten and Reseller with respect to the Source Code so delivered; provided that if Enlighten cures the Escrow Event to the reasonable satisfaction of Reseller within sixty (60) days of the occurrence of the Escrow Event, then Reseller shall return the Source Code to Escrow Agent for retention under this Agreement, and Reseller shall have no further right to use such Source Code unless and until the occurrence of a subsequent Escrow Event. 4.2 "Contrary Instructions" for the purposes of this Escrow Agreement means a notarized affidavit executed by an official of Enlighten stating that the Escrow Event or Escrow Events specified in Reseller's Notice have not occurred, or have been cured. 4.3 Upon timely receipt of such Contrary Instructions, Escrow Agent shall not release the Deposit, but shall continue to store the Deposit until otherwise directed by Reseller and Enlighten jointly, or until resolution of the dispute pursuant to Section 5 ("Dispute Resolution") of this Escrow Agreement, or by a court of competent jurisdiction. 5. DISPUTE RESOLUTION INTEL / ENLIGHTEN CONFIDENTIAL Page 7 28 Enlighten and Reseller agree that if Contrary Instructions are timely given by Enlighten pursuant to Section 4 ("Release of Deposit") hereof, then Enlighten and Reseller shall submit their dispute regarding Reseller's Notice to arbitration by a single arbitrator who is a member of the American Arbitration Association, according to its rules and regulations then in effect. Such arbitration shall take place in San Mateo, California. The decision of the arbitrator shall be final and binding upon the parties and enforceable in any court of competent jurisdiction, and a copy of such decision shall be delivered immediately to Enlighten, Reseller and Escrow Agent. The parties shall use their best efforts to commence the arbitration proceeding within ten (10) business days following delivery of the Contrary Instructions. The sole question to be determined by the arbitrator shall be whether or not there existed an Escrow Event at the time Reseller delivered the Notice under Section 4 ("Release of Deposit"), and, if so, whether such Escrow Event has been cured. If the arbitrator finds that an uncured Escrow Event exists, Escrow Agent shall promptly deliver the Deposit to Reseller. Depositions may be taken and discovery obtained in any such arbitration proceedings in accordance with California Code of Civil Procedure ("CCP") Sections 1283.05 and 1283.1. All fees and charges by the American Arbitration Association and the reasonable attorneys' fees and costs incurred by the prevailing party in the arbitration shall be paid by the non prevailing party. Judgment upon the award rendered by the arbitrator(s) may be entered into any court having jurisdiction thereof. Notwithstanding the foregoing, either party shall have the right to obtain a preliminary judgment on any equitable claim in any court of competent jurisdiction, where such judgment is necessary to preserve property or proprietary rights under this Escrow Agreement. Such judgment shall remain effective as long as the terms of the judgment so provide or until specifically superseded by the action of the arbitrator(s) as provided above. 6. BANKRUPTCY Enlighten and Reseller acknowledge that this Escrow Agreement is an "agreement supplementary to" the Agreement as provided in Section 365(n) of Title 11, United States Code (the "Bankruptcy Code"). Enlighten acknowledges that if Enlighten as a debtor in possession or a trustee in bankruptcy in a case under the Bankruptcy Code rejects the Agreement or this Escrow Agreement, Reseller may elect to retain its rights under the Agreement and this Escrow Agreement as provided in Section 365(n) of the Bankruptcy Code. Upon written request of the Reseller to Enlighten or the Bankruptcy Trustee, Enlighten or such Bankruptcy Trustee shall not interfere with the rights of Reseller as provided in the Agreement and this Escrow Agreement, including the right to obtain the Deposit from Escrow Agent. INTEL / ENLIGHTEN CONFIDENTIAL Page 8 29 7. ESCROW EVENTS The term "Escrow Event" as used in this Escrow Agreement means (i) a material breach by Enlighten of its support obligations under the Agreement (to the extent such breach entitles Reseller to impose a penalty pursuant to Exhibit D, Section 1A of the Agreement); (ii) Enlighten ceases to exist; or (iii) Enlighten becomes insolvent or files or has filed against it a petition in bankruptcy. 8. INDEMNIFICATION Enlighten and Reseller jointly and severally agree to defend and indemnify Escrow Agent and to hold Escrow Agent harmless from and against any and all claims, actions and suits, whether groundless or otherwise, and from and against any and all liabilities, losses, damages, costs, charges, penalties, counsel fees, and any other expense of any other nature, including, without limitation, settlement costs incurred by Escrow Agent on account of any act or omission of Escrow Agent, in respect of or with regard to this Escrow Agreement, except insofar as such liabilities arise by reason of Escrow Agent's gross negligence or willful misconduct. 9. LICENSE GRANT FOR USE OF SOURCE CODE; CONFIDENTIALITY 9.1 If, and only if, the Source Code is released to Reseller pursuant to Section 4 ("Release of Deposit") hereof, Enlighten hereby grants Reseller and its Personnel (as defined in the Agreement) the right to use such Deposit solely for the purpose of making and distributing error corrections, modifications, bug-fixes, and enhancements to the Software, and performing maintenance and providing support to the Software, for end user customers of Products (as defined in the Agreement) which include Software. Reseller agrees that Enlighten shall own any such error corrections, modifications, bug-fixes, and enhancements to the Software created by Reseller in accordance with this Section 9.1, and Reseller hereby does and will assign all right, title and interest in such error corrections, modifications, bug-fixes, and enhancements to the Software to Enlighten. Reseller further agrees to provide Enlighten with a copy of each such error correction, modification, bug-fix, and enhancement to the Software in source code form within sixty (60) days of making such error correction, modification, bug-fix, or enhancement to the Software available to an end user customer. 9.2 Reseller acknowledges and agrees that, in the event that Reseller obtains the Source Code pursuant to the terms hereof, such Source Code will be deemed "Confidential Information" under the terms of Confidential Disclosure Agreement # __________dated ________ and Supplement # ____________ dated ________ thereto (collectively, the "CDA"), provided that, with respect to the Source Code, Reseller's obligation of confidentiality will extend for a period of five (5) years from the date Reseller obtains the Source Code. 9.3 The rights and obligations of this Section 9 ("License Grant for Use of Source Code; confidentiality") shall survive any termination or expiration of this Escrow Agreement. 10. RECORDS INTEL / ENLIGHTEN CONFIDENTIAL Page 9 30 Escrow Agent agrees to keep complete written records of the activities undertaken and materials prepared and delivered to Escrow Agent pursuant to this Escrow Agreement. Enlighten and Reseller shall be entitled at reasonable times during normal business hours and upon reasonable notice to Escrow Agent during the term of this Escrow Agreement to inspect the records of Escrow Agent with respect to the Source Code. Enlighten shall be entitled upon reasonable notice to Escrow Agent and during normal business hours to inspect the facilities of Escrow Agent with respect to the physical status and condition of the Deposit. 11. TERMINATION 11.1 This Escrow Agreement shall terminate two (2) years after termination of the Agreement. Upon such termination, except for termination as a result of rejection of the Agreement in a bankruptcy case of Enlighten, Escrow Agent shall return the Deposit to Enlighten after the payment of all costs, fees and expenses due Escrow Agent. 11.2 Reseller and Enlighten may terminate this Escrow Agreement by mutual written agreement, upon sixty (60) days written notice to Escrow Agent. 11.3 Escrow Agent reserves the right to resign as Escrow Agent upon sixty (60) days prior written notice to Enlighten and Reseller. Upon resignation, Escrow Agent shall return the Deposit to Enlighten only after having received payment of its fees and costs pursuant to Section 13 ("Fees") of this Escrow Agreement. 11.4 In the event that the sixty (60) day notice period in Section 11.3 elapses without Escrow Agent having received payment from either Enlighten or Reseller of the remaining fees due, Escrow Agent shall then have the option, without further notice to either party, to terminate the Escrow Agreement and to destroy the Deposit. If Escrow Agent receives payment of the remaining fees due, the party paying the Escrow Agent may arrange for a commercially recognized escrow agent to serve as a successor Escrow Agent for the remainder of the term of this Agreement, such escrow agent to agree in a signed writing to be bound by the terms and conditions of this Agreement. 12. GOOD FAITH RELIANCE Escrow Agent may rely and act upon any instruction, instrument, or signature believed in good faith to be genuine, and may assume that any person purporting to give any writing, notice, respect, advice, or instruction in connection with or relating to this Escrow Agreement has been duly authorized to do so. 13. FEES 13.1 In consideration of performing its functions as Escrow Agent, Escrow Agent shall be compensated by Supplier as set forth in Exhibit H-1 ("Fee Schedule"). The fees set forth in Exhibit H-1 ("Fee Schedule") will be billed annually by Escrow Agent to Supplier. Reseller and Supplier will equally share responsibility for and payment of any incremental expenses INTEL / ENLIGHTEN CONFIDENTIAL Page 10 31 which may arise pursuant to the terms and conditions of this Escrow Agreement. 13.2 The fees set forth in Exhibit H-1 ("Fee Schedule") are for Escrow Agent's ordinary services as Escrow Agent. In the event Escrow Agent is required to perform any additional or extraordinary services as a result of being Escrow Agent, including intervention in any litigation or proceeding, Escrow Agent shall receive reasonable compensation for such services and be reimbursed for such costs incurred, including reasonable attorneys' fees. 13.3 Escrow Agent shall be entitled to receive payment of all costs, fees and expenses due it, prior to release of the Deposit. 14. ENTIRE AGREEMENT This Escrow Agreement, including the Exhibits hereto, constitutes the entire agreement among the parties regarding the subject matter hereof, and shall supersede all previous and contemporaneous communications, representations, understandings and agreement, either oral or written between the parties. This Escrow Agreement is intended to be and shall be treated as an agreement separate and distinct from the Agreement, the parties acknowledging that Reseller has no substantial performance obligation hereunder to Enlighten. 15. NOTICE All notices required or permitted by this Escrow Agreement shall be sufficiently served by mailing the same by certified or registered mail, return receipt requested, to the parties at their respective addresses, as follows: (a) Escrow Agent: Data Securities International, Inc. ATTN: Contract Administration 9555 Chesapeake Drive, Ste. 200 San Diego, CA 92123 (b) Intel Corporation 2200 Mission College Blvd. Santa Clara, CA 95052 Attn: Corporate Counsel (c) Enlighten Software Solutions, Inc.: 999 Baker Way, Fifth Floor San Mateo, CA 94404 Ph. (650) 578-0700 Fx. (650) 524-0118 INTEL / ENLIGHTEN CONFIDENTIAL Page 11 32 16. COUNTERPARTS This Escrow Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. 17. GOVERNING LAW This Escrow Agreement shall be governed by and construed according to the laws of the State of California, without regard to conflicts of laws principles. 18. SEVERABILITY In the event any of the provisions of this Escrow Agreement shall be held by a court of competent jurisdiction to be contrary to any state or federal law, the remaining provisions of this Escrow Agreement will remain in full force and effect. 19. HEADINGS The section headings in this Escrow Agreement do not form a part of it, but are for convenience only and shall not limit or affect the meaning of the provisions. INTEL / ENLIGHTEN CONFIDENTIAL Page 12 33 IN WITNESS WHEREOF, the parties have executed this Escrow Agreement on the date last signed below. for Enlighten Software Solutions, Inc.: By: ------------------------------------------------ Name: David D. Parker --------------------------------------------- Title: Chief Executive Officer, Enlighten Software -------------------------------------------- Date: / / 1999 -------------------------------------------- for: By: ------------------------------------------------ Name: ---------------------------------------------- Title: --------------------------------------------- Date: / / 1999 --------------------------------------------- for Escrow Agent: Data Securities, Inc. By: ------------------------------------------------ Name: ---------------------------------------------- Title: --------------------------------------------- Date: / / 1999 --------------------------------------------- INTEL / ENLIGHTEN CONFIDENTIAL Page 13 EX-10.36 3 EMPLOYMENT LETTER 1 EXHIBIT 10.36 November 22, 1999 Mr. Bill Bradley Englewood, CO 80110 Dear Bill: I am pleased to offer you the position at Enlighten Software Solutions, Inc. (the "Company") of President and Chief Executive Officer, commencing on January 1, 2000. Your compensation is outlined in Attachment A to this letter, which will be paid in accordance with the Company's normal payroll procedures. Continuing as an Enlighten Software Solutions employee, you will continue to receive, in accordance with each applicable plan document, certain employee benefits including: incentive stock options (200,000 options granted prior to this date, 100,000 options granted as of this date in accordance with the Board of Directors Unanimous Consent dated September 20, 1999, and additional options may be granted annually), participation in the employee stock purchase plan, medical insurance, dental insurance, 401(k) plan, an accrued 20 days paid personal time off during each year of employment (to be used as vacation, sick leave, etc.), plus paid public holidays recognized by the Company. You should be aware that your employment with Enlighten Software Solutions is for no specific period. As a result, you are free to resign at any time, for any reason or no reason. Similarly, the Company is free to conclude its relationship with you at any time, with or without cause. Termination benefits are outlined in Attachment A to this letter. In the event of any dispute or claim relating to or arising out of our employment relationship, you and Enlighten Software Solutions agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in San Francisco, California, HOWEVER, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation of Enlighten Software Solutions' trade secrets or proprietary information. (a) You agree that, while you are an Enlighten Software Solutions employee, you will not, directly or indirectly, work for, advise, consult, render services to or invest directly or indirectly in any individual or entity (in any capacity) which directly or indirectly engages in any business in which Enlighten Software Solutions is engaged at the time of such work, advice, consultation, rendering of services or investment. None of the forgoing shall restrict any direct or indirect investments in any publicly traded company, provided such investment does not exceed 5% of the company's total voting shares. (b) You further agree that for a period of two (2) years after termination of your employment with Enlighten Software Solutions, you will not, directly or indirectly, hire, or in any other manner persuade an employee, dealer or customer of the Company to discontinue that person's relationship with or to Enlighten Software Solutions as an employee, dealer or customer, as the case may be. 2 Enlighten Software Solutions, Inc. Page 2 (c) We both agree that: (i) the services to be rendered by you are special, unique, and of an extraordinary character; (ii) because of the nature of the business of Enlighten Software Solutions, and the types of information which you will obtain with respect to the business of Enlighten Software Solutions, it would be impractical or extremely difficult to determine actual damages in the event of a breach of you promises in this letter; and (iii) resulting damages would not adequately compensate Enlighten Software Solutions. Accordingly, if you commit such a breach or threaten such a breach the Company shall have the right to have the provisions of this agreement specifically enforced by any court having equity jurisdiction without the posting of a bond or other security, since such a breach or threatened breach would cause irreparable injury to Enlighten Software Solutions. (d) The above mentioned right is in addition to, and not in lieu of, any other rights and remedies available to Enlighten Software Solutions under law or in equity. (e) This covenant shall be construed as a series of separate covenants, one for each of the fifty-eight (58) counties in California, for each state in the United States, and for each nation outside the United States. To indicate your acceptance of Enlighten Software Solutions' offer, please sign and date both letters in the space provided below and return them to me. This letter, between you and Enlighten Software Solutions, sets forth the terms of your employment with Enlighten Software Solutions and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by Enlighten Software Solutions and by you. We look forward to working with you at Enlighten Software Solutions. Welcome Aboard! AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED - -------------------------------- -------------------------------- David D. Parker Bill Bradley Chief Executive Officer and Director President and COO Dated: / / Dated: / / ------- -------- ------- ------- -------- ------- 3 Enlighten Software Solutions, Inc. Page 3 ATTACHMENT A PRESIDENT AND CHIEF EXECUTIVE OFFICER 2000 COMPENSATION PROGRAM This document defines the compensation program for the position of President and Chief Executive Officer at Enlighten Software Solutions, Inc. The total targeted compensation is made up of your base salary and quarterly bonuses. COMPENSATION 1. Base Salary: Your base salary is $180,000 per year, this will be paid through the regular semi-monthly company payroll at $7,500.00 per pay period. 2. Quarterly Bonuses: For the year ending December 31, 2000, your quarterly bonus program will be as follows: a) Quarterly bonuses of $15,000 based upon accomplishment of management objectives established by the Board of Directors and payable 30 days after the end of the quarter; b) Additional bonuses may be earned for extraordinary performance at the discretion of the Compensation Committee of the Board of Directors. TERMINATION PROVISIONS 3. Benefits upon voluntary termination: In the event that you voluntarily resign from you employment with the Company (unless such resignation is for Good Reason), or in the event that your employment terminates as a result of your death or disability, you shall be entitled to no compensation or benefits from the Company other than those earned through the date of you termination. 4. Benefits upon other termination: You agree that your employment is "at will" and may be terminated by the Company at any time, with or without cause. In the event of the termination of your employment by the Company for the reasons set forth below, you shall be entitled to the following: a) Termination for cause: If your employment is terminated by the Company for the cause as defined below, you shall be entitled to no compensation or benefits from the Company other than those earned through the date of you termination. For purpose of this Agreement, a termination "for cause" occurs if you are terminated for any of the following reasons: (i) theft, dishonesty, or falsification of any employment or Company records; (ii) violation of Confidentiality Agreement; or (iii) any intentional act by you which causes material loss, damage, or injury to the Company's property, reputation, employees, or business; 4 Enlighten Software Solutions, Inc. Page 4 b) Termination for other than cause: If your employment is terminated by the Company for any reason other than cause, you shall be entitled to the following separation of benefits: (i) a termination package equal to six (6) months of your then current base salary, or $90,000, whichever is greater. Such severance package shall be paid in three equal installments, each due respectively within thirty (30), sixty (60), and ninety (90) days of your termination of employment with the Company; (ii) certain stock options granted to you prior to your termination date and not yet vested will be accelerated. The number of shares equal to six (6) months of accelerated vesting, or 42,000 shares, whichever is greater. c) Termination for good reason: If your employment is terminated by you for good reason, you shall be entitled to the termination package outlined in paragraph b) above. For the purposes of this agreement, a termination "for good reason" occurs if you terminate your employment as a result of the Company, without your consent: (i) reducing your salary or benefits, title, or authority; (ii) relocating you place of performance of services outside a thirty (30) mile radius of San Mateo, California; or (iii) directing you to violate a reasonable and normal code of business ethics so as to cause loss, damage, or injury to your property or reputation, or the property or reputation of clients or customers of the Company. 5. Termination following a change in control: a) In the event of a Change in Control and your employment is terminated by the Company or its successor within ninety (90) days of such Change in Control, other than for cause, or you terminate your employment because of a change in duties, you shall be entitled to the following: (i). a termination severance package equal to six (6) months of your then current base salary, or $90,000, whichever is greater. Such severance package shall be payable within thirty (30) days of your termination of employment with the Company. (ii) For purposes of this Agreement a "Change of Control" shall mean an Ownership Change in which the shareholders of the Company before such Ownership Change do not retain, directly or indirectly, at least a majority of the beneficiary interest in the voting stock of the Company after such transaction or in which the Company is not the surviving corporation. For purposes of this Agreement an "Ownership Change" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: 5 (1) the direct or indirect sale or exchange by the shareholders of the Company of more than fifty percent (50%) of the stock of the Company; (2) a merger or consolidation in which the Company is a party; (3) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (4) a liquidation or dissolution of the Company. 6. Accelerated vesting following a change in control: In the event of a Change in Control you shall be entitled to full vesting of all stock options granted to you prior to November 22, 1999 and shall not include any stock options granted to you on November 22, 1999. 7. Exclusive Remedy: Subject to paragraphs 3, 4, and 5 above, you shall be entitled to no further compensation for any damage or injury arising out of the termination of your employment by the Company. 8. Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. In view of the personal nature of the services to be performed by you under this Agreement, you shall not have the right to assign or transfer any of your rights, obligations, or benefits under this Agreement. EX-10.37 4 EMPLOYMENT LETTER 1 EXHIBIT 10.37 December 8, 1999 Mr. Stephen Giusti Los Gatos, CA 95032 Dear Steve: I am pleased to offer you a position with Enlighten Software Solutions, Inc. (the "Company") as Vice President, Finance and Administration and Chief Financial Officer, commencing on December 8, 1999. Your compensation is outlined in Attachment A to this letter, which will be paid in accordance with the Company's normal payroll procedures. Continuing as an Enlighten Software Solutions employee, you will continue to receive, in accordance with each applicable plan document, certain employee benefits including: incentive stock options (40,000 options granted prior to this date, 20,000 options granted as of this date in accordance with the Board of Directors Unanimous Consent dated December 8, 1999, and additional options may be granted annually), participation in the employee stock purchase plan, medical insurance, dental insurance, 401(k) plan, an accrued 20 days paid personal time off during each year of employment (to be used as vacation, sick leave, etc.), plus paid public holidays recognized by the Company. You should be aware that your employment with Enlighten Software Solutions is for no specific period. As a result, you are free to resign at any time, for any reason or no reason. Similarly, the Company is free to conclude its relationship with you at any time, with or without cause. Termination benefits are outlined in Attachment A to this letter. In the event of any dispute or claim relating to or arising out of our employment relationship, you and Enlighten Software Solutions agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in San Francisco, California, HOWEVER, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation of Enlighten Software Solutions' trade secrets or proprietary information. (a) You agree that, while you are an Enlighten Software Solutions employee, you will not, directly or indirectly, work for, advise, consult, render services to or invest directly or indirectly in any individual or entity (in any capacity) which directly or indirectly engages in any business in which Enlighten Software Solutions is engaged at the time of such work, advice, consultation, rendering of services or investment. None of the forgoing shall restrict any direct or indirect investments in any publicly traded company, provided such investment does not exceed 5% of the company's total voting shares. (b) You further agree that for a period of two (2) years after termination of your employment with Enlighten Software Solutions, you will not, directly or indirectly, hire, or in any other manner persuade an employee, dealer or customer of the Company to discontinue that person's relationship with or to Enlighten Software Solutions as an employee, dealer or customer, as the case may be. 2 Enlighten Software Solutions, Inc. Page 2 (c) We both agree that: (i) the services to be rendered by you are special, unique, and of an extraordinary character; (ii) because of the nature of the business of Enlighten Software Solutions, and the types of information which you will obtain with respect to the business of Enlighten Software Solutions, it would be impractical or extremely difficult to determine actual damages in the event of a breach of you promises in this letter; and (iii) resulting damages would not adequately compensate Enlighten Software Solutions. Accordingly, if you commit such a breach or threaten such a breach the Company shall have the right to have the provisions of this agreement specifically enforced by any court having equity jurisdiction without the posting of a bond or other security, since such a breach or threatened breach would cause irreparable injury to Enlighten Software Solutions. (d) The above mentioned right is an addition to, and not in lieu of, any other rights and remedies available to Enlighten Software Solutions under law or in equity. (e) This covenant shall be construed as a series of separate covenants, one for each of the fifty-eight (58) counties in California, for each state in the United States, and for each nation outside the United States. To indicate your acceptance of Enlighten Software Solutions' offer, please sign and date both letters in the space provided below and return them to me. This letter, between you and Enlighten Software Solutions, sets forth the terms of your employment with Enlighten Software Solutions and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by Enlighten Software Solutions and by you. We look forward to working with you at Enlighten Software Solutions. AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED - -------------------------------- -------------------------------- Bill Bradley Stephen Giusti President and CEO Controller and Acting CFO Dated: / / Dated: / / ------- -------- ------- ------- -------- ------- 3 Enlighten Software Solutions, Inc. Page 3 ATTACHMENT A CONTROLLER 1999 COMPENSATION PROGRAM This document defines the compensation program for the position of Controller at Enlighten Software Solutions, Inc. The total targeted compensation is made up of your base salary and quarterly bonuses. COMPENSATION 1. Base Salary: Your base salary is $100,000 per year, this will be paid through the regular semi-monthly company payroll at $4,166.67 per pay period. 2. Quarterly Bonuses: For the year ending December 31, 1999, your quarterly bonus program will be as follows: a) Quarterly bonuses of $5,000.00 each calendar quarter based upon MBO targets to be determined by the CEO. b) Additional bonuses may be earned for extraordinary performance at the discretion of the Compensation Committee of the Board of Directors. TERMINATION PROVISIONS 3. Benefits Upon Voluntary Termination: In the event that you voluntarily resign from your employment with the Company (unless such resignation is for Good Reason), or in the event that your employment terminates as a result of your death or disability, you shall be entitled to no compensation or benefits from the Company other than those earned under paragraphs 1 and 2 above through the date of your termination. 4. Termination Following a Change in Control: a) In the event of a Change in Control and your employment is terminated by the Company or its successor within ninety (90) days of such Change in Control, other than for cause, or you terminate your employment because of a change in duties, you shall be entitled to the following: (i). a termination severance package equal to six (6) months of your then current base salary, or $50,000, whichever is greater. Such severance package shall be payable within thirty (30) days of your termination of employment with the Company. (ii) For purposes of this Agreement a "Change of Control" shall mean an Ownership Change in which the shareholders of the Company before such Ownership Change do not retain, directly or indirectly, at least a majority of the 4 Enlighten Software Solutions, Inc. Page 4 beneficiary interest in the voting stock of the Company after such transaction or in which the Company is not the surviving corporation. For purposes of this Agreement an "Ownership Change" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: (1) the direct or indirect sale or exchange by the shareholders of the Company of more than fifty percent (50%) of the stock of the Company; (2) a merger or consolidation in which the Company is a party; (3) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (4) a liquidation or dissolution of the Company. 5. Accelerated vesting following a change in control: In the event of a Change in Control you shall be entitled to full vesting of all stock options granted to you prior to December 31, 1999. 6. Exclusive Remedy: Subject to paragraph 4 above, you shall be entitled to no further compensation for any damage or injury arising out of the termination of your employment by the Company. 7. Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. In view of the personal nature of the services to be performed by you under this Agreement, you shall not have the right to assign or transfer any of your rights, obligations, or benefits under this Agreement. EX-23.1 5 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Enlighten Software Solutions, Inc.: We consent to incorporation by reference in the registration statement (No.33-73588) on Form S-8 of Enlighten Software Solutions, Inc. of our report dated February 4, 2000, relating to the consolidated balance sheets of Enlighten Software Solutions, Inc. and subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 1999,which report appears in the December 31, 1999, annual report on Form 10-KSB of Enlighten Software Solutions, Inc. /s/ KPMG LLP Mountain View, California March 27, 2000 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1,045,600 247,500 1,335,500 50,000 0 2,639,500 1,601,800 1,199,100 3,562,700 594,400 0 0 0 8,410,400 (5,442,100) 3,562,700 3,244,400 3,244,400 438,900 438,900 4,938,100 0 0 (1,962,700) (10,400) (1,952,300) 0 0 0 (1,952,300) (0.49) (0.49)
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