-----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, NclMJygRB+9lTJ6+RdaPCaXKFDJJ/0enM+o4kQ1Q3txufAImmm3QqJi7Flqsj6X4 Fwjc2FD/Yq5Is2EM40DLRw== 0000950149-98-000533.txt : 19980330 0000950149-98-000533.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950149-98-000533 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE 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: 98576760 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 FOR ENLIGHTEN SOFTWARE SOLUTIONS, INC. 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, 1997 or [ ] 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. 999 Baker Way, Fifth Floor, San Mateo, California 94404 (650) 578-0700 I.R.S. Employer Incorporated in Identification Number CALIFORNIA 94-3008888 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, 1997 were $4,230,842. The approximate aggregate market value of the registrant's Common Stock held by nonaffiliates on February 28, 1998 was $7,423,746. 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, 1998 was 2,992,691. DOCUMENTS INCORPORATED BY REFERENCE: Form 10-KSB reference (1) Proxy Statement for Shareholder Meeting scheduled for May 20, 1998 Part III 2 PART I This report includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. In this report, the words "anticipates," "believes," "expects," "intends," "future," and similar expressions identify forward-looking statements. 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 in this Item 1 under the heading "Business Risks" on page 16 of this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. ITEM 1. BUSINESS OVERVIEW Enlighten Software Solutions, Inc. ("Enlighten Software" or the "Company") develops, markets, and supports software products for UNIX and UNIX/NT environment workgroup administration and enterprise management. The Company's product solutions are designed for open systems distributed computing environments in the range of ten to 1,000 servers/clients. The Enlighten(R) Distributed Systems ManagerTM ("EnlightenDSMTM") product allows companies to manage their information systems by enabling systems managers and administrators to control their systems from diverse UNIX/NT platform vendors such as Digital Equipment Corporation ("DEC"), Hewlett-Packard ("HP"), IBM, Microsoft, Santa Cruz Operation ("SCO"), Silicon Graphics, and Sun Microsystems ("Sun"). The Company's award winning EnlightenDSM product suite provides cost-effective systems administration solutions for such open systems environments. The product suite is a fully integrated 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. Founded in 1986, the Company 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. On October 1, 1997, the Company sold its Tandem operation in order to focus efforts on its UNIX/NT product suite. RECENT DEVELOPMENTS FOR THE COMPANY Fiscal 1997 was a period of significant change for Enlighten Software. In May 1997 the Company released version 2.2 of EnlightenDSM which included support for the Windows NT operating system. Allowing management of both UNIX and NT operating systems was a significant advancement of EnlightenDSM, broadening its market to include the rapidly expanding NT operating system deployment. After continued -2- 3 disappointing results from the sales and marketing efforts related to the Company's UNIX/NT product, the Company began a search for a new Chairman of the Board and a new President and Chief Executive Officer ("CEO"). These appointments were made in July and August 1997, respectively. In October 1997, the Company sold its Tandem operation in order to focus on its UNIX/NT product line. During the fourth quarter of 1997 the Company streamlined its operations and shifted its primary sales strategy from direct field sales to indirect channels sales, resulting in a reduction and change of its sales and marketing personnel and the elimination of field sales offices in the U.S. and Europe. In January 1998, following the Company's shift to the indirect sales model, Enlighten entered into its first OEM bundling agreement with Silicon Graphics, Inc. ("Silicon Graphics"). Key Management Changes In July 1997, the Company appointed Michael Seashols as Chairman of the Board. In August 1997, the Company hired David D. Parker as the Company's new President and CEO. Mr. Seashols previously served as CEO of Usoft, Inc. from 1994 through 1997. Prior to that, he served as CEO and was a founder of Versant Object Technology, Inc. ("Versant") and Documentum, Inc., as well as vice president of sales for several software companies, including Oracle Corporation and Ingres. In addition to his role with Enlighten Software, he currently serves as Chairman of the Board of Evolve Corporation. Mr. Parker brings 19 years of software industry experience at companies such as IBM, Versant, and Quintus Corporation ("Quintus"), where he held several sales and marketing positions, most recently vice president of sales and marketing at Quintus. Prior to joining Enlighten Software, Mr. Parker was President of Web Logic, a privately held Java middleware software development company. Additionally, in the restructuring of the Company's sales and marketing departments, the Company's Vice President of Sales and Marketing, its Director of Marketing, and its Managing Director, Europe, Middle-East and Africa were either replaced or left the Company during the fourth quarter of 1997. Tandem Divestiture In October 1997, the Company sold all of the technology and operating assets associated with its Tandem product line to New Dimension Software, Inc. ("NDS"), a subsidiary of New Dimension Software, Ltd. In this transaction the Company will receive approximately $2.5 million in cash, which resulted in a gain to the Company of approximately $2.2 million in 1997. Approximately $1.6 million was received in 1997, with the substantial portion of the remaining amounts due in the first quarter of 1998. In addition, NDS is required to pay the Company royalties through September 2000 from NDS' licensing and support of the Tandem software products. The sale of the Tandem product line also included the transfer to NDS of approximately 12 employees associated with the Company's Tandem operation. OEM Bundling Agreement -3- 4 On January 22, 1998, the Company entered into a three-year worldwide OEM bundling agreement with Silicon Graphics. Under the terms of the agreement, Silicon Graphics will ship a bundled limited feature version of EnlightenDSM on new server and workstation product shipments as well as with operating system upgrades shipped to already installed Silicon Graphics customers. Silicon Graphics will also offer and include on its price list a full feature version of EnlightenDSM as well as agent modules to enable the management of other UNIX/NT vendor servers and workstations. The products will be supported through Silicon Graphic's global customer support organization. In addition to OEM bundling, Silicon Graphics will market the products through its telesales force, direct field organization, and authorized resellers. INDUSTRY BACKGROUND In recent years there has been a significant change in the market for networked, enterprise-wide computer systems. Technology advances in hardware and software have created a new paradigm in computing based upon a client/server architecture, where the user and the information server are connected via high speed networks, locally via LANs, or remotely via communications networks. In many cases, these systems are being deployed to replace the existing mainframe systems. Yet the Company believes that, in the majority of cases, these systems are additional and complementary to an organization's existing computing capability. In the latter situations, computer systems based upon UNIX and NT operating systems are generally being deployed at the divisional and departmental levels, although many companies are increasingly using UNIX and NT systems for more critical applications used in the organization's day-to-day operations. The transition to open distributed computing has been accelerated by the adoption of Internet and Intranet technologies that utilize such open systems. The development of client/server or distributed systems has created a significant market for hardware and software companies that have developed products for these open environments based on UNIX or NT. Sun Microsystems, Hewlett Packard, IBM, and Silicon Graphics are a few of the hardware companies that ship large quantities of UNIX workstations and servers. Database and programming development products from companies such as Oracle, Informix, Sybase, Forte, SAP, and Baan have also enjoyed success based upon the development of open systems. Open systems environments offer several benefits, such as common standards, allowing for combinations of hardware and software from a variety of vendors. These environments also provide easy portability of applications from one vendor's UNIX system to another, thereby protecting a customer's original investment. Other benefits include lower price points, cost effective networking, and a large pool of experienced technical personnel. However, managing the operations of large client/server systems can be difficult and labor intensive. As corporate customers migrate mission critical applications from mainframes to distributed UNIX and NT systems, they are demanding the same type of management and administration tools provided in the mainframe environment. The diversity of systems and applications has increased significantly in recent years. The introduction and proliferation of the NT operating system, the -4- 5 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 ("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 ("SNMP"), the leading protocol for network management and the leading standard for information collection in multi-vendor computing environments, and OpenView 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. While open systems have produced significant advantages, the management of distributed, heterogeneous open systems presents a major challenge. Unlike the mainframe environments where an operations department typically has both trained resources and extensive systems utilities, the responsibility for managing open systems became the responsibility of technicians who typically use limited system utilities and "home grown" routines. These market needs are currently being addressed either through manual procedures by 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 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 Enlighten Software offers a middle-tier framework for workgroup administration and systems management for UNIX and NT open systems. Enlighten Software's mission is to provide the industry's most pervasive software solutions which help enterprises monitor, manage, and administer distributed, heterogeneous computers simply and inexpensively. The Company intends to establish a presence as a market leader for easy to use, out-of-the-box, broad-based functionality for workgroup administration and systems management across major open systems platforms. While numerous standards are being introduced and companies are vying to position themselves in the open systems management market, Enlighten Software is positioning its Enlighten product suite as the -5- 6 one product that is vital and affordable to open systems managers in mixed UNIX/NT environments. Enlighten Software's systems management solution differentiates itself from other companies' systems management approaches. The Company believes that systems managers demand management tools that are simple to use, easy to install, scalable and customizable, intuitive to learn, and reasonably priced. The Enlighten product suite is targeted to the broadest segment of the open systems market: customers with ten to 1,000 workstations from a variety of the most popular vendors. The Company believes 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. Enterprise systems management products such as Computer Associates' Unicenter and Tivoli Systems' TME are very complex and often require a substantially increased investment of time and money to make useful when compared to the Company's product. Typically, 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. - - Broad functionality: The customer in the Company's target market typically has a limited budget, limited resources, and limited staff. Therefore, the Company designed the product to be able to address a broad range of system management 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: The Company believes its 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 -6- 7 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. The Company believes its product suite is affordably priced, scalable from ten to several thousand systems, designed to install within one half hour for most configurations, and will integrate with other system console and network administration products, such as Tivoli, CA Unicenter, Remedy, and many others. COMPANY STRATEGY Enlighten Software's objective is to become a market leader in integrated open systems workgroup administration and systems management. To achieve this objective, Enlighten Software has adopted a business strategy incorporating the following elements: Focus on the "under-served" market The Company believes that most of the products in the enterprise systems management market are currently focused toward Fortune 500 companies that can afford the time and expense, and possess the resources necessary to implement a monolithic enterprise-wide systems management solution. Mid-sized companies, and smaller sites or departments of larger companies, cannot effectively and efficiently implement these solutions and require less intrusive, more cost-effective means to manage their UNIX/NT systems. The Company believes there are very few products to assist these organizations in managing and monitoring their open systems networks. Enlighten Software's focus for its UNIX/NT products is this under-served market, defined as sites with ten to 1,000 UNIX or NT workstations or servers without a large mainframe presence. The Company feels its low-cost, easy-to-use, non-intrusive workgroup administrations and systems management solution is the most effective tool for these companies to use for managing and monitoring their systems. Penetrate the market primarily through third-party relationships The Company has recently shifted its sales and marketing focus from direct sales to indirect channels sales. Shortly after this shift occurred the Company entered into an OEM bundling agreement with Silicon Graphics. The Company's 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. The relationship with Silicon Graphics will allow the Company to begin penetrating the market by proliferating a limited version of its product on thousands of Silicon Graphics systems, thereby providing a base within which to sell the full feature version of EnlightenDSM, as well as other products. The Company intends to continue to pursue additional -7- 8 partnering relationships and intends to focus its sales and marketing efforts on the following: - Additional UNIX hardware manufacturers - The Company believes that several UNIX hardware manufacturers lack effective systems management solutions. As the competition for UNIX hardware increases and price points drop, the Company feels these manufacturers will need to differentiate themselves through the ability to offer solutions to customers that provide lower cost of ownership through ease of use and administration for their systems. - Systems management and other software application vendors - The Company believes its 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. The Company intends to pursue relationships with software companies providing systems management, help desk software, and other "customer care" applications with which the Company's product could be integrated and sold as a combined solution. - Systems integrators and consultants - The Company also believes that companies providing systems management consulting and outsourcing services to IT organizations are in need of effective administration and management tools to provide their clients with improved efficiencies in managing heterogeneous open systems environments. - Selected end users - The Company has shifted its primary focus from direct to indirect channels to market and distribute its product. However, it maintains a small direct sales force focused on select opportunities where the Company can provide value through stronger, more dedicated customer relationships. The preceding discussion regarding the Company's response to the systems management market and its 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 the ability of the Company to manage future growth and new distribution channels, if any. These and other factors are more fully discussed under the caption "Business Risks" on page 16 of this report. PRODUCTS -8- 9 Enlighten Software offers software products designed to automate the management and administration of computer systems. Set forth below is a summary of the Company's principal product offerings by product family. OPEN SYSTEMS MANAGEMENT In the fast-paced UNIX/NT 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 simple, easy to implement, and intuitive; not complex, rules-based systems management software. The Company acquired core technology for UNIX systems administration products in December 1994, 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. The Company is currently shipping version 2.3 of EnlightenDSM. Product license fees from the Company's open systems product family represented 27% and 22% of total product license fees in 1997 and 1996, respectively. Enlighten Distributed Systems Manager (EnlightenDSM) 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 HP/UX, SUN/Solaris, IBM/AIX, Intel 486/SCO, Silicon Graphics/IRIX, Digital UNIX, and Microsoft NT. 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. The product can also be set to take corrective action automatically. 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. TANDEM SYSTEMS MANAGEMENT The Company was originally a provider of software tools and utilities to more effectively manage the performance of Tandem computer systems. Beginning with one -9- 10 product in 1986, the Company expanded to seven products that were used by over 400 customers in 30 countries. As the Company shifted its strategic focus away from the Tandem platform and toward the UNIX/NT environment, the Company's Tandem products were sold. Product license fees from the Company's Tandem product line accounted for 73% and 78% of total product license fees in 1997 and 1996, respectively. In October 1997, the Company sold all of the technology and operating assets associated with its Tandem product line to NDS. SALES AND DISTRIBUTION The Company's revenues are derived from three sources: product license fees, product maintenance fees, and consulting services. Product license fees During 1997, Enlighten Software marketed its products through a direct field sales force, an inside telesales channel, and third-party distributors. The Company's products were marketed throughout North America, South America, and parts of the Pacific Rim by its product sales organization located at the Company's headquarters in San Mateo, California as well as through its regional field sales offices in the Chicago and New York areas. Enlighten Software marketed its products in Europe, the Middle East, and Africa through its wholly-owned subsidiary headquartered in the United Kingdom and through independent distributors. Product license fees in 1997 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 34% and 41% of total revenue in 1997 and 1996, respectively. Following the disposition of its Tandem product line during the fourth quarter of 1997, the Company shifted its sales strategy to one based primarily upon third-party distributors and restructured its sales department as a result of this shift. This restructuring included personnel changes as well as the closing of field sales offices in the Chicago and New York areas, as well as the U.K. sales and support office. Enlighten Software intends to build its sales, marketing, and customer support organizations with a focus on delivery of its products to OEM partners, resellers, system integrators, and select end-users. An essential element of the Company's sales and marketing strategy is the development of indirect distribution channels, such as original equipment manufacturers ("OEMs"), independent software vendors ("ISVs"), and value -10- 11 added resellers ("VARs"), as well as other systems management and application software vendors whose products are complementary with those of the Company. In January 1998, the Company established its first OEM relationship with Silicon Graphics. Under the agreement, Silicon Graphics will incorporate a limited version of EnlightenDSM bundled with its operating system on a bundled basis on new servers and workstations as well as with operating system upgrades shipped to already installed Silicon Graphics customers. Silicon Graphics will also offer and included in their price book licenses for the full-feature version of EnlightenDSM as well as agent modules to enable the management of other UNIX/NT vendor servers and workstations as optional enhancements. The products will be supported through Silicon Graphic's global customer support organization. In addition to OEM bundling, Silicon Graphics will market the products through its telesales force, direct field organization, and authorized resellers. The Company receives a license fee for each copy distributed by Silicon Graphics to its customers. The Company is currently investing, and intends to continue to invest, significant resources to develop the OEM, ISV, and VAR channels, which could have a material adverse affect on the Company's operating margins. The Company's efforts to expand its third-party channels are intended to penetrate the market and achieve widespread commercial acceptance of the Company's products as a workgroup administration standard. There can be no assurance that the Company will be successful in its efforts to increase the revenues represented by this channel. The Company will be dependent upon Silicon Graphics and new third-party relationships for a significant portion of its revenue for the foreseeable future. There is no assurance that the Company's third-party distributors will effectively distribute and exploit the Company's products. The inability to recruit additional third parties to distribute, market, and support the Company's products could have a material adverse affect the Company's business, operating results, and financial condition. A more detailed discussion of these and other risks associated with the Company's business is set forth under the caption "Business Risks" on page 16 of this report. Product maintenance fees All customers subscribing to Enlighten Software's maintenance service agreements are entitled to receive (i) technical support and consultation, primarily over the telephone, and (ii) subsequent product enhancement and maintenance releases periodically produced by the Company. Product maintenance support is provided directly to customers as well as through the Company's authorized distributors. As the Company shifts its sales efforts from direct to indirect channels, the Company will become more dependent on its third-party distributors for the technical support and consultation to end users. The Company will need to increase its training and education efforts related to its third-party distributors to ensure the technical proficiency and knowledge of such third parties with respect to the Company's products. -11- 12 Product maintenance fees consist of all maintenance revenue on new and existing installed software products. The Company generally charges, on an annual basis, 20% of the current list price of its products in exchange for telephone support, product updates, and product enhancements. Product maintenance revenue is recognized ratably over the maintenance contract period (typically one year). Product maintenance fees accounted for 61% and 53% of total revenue in 1997 and 1996, respectively. Consulting services Revenue from consulting services consists of fees charged for contract services, product training, and other service activities. This division of the Company's technical support organization provides fee-based consulting services to the Company's customers throughout the U.S. 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 5% and 7% of total revenue in 1997 and 1996, respectively. PRODUCT DEVELOPMENT The computer software industry is characterized by rapid technological change and is highly competitive in regard to timely product innovation. Accordingly, the Company believes that its future success depends on its 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, the Company believes it must continue to respond quickly to users' needs for broad functionality and open systems support. Enlighten Software addresses the needs of current users through regularly scheduled maintenance and enhancement releases. At the same time, the Company seeks to acquire and develop new products to meet the needs of a broader group of users. The Company provides an integrated workgroup administration and systems management product for open systems running on six different UNIX-based systems and Microsoft NT. 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. The Company significantly enhanced its EnlightenDSM product with several releases during 1997. The new releases contained new features such as NFS and Veritas file system monitoring, performance enhancements to the communication layer resulting in better reliability and response time, and support for the new operating system releases from the supported operating system vendors. Electronic documentation was also added -12- 13 to the EnlightenDSM product. Both the User Guide and Reference Manuals are now supplied in Adobe Acrobat format, complete with electronic hyperlinks and cross references. In addition, the Company added to its supported platforms with ports to DEC ALPHA OSF and Windows NT. In preparation for its third-party distribution efforts, the Company customized its licensing procedures to allow more flexible, multi-tiered licensing structures. Additionally, the product suite was modified to allow for distribution of both a limited feature and an enhanced feature product for its newly established OEM relationship with Silicon Graphics. The Company's 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 its 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 the Company's current and new third-party distributors. There can be no assurance that the Company will be successful in developing and marketing new features or products that respond to technological change or evolving industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction, and marketing of any new features or products, or that its new features or products will adequately meet the requirements of the marketplace and achieve market acceptance. Additionally, the Company's product development staff will be under increased pressure as the Company's products are deployed on a significantly greater number and variety of machines by virtue of the Silicon Graphics bundling relationship (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 the Company employs 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 the Company is 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, the Company's business, operating results, and financial condition will be materially adversely affected. See "Business Risks" on page 16 of this report. As of December 31, 1997, the Company had ten professional and technical employees engaged in research and development. During the fiscal years ended -13- 14 December 31, 1997 and 1996, the Company's research and development expenditures before the capitalization of software development were $2,125,944 and $2,531,237, respectively. COMPETITION The systems management market in which the Company competes is intensely competitive, highly fragmented and rapidly changing. In order to compete, the Company must enhance its current products, enhance the operability of its 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 the Company's competitors in the open systems markets are larger and have greater financial, technical, marketing, and other resources than the Company. Because there are relatively low barriers to entry in the software market, the Company expects 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 the Company's business, operating results, and financial condition. See "Business Risks" on page 16 of this report. The Company's 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. The Company also faces competition from internal development groups of prospective end user customers and OEMs, including operating system vendors, many 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 the Company's products. Additional hardware manufacturers may elect to offer similar competitive products in the future. The Company believes that it competes favorably with its competitors with respect to product features and functionality, such as scalability, interoperability across multiple platforms, adherence to standards, security, as well as reliability, ease-of-use, price/performance ratio, and an ability to integrate easily with third-party vendors' products. However, given the Company's size, its recent entry into this market, and the advantages its competition enjoys with respect to size and resources, there can be no assurances the Company can effectively compete in this market. PRODUCT PROTECTION -14- 15 The Company relies on a combination of copyright, trade secret and trademark laws, and software security measures, along with employee and third-party nondisclosure agreements, to protect its intellectual property rights, products, and technology. The Company's 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. The Company distributes its software under license agreements that are signed by its end users. Despite the precautions taken by the Company to protect its software, unauthorized parties may attempt to reverse engineer, copy, or obtain and use information the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and software piracy is expected to be a persistent problem. Additionally, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. The Company has entered into source code escrow agreements with some of its customers that require the release of source code to the customer in the event there is a bankruptcy proceeding by or against the Company, the Company ceases to do business, or the Company is unable to fulfill its contractual obligations with respect to support. In the event of a release of the source code, the customer is required to maintain its 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 the Company's intellectual property. The Company is not aware that its products, trademarks, or other proprietary rights infringe the proprietary rights of third parties. However, from time to time, the Company receives notices from third parties asserting that the Company has infringed their patents or other intellectual property rights. In addition, the Company may initiate claims or litigation against third parties for infringement of the Company's proprietary rights or to establish the validity of the Company's proprietary rights. Any such claims could be time-consuming, result in costly litigation, cause product shipment delays or lead the Company 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, the Company believes 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 the Company 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 the Company to cease the marketing or use of certain products, any of which could have a material adverse effect on the Company's business, operating results, and financial condition. See "Business Risks" on page 16 of this report. EMPLOYEES -15- 16 As of December 31, 1997, the Company employed 34 people worldwide, consisting of 31 in the United States and 3 in Europe. Of these employees, 10 were engaged in product development, 16 in sales, marketing, and customer support, and 8 in finance and other administrative departments. The Company's believes its future success depends in large part upon the continued service of its key technical and senior management personnel and its 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 the Company can retain its key technical and managerial employees or that it can attract, assimilate or retain other highly qualified technical and managerial personnel in the future. None of the Company's employees are subject to any collective bargaining agreements. Each employee of the Company has executed an agreement not to disclose trade secrets or other confidential information. Enlighten Software believes its employee relations are good. BUSINESS RISKS In addition to the other information in this Report on Form 10-KSB and other documents the Company files from time to time with the Securities and Exchange Commission, the following risk factors should be considered carefully in evaluating the Company and its business: Fluctuating Operating Results The Company has experienced significant quarterly fluctuations in operating results and expects 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 the Company or its competitors, the development and introduction of new operating systems that require additional development efforts, purchasing patterns of its customers, size and timing of individual orders, the rate of customer acceptance of new products, and pricing and promotion strategies undertaken by the Company or its competitors. Future operating results may fluctuate as a result of these and other factors, including the Company's ability to continue to develop, acquire, and introduce new products on a timely basis, the timing and level of sales by the Company's OEM or other third-party licensees of computer systems or software incorporating the Company's products, technological changes in computer systems and environments, quality control of the products sold, the Company's success in shifting its primary sales strategy from direct to indirect channels, and general economic conditions. Additionally, the Company's operating results may be influenced by seasonality and overall trends in the global economy. Because the Company operates 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, the Company has recognized a substantial portion of its license revenues in the last month of the quarter, particularly the last week. Since the Company's -16- 17 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. Uncertainty of Success in Open Systems Market The Company has derived a substantial portion of its revenue to date from its Tandem-based products. The Company, however, sold all rights to its Tandem technology in October 1997. The future success of the Company is substantially dependent on its ability to generate significant revenue from its UNIX/NT product offering. The Company's initial product entry into the open systems market in 1995 was unsuccessful. Version 2.0 of EnlightenDSM was released in mid-1996 and represented 27% and 22% of the Company's license revenues in 1997 and 1996, respectively. In January 1998, the Company signed an OEM bundling agreement with Silicon Graphics in which Silicon Graphics will bundle a limited version of the Company's product on each UNIX system shipped. This was the first such OEM agreement entered into by the Company. However, the open systems market is characterized by rapid technological growth and intense competition. There can be no assurance that the Company has the resources, both financial and personnel, to effectively capitalize on, and continue with, its early and limited success in this market. Expansion of New Distribution Channels; Reliance on Resellers Prior to October 1997, the Company employed primarily a direct sales model, complemented with a telesales force, for the sale of its software products. In the fourth quarter of 1997, the Company began to shift a majority of its sales and marketing resources toward third-party resellers in both the United States and internationally. The Company's growth will be dependent on its ability to expand its third-party distribution channel to market, sell, and support the Company's software products. The Company is currently investing, and intends to continue to invest, significant resources to develop this channel, which could materially adversely affect the Company's operating margins. The Company has only limited experience in marketing its products through distributors. Additionally, the Company will have no control over its third-party distributors including their shipping dates or volumes of systems shipped by its OEM and other third-party customers. There can be no assurance that the Company will be successful in its efforts to generate significant revenue from this channel, nor can there can be any assurance that the Company will be successful in recruiting new organizations to represent the Company and its products. Additionally, as the Company shifts its sales efforts from direct to indirect channels, the Company will become more dependent on its third-party distributors for the technical support and consultation to end users. The Company will need to increase its training and education efforts related to its third-party distributors to enable such third parties to obtain the technical proficiency and knowledge with respect to the Company's -17- 18 products. Despite these efforts, there can be no assurance that the Company will successfully train its 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 the Company's internal support and engineering staff, or poor customer acceptance of the products, or both, either of which would have a material adverse effect on the Company's business, operating results, and financial condition In January 1998, the Company entered into a Software License, OEM, and Distribution Agreement with Silicon Graphics which will provide a new distribution channel for the Company's products. The Company has agreed to provide a limited feature version of the EnlightenDSM product which will be bundled with Silicon Graphic's IRIX operating system. While the Company believes that this arrangement with Silicon Graphics will be beneficial, there can be no assurance that the Company will be able to deliver its products to Silicon Graphics in a timely manner or that Silicon Graphics will license the Company's products in volumes anticipated by the Company. Further, the agreement with Silicon Graphics is the Company's only significant third-party distribution agreement to date. While the Company's strategy is to obtain additional resellers to reduce the dependence on one vendor, there can be no assurance of successfully attracting additional vendors to distribute the Company's products. Any such failure would result in the Company having expended significant resources with little or no return on its investment, which would have a material adverse effect on the Company's business, operating results, and financial condition. These additional investments and responsibilities will require the expenditure by the Company of substantial resources, including the diversion of employees from other projects to provide the support services and development efforts required to provide products and services to Silicon Graphics and other new third parties, if any. Intense Competition The Company experiences intense competition from other systems management companies, and the market is rapidly changing. The Company believes that its ability to compete successfully depends on a number of factors, including the performance, price, and functionality of its products relative to those of its competitors. Most of the Company's competitors are larger and have greater financial, technical, marketing, support, and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. In addition, the software industry is characterized by low barriers to entry. There can be no assurance that the Company's current competitors or any new market entrants will not develop systems management products that offer significant performance, price, or other advantages over the Company's technology. In addition, operating system vendors could introduce new or upgrade existing operating systems or environments that include systems management functionality offered by the Company, which could render the Company's products obsolete and unmarketable. There can be no assurance that the -18- 19 Company will be able to successfully compete against current or future competitors which could have a material adverse effect on the Company's business, operating results, and financial condition. Possible Need for Additional Financing The Company currently funds product development and the expansion of sales and marketing activities through existing cash reserves and cash from operations. In the event that cash from operations and other available funds prove to be insufficient to fund the Company's presently anticipated operations the Company may be required to seek additional financing. There can be no assurance that, if additional financing is required, it will be available on acceptable terms, or at all. Additional financing may involve substantial dilution to the interests of the Company's then-current shareholders. Possible Volatility of Stock Price The trading price of the Company's Common Stock has been subject to significant fluctuations since its initial public offering in 1994. The trading price of the Company's Common Stock could be subject to wide fluctuations in the future due to factors such as announcements of technological innovations, new product introductions by the Company, its competitors and other third parties, quarterly variations in the Company's operating results, and market conditions in high technology industries generally and in the software industry in particular. In addition, the stock market has experienced volatility that has particularly affected the market prices of many high technology companies which has often been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. Product Concentration The Company expects that substantial majority of the Company's revenue in future periods will be derived from its UNIX/NT product, EnlightenDSM. This product accounted for 27%, and 22% of the Company's license revenue in the years ended December 31, 1997, and 1996, respectively. The Company has disposed of its Tandem product line that accounted for the balance of its license revenue in each year. The Company expects that the EnlightenDSM product and its extensions and derivatives will continue to account for a substantial majority, if not all, of the Company's revenue for the foreseeable future as a result of its strategic decision to divest itself of its Tandem technology in order to focus its financial and other resources to selling, servicing, and supporting EnlightenDSM. Broad market acceptance of EnlightenDSM is, therefore, critical to the Company's future success. Failure to achieve broad market acceptance of EnlightenDSM, as a result of competition, technological change, or otherwise, would have a material adverse effect on the business, operating results, and financial condition of the Company. The Company's future financial performance will depend in significant -19- 20 part on the successful development, introduction, and market acceptance of EnlightenDSM and its product enhancements. There can be no assurance that the Company will be successful in marketing EnlightenDSM or any new products, applications, or product enhancements, and any failure to do so would have a material adverse effect on the Company's business, operating results, and financial condition. Support Of Multiple Environments; Product Development The Company's future success will depend on the timely and successful development and introduction of new products (including new releases, applications, and enhancements). Such activities can involve substantial commitments of financial, product development, and other resources. Moreover, even if such efforts are successful, the Company might have focused on particular applications that do not achieve or maintain widespread market acceptance or whose users are predisposed to obtain their management tools from other sources. The result of such occurrence could mean that significant expenditures of time, effort, and funds by the Company have little or no value, which could have a material adverse effect on the Company's business, operating results, and financial condition. The Company has developed and is continuing to develop various versions of its products for the Windows NT environment. The Company also intends to expand its products to support additional applications and operate across more diverse open networks, which may encompass an increasing variety of processor, server, and workstation types and multiple operating systems. Such efforts will require significant commitments of financial and product development resources, and there can be no assurance that such efforts will be successful. The failure of such efforts or the failure of any resulting products to achieve market acceptance could have a material adverse effect on the Company's business, operating results, and financial condition. Software products as complex as those offered by the Company often contain undetected errors or failures when first introduced or as new versions are released. The Company has in the past discovered software errors in certain of its new products after their introduction and has experienced delays or lost revenues during the period required to correct these errors. Testing of the Company's products is particularly difficult because of the Company's limited ability to simulate the wide variety of computing environments in which the Company's customers may deploy such products Although the Company has not experienced material adverse effects resulting from any such errors to date, there can be no assurance that, despite testing by the Company and by current and potential customers, errors will not be found in new products after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, operating results, and financial condition. Rapid Technological Change -20- 21 The market for the Company's 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 the Company's existing products obsolete and unmarketable. As a result, the Company's success depends upon its ability to continue to enhance existing products, respond to changing customer requirements, and develop and introduce in a timely manner, new products that keep pace with technological developments and emerging industry standards. Additionally, there can be no assurance that other operating systems, such as Windows NT, will not significantly affect deployment of UNIX systems for business critical applications. A significant portion of the Company's revenue will continue to be derived from UNIX-based computer systems for the foreseeable future. While the Company has ported its products to the Windows NT platform, the product requires customers to control systems management for their heterogeneous environment from UNIX-based systems. A significant decline in sales of UNIX-based systems would decrease the demand for the Company's products and would have a material adverse effect on the Company's business, operating results, and financial condition. Finally, there can be no assurance that the Company will be successful in developing and marketing, on a timely basis, product enhancements or new products that respond to technological change or evolving industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction, and sale of these products, or that any such new products or product enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. Product Liability The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. In licensing its products, the Company relies primarily on a combination of signed license agreements that incorporate by reference "shrink wrap" licenses that are included electronically with the product. In the future, particularly in connection with any OEM and other bundling relationships, the Company will rely on "shrink wrap" licensees that are not signed by the end users, and, therefore, such licenses may be unenforceable under the laws of certain jurisdictions. As a result of these and other factors, the limitation of liability provisions contained in the Company's license agreements may not be effective. The Company's products can be used to manage systems critical to organizations, and, as a result, the sale and support of products by the Company may entail the risk of product liability claims. A successful product liability claim brought against the Company could have a material adverse effect upon the Company's business, operating results, and financial condition. -21- 22 Dependence on Growth of Systems Management Market For the foreseeable future, all of the Company's business will be in the open systems (UNIX and NT) systems management market, which is still an emerging market. The Company's 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. There can be no assurance that the market for systems management solutions will continue to grow. If the systems management market fails to grow or grows more slowly than the Company currently anticipates, or in the event of a decline in unit price or demand for the Company's products, as a result of competition, technological change, or other factors, the Company's business, operating results, and financial condition would be materially adversely affected. 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. The Company's 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. There can be no assurance that such factors will not have a material adverse effect on the Company's business, operating results, and financial condition. Management Of Growth; Dependence on Key Personnel The Company's success in the future is dependent upon its ability to grow rapidly and effectively manage growth. Such growth, if any, will require increased managerial, technical, direct sales, and other personnel, expanded information systems and additional financial and administrative control procedures. Expansion of the Company's indirect and direct sales channels will require significant financial and managerial commitments by the Company. There can be no assurance that the Company will be able to effectively manage such growth, if any. Its failure to do so would have a material adverse effect on its business, operating results, and financial condition. Competition for qualified technical, sales, and other qualified personnel is intense, and there can be no assurance that the Company will be able to attract or retain highly qualified employees in the future. The Company's future success also depends in part upon the continued service of its key technical, sales and senior management personnel. The loss of the services of one or more of these key employees could have a material adverse effect on its business, operating results, and financial condition. ITEM 2. PROPERTIES The Company leases approximately 17,000 square feet of office space in San Mateo, California under a lease which expires in March 2001. The Company previously leased additional sales and support offices in Lisle, Illinois, Saddlebrook, New Jersey, and -22- 23 the United Kingdom under month-to-month leases, each of which were terminated in the fourth quarter of 1997. The Company believes that its current facilities are adequate for its needs through 1998 and should additional space be needed, it will be available to accommodate the expansion of the Company's operations on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS The Company is not currently involved in any legal proceedings and is not aware of any proceedings that any party is contemplating to bring against the Company, although from time to time it may become involved in disputes in connection with the operation of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -23- 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Since April 20, 1994, the Company's Common Stock has been traded on the Nasdaq National Market under the symbol "SFTW." As of December 31, 1997, there were 36 record holders of the Company's Common Stock. As of the same date, 2,963,635 shares of Common Stock were outstanding and 10,000,000 shares of Common Stock were authorized. The following table sets forth the range of high and low closing sale prices for each of the periods indicated for the shares of Common Stock.
1996 Quarter Ended High Low - ------------- ---- --- March 31, 1996 $2.63 $1.63 June 30, 1996 $6.88 $1.88 September 30, 1996 $6.50 $3.38 December 31, 1996 $6.25 $3.50 1997 Quarter Ended - ------------- March 31, 1997 $5.25 $2.75 June 30, 1997 $3.25 $1.38 September 30, 1997 $3.50 $0.94 December 31, 1997 $3.00 $2.00
DIVIDEND POLICY The Company has never paid cash dividends and does not anticipate paying cash dividends in the foreseeable future. The Company anticipates that it will retain earnings, if any, for future growth and expansion of its business. -24- 25 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following statements regarding the Company's future revenues, revenue sources, operating expenses, and capital expenditures include forward-looking information. Actual results may vary substantially depending upon a variety of factors including those described in "Item 1 - Business - Business Risks" on page 16 of this report, or elsewhere in this report. OVERVIEW Enlighten Software Solutions develops, markets, and supports software products for UNIX and UNIX/NT environment workgroup administration and enterprise management. The Company's product solutions are designed for open systems distributed computing environments in the range of ten to 1,000 servers/clients. The EnlightenDSM product allows companies to manage their information systems by enabling systems managers and administrators to control their systems from diverse UNIX/NT platform vendors such as DEC, HP, IBM, SCO, Silicon Graphics, Sun, and Microsoft. Founded in 1986, the Company 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. On October 1, 1997, the Company sold its Tandem product line to NDS in order to focus efforts on its UNIX/NT product suite. In connection with this sale, the Company will receive 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 based upon NDS' licensing and support of the Tandem software products. The sale of the Tandem product line also included the transfer to NDS of approximately 12 employees associated with the Company's Tandem operation. Following the disposition of its Tandem product line, the Company shifted its sales strategy to one based primarily upon third-party distributors and restructured its sales department as a result of this shift. The Company intends to build its sales, marketing, and customer support organizations with a focus on delivery of its products to OEM partners, resellers, system integrators, and select end-users. An essential element of the Company's sales and marketing strategy is the development of indirect distribution channels, such as OEMs, ISVs, and VARs, as well as other systems management and application software vendors whose products are complementary with those of the Company. -25- 26 VARIABILITY OF QUARTERLY RESULTS The Company has experienced significant quarterly fluctuations in operating results and expects 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 the Company or its competitors, purchasing patterns of its customers, size and timing of individual orders, the rate of customer acceptance of new products, and pricing and promotion strategies undertaken by the Company or its competitors. Future operating results may fluctuate as a result of these and other factors, including the Company's ability to continue to develop, acquire, and introduce new products on a timely basis. Additionally, the Company's operating results may be influenced by seasonality and overall trends in the global economy. Because the Company operates 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, the Company has recognized a substantial portion of its license revenues in the last month of the quarter, particularly the last week. Since the Company's 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. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996 Total revenue. Total revenue decreased 35% from $6,477,000 in 1996, to $4,231,000 in 1997. This decrease was primarily due to the sale of the Company's Tandem products on October 1, 1997, which primarily affected product license fees and product maintenance fees. For the first nine months of 1997, total revenue decreased 9%, from $4,388,000 in 1996 to $3,993,000 in 1997. The Company had minimal revenue in the fourth quarter of 1997 as it transitioned away from the Tandem product line and restructured its sales force to accommodate its strategic shift from direct sales to indirect sales. Revenue from product license fees decreased 46% from $2,645,000 in 1996, to $1,439,000 in 1997. The decrease was primarily attributable to the sale of the Tandem product line. Revenue from the Company's Tandem product license fees decreased by 49%, from $2,071,000 in 1996, to $1,047,000 in 1997. Through September 30, 1997, prior to the sale of the Tandem products, product license fees decreased 8%, from $1,453,000 in 1996 to $1,338,000 in 1997. The decline in product license fees during the first nine months of 1997 is primarily related to a decline in Tandem license revenue. Tandem license revenue during this nine month period was affected by the change in sales management and other personnel, as well as the pending sale of the Tandem product line. The decrease in Tandem product license fees during the first nine months of 1997 was partially offset by an increase of $284,000, or 265%, for the Company's UNIX -26- 27 product, EnlightenDSM, for nine months ended September 30, 1997 when compared to the same period in 1996. On an annual basis, product license fees from EnlightenDSM licensed directly to end users increased by $266,000, or 212%, to 391,000 in 1997 when compared to 1996. This increase excludes license fees generated in 1996 that represented prepaid license fees paid to the Company by distributors in exchange for future product license credits and exclusive rights to distribute the Company's products in certain territories. There were no such comparable transactions in 1997. As noted above, product maintenance fees decreased by $809,000, or 24%, to $2,599,000 in 1997 compared to 1996. This decline is almost entirely due to the disposition of the Tandem product line on October 1, 1997. Product maintenance fees for the first nine months of 1997 when compared to the same period in 1996, decreased by only $16,000, or 1%. Product maintenance fees for EnlightenDSM increased by $92,000 for the year ended December 31, 1997, compared to 1996. Consulting services revenue decreased by $232,000, or 55%, to $193,000 in 1997 when compared with 1996. The decrease is due to a restructuring of the Company's service division that resulted in the termination of low margin, high level, Tandem-related custom development services projects the Company had engaged in during prior years. 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 $58,000, or 20%, to $976,000 in 1997. Excluding the write-off of software development costs discussed below, cost of revenue decreased by $208,000, or 20%, in 1997 when compared to 1996. The reduction in cost of revenue is caused primarily by the decrease in costs associated with consulting services. Costs associated with consulting services decreased by 72%, commensurate with the decrease in consulting service revenue. Margins related to services revenue increased in 1997 due to the shift away from low margin, customized development projects to higher margin consulting services and training related to the Company's products. The Company amortized $540,000 and $349,000 in 1997 and 1996, respectively, of acquired technology and capitalized software development costs pursuant to Statement of Financial Accounting Standards ("SFAS") No. 86. The amount in 1997 includes a $150,000 write-off related to certain software products, or product versions. These software products were not expected to generate sufficient future revenue which would be required for the Company to realize the carrying value of the assets. Research and development. Research and development expenses consist of personnel expenses and associated overhead, and costs of short-term independent -27- 28 contractors required in connection with the Company's product development efforts, less amounts capitalized. Net research and development expenses increased by less than 1% from $2,048,000, or 32% of revenue in 1996, to $2,059,000, or 49% of revenue in 1997. This increase is solely attributable to the decrease in the portion of the Company's research and development expenses that were capitalized pursuant to SFAS No. 86 in 1997 when compared to 1996. In 1997 and 1996 the Company capitalized $66,000 and $484,000, respectively, of software development costs. Gross research and development costs decreased by $405,000, or 16%, in 1997 when compared to 1996. This decrease is related to the sale of the Tandem product line on October 1, 1997. Prior to that product line's disposition, gross research and development expenses were approximately the same in 1997 as in 1996. Costs incurred in the research and development of new software products are expensed as incurred until technological feasibility is established. Recently, the establishment of technological feasibility of the Company's EnlightenDSM product and general release substantially coincided. As a result, the Company has capitalized a lesser portion of its software development costs since a majority of such costs have not been significant. The Company expects research and development expenses to continue to increase in absolute dollars as the Company 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 28%, from $2,979,000, or 46% of revenue in 1996, to $3,820,000, or 90% of revenue in 1997, primarily due to the increase in sales and marketing costs during the first nine months of 1997 when compared to the same period in 1996. Sales and marketing costs for the first nine months ended September 30, 1997, prior to the Tandem product line disposition, increased by $826,000, or 41%, when compared to the nine months ended September 30, 1996. The increase during this nine month period is primarily due an increase in expenses related to the Company's U.K. subsidiary including the addition of senior sales management personnel and the undertaking of several new marketing initiatives. Additionally, sales and marketing expenses for the first nine months of 1996 reflected lower personnel costs due to a reduction in force in January 1996. An expansion of the worldwide sales force occurred in the fourth quarter of 1996, thus increasing the sales and marketing costs thereafter. Despite the sale of the Tandem product line, sales and marketing expenses in the fourth quarter of 1997 were approximately equal to the fourth quarter of 1996. Only two employees in the sales and support departments were transferred to NDS as a result of the transaction. The Company's restructuring of the sales and marketing department related to the shift in sales strategy from direct to indirect occurred during the fourth quarter of 1997. Most employees terminated as a result of the restructuring were employed by the Company through December 31, 1997. Additionally, sales and marketing costs for the -28- 29 fourth quarter of 1997 include one-time charges related to severance packages given to employees affected by the restructuring and expenses related to the office closures of the Company's field sales offices in the Chicago and New York areas and in the U.K. The Company expects sales and marketing costs to continue to increase in absolute dollars for the foreseeable future as it expands its ability to sell and service its products through third-party resellers and expands its direct sales force. 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 13%, from $1,371,000, or 21% of revenue in 1996, to $1,551,000, or 37% of revenue in 1997. The increase in expense is primarily related to increased legal fees associated with an arbitration hearing settled in 1997, other professional fees, investor relations costs, and personnel costs. Acquired in-process research and development. In December 1994, the Company acquired (the "Acquisition") all of the outstanding shares of Network Partners, Inc. ("NPI"). At the time of the Acquisition, NPI's sole asset consisted of core UNIX systems management technology. In connection with this acquisition, the purchase price was allocated to in-process research and development, expensed in the fourth quarter of 1994. The acquisition of NPI was accounted for using the purchase method and was not considered deductible for tax purposes. Under the terms of the agreements for the acquisition, the purchase price was to be increased upon sales of the acquired technology. In December 1996 the Company successfully negotiated a termination agreement with the former shareholders of Network Partners, Inc. ("NPI Shareholders"). In exchange for a guaranteed payment, the NPI Shareholders agreed to forego any and all rights to future revenue from the UNIX technology purchased in connection with the Acquisition. Gain on sale of Tandem product line. On October 1, 1997, the Company sold its Tandem product line to NDS. In 1997, the Company recognized a gain on the sale of the operating assets of the Tandem product line of approximately $2.2 million. The Company will receive 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 Tandem operations contributed revenues of $3,659,000 and $5,882,000 in 1997 and 1996, respectively. The sale of the Tandem product line also included the transfer to NDS of approximately 12 employees associated with the Company's Tandem operation. Other income (expense). 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 interest on the Company's savings accounts and short term interest-bearing securities. Interest expense is comprised of interest on bank notes and capital leases of computer equipment. Other income and expense (net) decreased by -29- 30 $125,000, or 68%, in 1997 when compared to 1996 as a result of lower cash balances, resulting in a decrease in interest income from cash reserves. Income tax expense. The Company's tax expense recognized in 1997 and 1996 is primarily due to taxes paid to foreign jurisdictions. No tax benefit was recognized in either year due to the uncertainty related to the Company's ability to recognize a tax benefit for loss and credit carryforwards. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company's cash, cash equivalents, and short term investments were $1,692,000, representing 46% of total assets. The Company's working capital as of December 31, 1997, was $1,286,000. Cash equivalents are highly liquid with original maturities of ninety days or less. The Company's short term investments are primarily investment grade commercial paper and highly liquid. The Company had no debt as of December 31, 1997, other than normal trade payables and accrued liabilities. Stockholders' equity as of December 31, 1997, was $2,492,000. The Company's operating activities used cash of $1,915,000 in 1997, compared to cash used by operating activities of $570,000 in the prior year. The increase in cash used by operating activities was principally caused by increased net losses excluding the gain on the sale of the Tandem operation. This was partially offset by a decrease in accounts receivable. The Company's investing activities have consisted primarily of short-term investments, capitalization of software development costs, and additions to capital equipment. Investing activities provided cash of $2,473,000 in 1997, compared with using cash of $1,024,000 in 1996. The increase is primarily due to an increase in sales of short-term investments, the cash received for the sale of the Tandem operation, and a decrease in both capitalized software development costs and equipment acquisitions. Financing activities provided cash of $158,000 in 1997, compared with cash provided of $159,000 in the prior year. An increase in cash provided from financing activities that resulted from a reduction in payments on bank borrowings was more than offset by a decrease in cash provided by the exercise of employee stock options. On October 1, 1997, the Company sold its Tandem product line to New Dimension Software, Inc. ("NDS"). The Company will receive approximately $2.5 million in cash and the rights to receive royalties on Tandem related products for a period of three years. In 1997 the Company received $1.6 million in cash, which included a $300,000 prepayment of future royalties. The Company expects to receive the remaining amount related to the sale, equal to approximately $900,000, in 1998. Of the remaining amount, approximately $700,000 is held in escrow pending the satisfactory completion of certain short-term performance objectives. The majority of such performance objectives were met during the first quarter of 1998. -30- 31 The Company believes that its cash, cash equivalents, and short term investment balances, the additional proceeds from the sale of the Tandem product line, and funds from operations will satisfy the Company's projected working capital and capital expenditure requirements through the next twelve months. However, the Company may require funds to support additional working capital requirements or for other purposes and may seek to raise such additional funds through public or private equity financing or from other sources. There can be no assurance that additional financing will be available at all or that, if available, such financing will be obtainable on terms favorable to the Company. 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. -31- 32 Certain information required by Part III is omitted from this report, in that the Company will file its Proxy Statement for its Annual meeting of Shareholders with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 9 is set forth in the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 1998, 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 the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 1998, 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 the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 1998, 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 the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on May 20, 1998, under the caption "Certain Relationships and Related Transactions," and is incorporated herein by reference. -32- 33 PART IV ITEM 13. FINANCIAL STATEMENTS, EXHIBITS, SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements: Report of Independent Auditors ................................... F-1 Consolidated Balance Sheets: December 31, 1997 and 1996 ..................................... F-2 Consolidated Statements of Operations: Years ended December 31, 1997 and 1996 ......................... F-3 Consolidated Statements of Shareholders' Equity: Years ended December 31, 1997 and 1996 ......................... F-4 Consolidated Statements of Cash Flows: Years ended December 31, 1997 and 1996 ......................... F-5 Notes to Consolidated Financial Statements ....................... F-6
(a)(2) Exhibits: See Exhibits Index on Page 34. The Exhibits listed in the accompanying Exhibits Index are filed or incorporated by reference as part of this report. Exhibit Nos. 10.21, 10.21.1, 10.22, 10.23, 10.24, 10.25, 10.26, 10.28, and 10.29 are compensatory plans or arrangements. (b) Reports on Form 8-K: The Company filed one Report on Form 8-K, reporting an event occurring on October 1, 1997, under Item 2 - Acquisition or Disposition of Assets, relating to the sale of the Company's Tandem product line to New Dimension Software, Inc. -33- 34 EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1(1) Amended and Restated Articles of Incorporation. 3.2(1) By Laws. 10.21(2)@ Employment letter and Termination and Change in Control Agreement, dated March 4, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.21.1(3)@ Amendment to Employment letter and Termination and Change in Control Agreement, dated November 6, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.22(2)@ Nonqualified Stock Option Agreement, dated March 4, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.23(2)@ Incentive Stock Option Agreement, dated March 4, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.24(3)@ Termination and Change in Control Agreement, dated April 24, 1996, by and between Enlighten Software Solutions, Inc. and Michael A. Morgan. 10.25(3)@ Employment letter, dated December 27, 1996, by and between Enlighten Software Solutions, Inc. and Mark Himelstein. 10.26(3)@ Nonqualified Stock Option Agreement, dated December 27, 1996, by and between Enlighten Software Solutions, Inc. and Mark Himelstein. 10.27(4) Agreement dated as of September 22, 1997, by and among Enlighten Software Solutions, Inc., Peter J. McDonald, and New Dimension Software, Inc. 10.28@ Employment letter, dated July 3, 1997, by and between Enlighten Software Solutions, Inc. and Michael Seashols. 10.29@ Employment letter, dated August 28, 1997, by and between Enlighten Software Solutions, Inc. and David D. Parker. 10.30 Agreement dated as of January 21, 1998, by and between Enlighten Software Solutions, Inc. and Silicon Graphics, Inc. 21.1(5) Subsidiaries of the Company. 23.1 Consent of KPMG Peat Marwick LLP.
-34- 35
27.1 Financial Data Schedule.
- ------------------ (1) Incorporated by reference from exhibits of the same number in the Company's Registration Statement on Form S-1, which became effective April 19, 1994. (2) Incorporated by reference from an exhibit of the same number in the Company's Quarterly Report on Form 10-QSB for the year ended March 31, 1996. (3) Incorporated by reference from an exhibit of the same number in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996. (4) Incorporated by reference from exhibit 10.27 in the Company's Current Report on Form 8-K dated October 1, 1997. (5) Incorporated by reference from an exhibit of the same number in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (@) Compensatory or employment arrangement. -35- 36 ENLIGHTEN SOFTWARE SOLUTIONS, INC. FORM 10-KSB, DECEMBER 31, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. ENLIGHTEN SOFTWARE SOLUTIONS, INC. /s/ David D. Parker ------------------------------- David D. Parker Chief Executive Officer /s/ David D. Parker - ----------------------------------------- David D. Parker, March 26, 1998 Chief Executive Officer /s/ Michael A. Morgan - ----------------------------------------- Michael A. Morgan, March 26, 1998 Chief Financial Officer /s/ Michael Seashols - ----------------------------------------- Michael Seashols, March 26, 1998 Chairman of the Board /s/ Peter J. McDonald - ----------------------------------------- Peter J. McDonald, March 26, 1998 Director /s/ Peter J. Sprague - ----------------------------------------- Peter J. Sprague, March 26, 1998 Director /s/ Bruce Cleveland - ----------------------------------------- Bruce Cleveland, March 26, 1998 Director -36- 37 Report of Independent Auditors 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 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 the Enlighten Software Solutions, Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Mountain View, California February 4, 1998 F-1 38 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Consolidated Balance Sheets December 31, 1997 and 1996
ASSETS 1997 1996 ----------- ----------- Current assets: Cash and cash equivalents $ 1,406,141 $ 689,611 Short term investments 286,000 1,639,065 Accounts receivable, less allowance for doubtful accounts of $125,000 and $210,000 respectively 240,444 1,500,051 Refundable income taxes 127,035 400,669 Prepaid expenses and other assets 449,256 215,819 ----------- ----------- Total current assets 2,508,876 4,445,215 Property and equipment, net 748,736 1,152,302 Acquired technology and software development costs, net 231,063 903,346 Other assets 226,034 208,384 ----------- ----------- $ 3,714,709 $ 6,709,247 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 134,043 $ 344,266 Accrued and other current liabilities 728,975 595,252 Deferred revenue 359,361 1,475,273 ----------- ----------- Total current liabilities 1,222,379 2,414,791 ----------- ----------- Commitments Shareholders' equity: Preferred stock; 1,000,000 shares authorized; none issued and outstanding -- -- Common stock; 10,000,000 shares authorized; 2,963,635 and 2,910,956 shares issued and outstanding in 1997 and 1996, respectively 5,079,505 4,921,208 Accumulated deficit (2,587,175) (626,752) ----------- ----------- Total shareholders' equity 2,492,330 4,294,456 ----------- ----------- $ 3,714,709 $ 6,709,247 =========== ===========
The accompanying notes to consolidated financial statements. F-2 39 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Consolidated Statements of Operations
Years ended December 31, ------------------------------ 1997 1996 ----------- ----------- Revenue: Product license fees $ 1,438,805 $ 2,644,546 Product maintenance fees 2,598,679 3,407,778 Consulting services 193,358 424,975 ----------- ----------- Total revenue 4,230,842 6,477,299 ----------- ----------- Cost of revenue: Product licenses 698,714 593,206 Product maintenance 182,096 101,675 Consulting services 95,525 338,768 ----------- ----------- Total cost of revenue 976,335 1,033,649 ----------- ----------- Gross profit 3,254,507 5,443,650 ----------- ----------- Operating expenses: Research and development 2,059,495 2,047,604 Sales and marketing 3,819,738 2,979,078 General and administrative 1,551,457 1,371,108 Acquired in-process research and development -- 210,469 Gain on sale of Tandem product line (2,157,827) -- ----------- ----------- Total operating expenses 5,272,863 6,608,259 ----------- ----------- Operating loss (2,018,356) (1,164,609) Other income (expense): Interest income, net 61,228 190,016 Foreign exchange loss, net (905) (4,852) ----------- ----------- Loss before income taxes (1,958,033) (979,445) Income taxes 2,390 58,535 ----------- ----------- Net loss $(1,960,423) $(1,037,980) =========== =========== Basic and diluted net loss per share $ (0.67) $ (0.36) =========== =========== Shares used in computing basic and diluted net loss per share 2,944,228 2,870,448 =========== ===========
The accompanying notes to consolidated financial statements. F-3 40 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity Years ended December 31, 1997 and 1996
Common Stock Retained Earnings Total Shares Amount (Accumulated Deficit) Shareholders' Equity ----------- ----------- --------------------- -------------------- Balances at December 31, 1995 2,821,214 $ 4,639,954 $ 411,228 $ 5,051,182 Stock options exercised 79,080 263,129 -- 263,129 Employee stock purchase plan shares issued 10,662 18,125 -- 18,125 Net loss -- -- (1,037,980) (1,037,980) ----------- ----------- ------------------- ----------- Balances at December 31, 1996 2,910,956 4,921,208 (626,752) 4,294,456 Stock options exercised 27,963 125,215 -- 125,215 Employee stock purchase plan shares issued 24,716 33,082 -- 33,082 Net loss -- -- (1,960,423) (1,960,423) =========== =========== =================== =========== Balances at December 31, 1997 2,963,635 $ 5,079,505 $ (2,587,175) $ 2,492,330 =========== =========== =================== ===========
The accompanying notes to consolidated financial statements. F-4 41 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows
Year ended December 31, ------------------------------ 1997 1996 ----------- ----------- Cash flows from operating activities: Net loss $(1,960,423) $(1,037,980) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 813,636 639,044 Gain on sale of Tandem product line (2,157,827) Deferred income taxes -- 210,512 Acquired in-process research and development -- 210,469 Loss on disposal of property and equipment 38,422 -- Changes in operating assets and liabilities: Accounts receivable 1,259,607 (399,426) Refundable income taxes 273,634 (112,404) Prepaid expenses and other assets (251,087) (129,090) Trade accounts payable (210,223) 68,115 Accrued and other liabilities 133,724 44,288 Deferred revenue 145,359 (63,801) ----------- ----------- Net cash used for operating activities (1,915,178) (570,273) ----------- ----------- Cash flows from investing activities: Purchases of short-term investments -- (1,331,338) Sales of short-term investments 1,353,065 1,013,000 Proceeds from sale of Tandem product line 1,285,378 -- Capitalization of software development costs (66,449) (483,632) Purchases of property and equipment (98,583) (222,056) ----------- ----------- Net cash provided by (used for) investing activities 2,473,411 (1,024,026) ----------- ----------- Cash flows from financing activities: Repayment of bank borrowings and debt -- (121,869) Proceeds from issuance of stock 158,297 281,254 ----------- ----------- Net cash provided by financing activities 158,297 159,385 ----------- ----------- Net increase (decrease) in cash and cash equivalents 716,530 (1,434,914) Cash and cash equivalents at beginning of year 689,611 2,124,525 ----------- ----------- Cash and cash equivalents at end of year $ 1,406,141 $ 689,611 =========== ===========
The accompanying notes to consolidated financial statements. F-5 42 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1997 and 1996 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Enlighten Software Solutions develops, markets, and supports software products for UNIX and UNIX/NT environment workgroup administration and enterprise management. The Company's product solutions are designed for open systems distributed computing environments in the range of ten to 1,000 servers/clients. The EnlightenDSM product allows companies to manage their information systems by enabling systems managers and administrators to control their systems from diverse UNIX/NT platform vendors such DEC, HP, IBM, SCO, Silicon Graphics, Sun, and Microsoft. The Company's award winning EnlightenDSM product suite provides cost-effective systems administration solutions for such open systems environments. The product suite is a fully integrated 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. Founded in 1986, the Company 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. On October 1, 1997, the Company sold its Tandem product line to New Dimension Software, Inc. ("NDS"), a subsidiary of New Dimension Software, Ltd. in order to focus efforts on its UNIX/NT product suite. In 1997, the Company recognized a gain on the sale of the operating assets of the Tandem product line of approximately $2.2 million. Approximately $1.6 million was received in 1997, and the Company expects to receive the remaining amount related to the sale, equal to approximately $900,000, in 1998. Of the remaining amount, approximately $700,000 is held in escrow pending the satisfactory completion of certain short-term performance objectives. The majority of such performance objectives were met during the first quarter of 1998. In addition, NDS is required to pay the Company royalties through September 2000 from NDS' licensing and support of the Tandem software products. The sale of the Tandem product line included the transfer of property and equipment, purchased and internally developed software, and deferred maintenance revenue with net book values of $141,000, $248,000, and $1,261,000, respectively. The sale of the Tandem product line also included the transfer to NDS of approximately 12 employees associated with the Company's Tandem operation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Enlighten Software Solutions, Inc. and its wholly-owned subsidiary, a field sales office in Europe. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Product license fees are recognized after the following events have occurred: a product evaluation has been shipped to the customer; the customer elects to purchase the software following an evaluation period; the customer signs the related contract; and collection of the sales price is probable. Royalty revenues that are contingent upon sale to an end user by original equipment manufacturers are recognized upon receipt of a report of shipment. Product maintenance fees committed as part of new product licenses and maintenance resulting from renewed maintenance contracts are deferred and recognized ratably over the contract period, F-6 43 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements generally one year. 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. In October 1997, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which supersedes SOP No. 91-1. SOP No. 97-2 will change the accounting for "multiple-element arrangements" and is effective for fiscal years beginning after December 15, 1997. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. If a vendor does not have evidence of the fair value for all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. The Company will adopt the provisions of SOP 97-2 for all software revenue transactions beginning January 1, 1998. The adoption of SOP 97-2 is not expected to have a material effect upon the Company's results of operations. Cash Equivalents and Short Term Investments The Company considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company 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, the Company has classified its investments in preferred stock as "available-for-sale." Such investments are recorded at fair market value based on quoted market prices, with unrealized gains and losses reported as a separate component of stockholders' equity. As of December 31, 1997 and 1996, unrealized gains and losses were not significant. 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. The Company 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 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 market value. To date, the Company has made no adjustments to the carrying values of its property and equipment. F-7 44 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Acquired Technology and Software Development Costs Acquired technology represents amounts paid by the Company for the rights to use certain completed software that is either incorporated into the Company's products or sold as a stand-alone product, and is amortized using the straight-line method over the estimated useful lives of the related products, generally three years. Software development costs incurred subsequent to the determination of product technological feasibility are capitalized and amortized over the products' estimated useful lives, generally three years. Costs related to computer software development incurred prior to establishing product technological feasibility are expensed as incurred. The Company periodically assesses the recoverability of these intangible assets by comparing their remaining 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 the Company'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. Remeasurement adjustments and transaction gains and losses are recognized in income in the year of occurrence. Use of Estimates The Company's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results may differ from those estimates. Stock Based Compensation The Company uses the intrinsic value-based method to account for all of its employee stock-based compensation plans. Fair Value of Financial Instruments and Concentration of Credit Risk The fair value of the Company'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 the Company's short term investments are based on quoted market prices. F-8 45 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of short term investments and trade account receivables. The Company 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. Concentrations of credit risk with regard to trade account receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographies. The Company has no significant concentration of credit risk in any geographic area or industry. Income Taxes The Company 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. F-9 46 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Net Loss Per Share Net loss per share has been computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding for the period, if any. Common equivalent shares from stock options outstanding (see Note 7) have not been included as their effect would be antidilutive. (2) CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS Cash and cash equivalents consisted of the following:
December 31, --------------------------- 1997 1996 ---------- ---------- Cash $ 440,794 $ 440,880 Money market funds 1,005,347 248,731 ---------- ---------- $1,406,141 $ 689,611 ========== ==========
Short term investments consisted of the following: Equity securities $ 286,000 $1,120,152 Commercial paper -- 518,913 ---------- ---------- $ 286,000 $1,639,065 ========== ==========
F-10 47 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (3) PROPERTY AND EQUIPMENT A summary of property and equipment follows:
December 31, --------------------------- 1997 1996 ---------- ---------- Equipment $1,224,991 $2,039,723 Furniture and fixtures 271,511 271,511 Leasehold improvements 136,669 136,669 ---------- ---------- 1,633,171 2,447,903 Less accumulated depreciation and amortization 884,435 1,295,601 ---------- ---------- $ 748,736 $1,152,302 ========== ==========
(4) ACQUIRED TECHNOLOGY AND SOFTWARE DEVELOPMENT COSTS A summary of acquired technology and software development costs as of December 31, 1997 and 1996, follows:
1997 1996 ---------- ---------- Acquired technology $ -- $ 475,000 Software development costs 416,444 1,512,733 ---------- ---------- 416,444 1,987,733 Less accumulated amortization: Acquired technology -- 334,999 Software development costs 185,381 749,388 ---------- ---------- 185,381 1.084,387 $ 231,063 $ 903,346 ========== ==========
On October 1, 1997, the Company sold its Tandem product line and as a result, the Company sold developed software with a gross cost of $838,316 and accumulated amortization of $691,203. The Company also sold acquired technology with a gross cost of $475,000 and accumulated amortization of $374,375. F-11 48 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The Company also had a write-off related to certain products which totaled $324,422 of gross developed software that had an accumulated amortization balance of $174,086. These products were not expected to generate sufficient future revenue which would be required for the Company to realize the carrying value of the assets. (5) INCOME TAXES Income taxes consist of:
Current Deferred Total --------- --------- --------- Year ended December 31, 1997: Federal $ -- $ -- $ -- State and local 800 -- 800 Foreign 1,590 -- 1,590 --------- --------- --------- $ 2,390 $ -- $ 2,390 ========= ========= ========= Year ended December 31, 1996: Federal $(164,333) $ 142,767 $ (21,566) State and local 800 67,745 68,545 Foreign 11,556 -- 11,556 --------- --------- --------- $(151,977) $ 210,512 $ 58,535 ========= ========= =========
The Company's income tax expense differed from the expected tax benefit computed by applying the statutory U.S. federal income tax rate (34%) to loss before income taxes as a result of the following:
Year ended December, 31, -------------------------- 1997 1996 --------- --------- Computed "expected" tax benefit $(665,731) $(333,011) Increase (reduction) in income taxes resulting from: State and local income taxes, net of federal benefit 528 45,240 Change in valuation allowance 673,086 399,440 Foreign taxes 1,590 11,556 Other (7,083) (64,690) --------- --------- $ 2,390 $ 58,535 ========= =========
F-12 49 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The tax expense recognized in 1997 was due to the Company's inability to recognize a tax benefit for loss and credit carryforwards. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31, ------------------------------ 1997 1996 ----------- ----------- Deferred tax assets: Allowance for doubtful accounts $ 50,173 $ 84,290 Covenant not to compete 64,189 65,730 Accrued compensation 18,144 21,294 Depreciation and amortization -- 88,950 State taxes -- 272 Credit carryforward 326,212 233,727 Loss carryforward 784,782 211,569 ----------- ----------- Deferred tax assets 1,243,500 705,832 Valuation allowance (1,072,526) (399,440) ----------- ----------- Net deferred tax assets 170,974 306,392 ----------- ----------- Deferred tax liabilities: Software development costs 92,744 306,392 Depreciation and amortization 78,320 -- ----------- ----------- Total deferred tax liabilities 170,974 306,392 ----------- ----------- Net deferred tax asset $ -- $ -- =========== ===========
The Company has recorded a valuation allowance of $1,072,526 with respect to the deferred tax assets as of December 31, 1997. Management has determined that such portion of deferred tax assets may not be realized. The Company has federal and state net operating loss carryforwards of approximately $1,983,000 and $1,802,000, respectively, that may be used to offset future taxable income and federal and state research tax credits of approximately $246,000 and $80,000, respectively, that may be used to offset future tax liability. If unused, both the net operating loss and research credit carryforwards will expire in the year 2012. F-13 50 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (6) ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities consisted of the following:
1997 1996 -------- -------- Accrued employee compensation $230,696 $135,416 Royalties payable -- 79,563 Acquisition related settlement -- 200,000 Other 498,279 180,273 -------- -------- $728,975 $595,252 ======== ========
(7) SHAREHOLDERS' EQUITY (a) 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. (b) Employee Stock Option and Purchase Plans As of December 31, 1997, the Company had authorized 1,500,000 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. The Company's option activity was as follows:
Number of Weighted-average shares exercise price -------- -------- Balance at December 31, 1995 532,668 $ 3.30 Granted 383,750 2.88 Exercised (79,080) 3.33 Terminated (148,230) 3.28 -------- Balance at December 31, 1996 689,108 3.06 Granted 869,655 1.70 Exercised (27,963) 2.47 Terminated (607,876) 2.95 -------- Balance at December 31, 1997 922,924 1.87 ========
F-14 51 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following table summarizes information about stock options outstanding at December 31, 1997:
Options outstanding Options exercisable -------------------------------------------------------- ----------------------- Range Weighted- Weighted- Weighted- of average average average exercise Number remaining exercise Number exercise prices outstanding contractual life price outstanding price ------ ----------- ---------------- ----- ----------- ----- $1.00 - 1.88 494,567 8.2 Years $1.29 155,234 $1.37 1.91 - 4.68 428,357 8.1 2.53 147,598 3.20 ------- ------- 1.00 - 4.68 922,924 8.1 1.87 302,832 2.27 ======= =======
Under the Company's 1994 Employee Stock Purchase Plan (the Purchase Plan) a total of 148,142 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 the Company. (c) Accounting for Stock-Based Compensation Plans The Company 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 because 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 the Company's stock options been determined in a manner consistent with SFAS No. 123, the Company's net loss and net loss per share as reported would have been increased to the pro forma amounts indicated below (in thousands, except per share amounts):
1997 1996 --------- --------- Reported net loss $ (1,960) $ (1,038) Pro forma net loss $ (2,408) $ (1,444) Reported net loss per share $ (0.67) $ (0.36) Pro forma net loss per share $ (0.82) $ (0.50)
F-15 52 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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: 1997 - an expected life of 3.5 years, risk-free interest rates of 5.84%, 140.4% expected volatility, and no dividend yield; 1996 - an expected life of 3.5 years, risk-free interest rates of 6.25%, 114.9% expected volatility, and no dividend yield. The weighted-average fair value of options granted during the period at an exercise price equal to market price at grant date was $1.57 and $2.10 for the periods ended December 31, 1997 and 1996, respectively. The fair value of employees' stock purchase rights under the Purchase Plan was estimated by calculating the difference between the share purchase price and the fair market value of the share at the date of the purchase. All assumptions were omitted in the estimate due to the immateriality of the compensation cost generated in association with the Purchase Plan. Pro forma net income reflects only options granted in 1997, 1996, and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 3.5 years and compensation cost for options granted prior to January 1, 1995 is not considered. (8) COMMITMENTS Leases The Company leases office space, automobiles, and certain office equipment under noncancelable leases expiring through 2001. Future minimum lease payments under these leases aggregate approximately $393,328, $407,092, $421,340, and $142,048 in 1998, 1999, 2000, and 2001. Rent expense was $459,108 and $550,387 in 1997 and 1996, respectively. Royalties The Company 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 $320,818 and $289,273 in 1997 and 1996, respectively. F-16 53 ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (9) FOREIGN OPERATIONS AND MAJOR CUSTOMERS The Company's operations outside of the United States consist solely of a sales office 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, for the years ended December 31, 1997 and 1996.
1997 1996 ----------- ----------- Sales to unaffiliated customers: North America $ 3,189,407 $ 5,306,348 United Kingdom 1,041,435 1,170,951 ----------- ----------- Total $ 4,230,842 $ 6,477,299 =========== =========== Operating income (loss): North America $(2,052,865) $(1,181,971) United Kingdom 34,509 17,362 ----------- ----------- Total $(2,018,356) $(1,164,609) =========== =========== Total assets: North America $ 3,400,998 $ 6,296,838 United Kingdom 313,711 412,409 ----------- ----------- Total $ 3,714,709 $ 6,709,247 =========== =========== Export sales $ 310,594 $ 1,045,775 =========== ===========
F-17 54 EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1(1) Amended and Restated Articles of Incorporation. 3.2(1) By Laws. 10.21(2)@ Employment letter and Termination and Change in Control Agreement, dated March 4, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.21.1(3)@ Amendment to Employment letter and Termination and Change in Control Agreement, dated November 6, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.22(2)@ Nonqualified Stock Option Agreement, dated March 4, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.23(2)@ Incentive Stock Option Agreement, dated March 4, 1996, by and between Enlighten Software Solutions, Inc. and Byron E. Jacobs. 10.24(3)@ Termination and Change in Control Agreement, dated April 24, 1996, by and between Enlighten Software Solutions, Inc. and Michael A. Morgan. 10.25(3)@ Employment letter, dated December 27, 1996, by and between Enlighten Software Solutions, Inc. and Mark Himelstein. 10.26(3)@ Nonqualified Stock Option Agreement, dated December 27, 1996, by and between Enlighten Software Solutions, Inc. and Mark Himelstein. 10.27(4) Agreement dated as of September 22, 1997, by and among Enlighten Software Solutions, Inc., Peter J. McDonald, and New Dimension Software, Inc. 10.28@ Employment letter, dated July 3, 1997, by and between Enlighten Software Solutions, Inc. and Mike Seashols. 10.29@ Employment letter, dated August 28, 1997, by and between Enlighten Software Solutions, Inc. and David D. Parker. 10.30 Agreement dated as of January 21, 1998, by and between Enlighten Software Solutions, Inc. and Silicon Graphics, Inc. 21.1(5) Subsidiaries of the Company. 23.1 Consent of KPMG Peat Marwick LLP.
EX-10.28 2 EMPLOYMENT LETTER TO MIKE SEASHOLS 1 Exhibit 10.28 July 3, 1997 Michael Seashols 2805 St. James Road Belmont, CA 94002 Dear Mike: Thank you for your interest in joining ENlighten Software Solutions, Inc. as Chairman of the Board. We feel you will be a tremendous asset to the Company. As such, I'd like to extend the invitation for board membership to you at this time. This offer is subject to formal approval of the full Board of Directors. The terms we are proposing for your relationship with the Company is outlined below: In addition to your regular work schedule of at least one day per week, we anticipate that there will be four regular board meetings per year and perhaps special meetings called throughout the year as situations requiring such meetings arise. Reasonable travel and other expenses in connection with your activities will be reimbursed to you under normal Company policies. Included in your compensation package will be 100,000 non-qualified options which will allow you to purchase ENlighten Software Solutions, Inc. common stock at $1.01 per share. These options will vest monthly with full vesting one year from the date of grant. Accelerated vesting of these options will occur upon a change in control of the Company, or the occurrence of an Acceleration Event, as defined below. The term of your initial board membership will be for one year. The Company will sign a standard indemnity agreement with you and has industry standard Directors and Officers insurance for a company of our size. In addition to the initial option grant, you will be afforded the opportunity of an additional grant of 100,000 non-qualified options during your term as Chairman upon the occurrence of an Acceleration Event, as defined below. These options will be granted at 85% of fair market value on the date of the Acceleration Event, and will provide monthly vesting with full vesting two years from date of grant. You will be granted an additional 100,000 non-qualified options provided the Company and you mutually agree that you continue serving as Chairman for an additional year, effective September 1, 1998. These options will be granted at 85% fair market value on September 1, 1998, and will provide monthly vesting with full vesting two years from date of grant. 2 Mr. Michael Seashols Page 2 As used in this document, an "Acceleration Event" is defined as the occurrence of one of the following: - the ninety day rolling average of the stock price of the Company exceeds $6.00 per share; or - two of the following three events occur - completion of a satisfactory sale of the Tandem business - obtaining outside equity financing for the Company the - consummation of two (2) strategic deals with major partners We are very excited about your joining the board and look forward to working with you in the years to come. If this proposal is acceptable, please sign and return a copy of this letter to me. Very truly yours, ENlighten Software Solutions, Inc. Peter J. McDonald Chairman and CEO ACCEPTED: _________________________________ Date: _________________ EX-10.29 3 EMPLOYMENT LETTER FOR DAVID D. PARKER 1 Exhibit 10.29 August 25, 1997 Mr. David Parker San Mateo, CA 94404 Dear Dave: I am pleased to offer you a position with ENlighten Software Solutions, Inc. (the "Company") as President and Chief Executive Officer (pending Board Approval), commencing on September 2, 1997. Your compensation is outlined in Attachment A to this letter, which will be paid in accordance with the Company's normal payroll procedures. As an ENlighten Software Solutions employee, you will also receive, in accordance with each applicable plan document, certain employee benefits including: incentive stock options (200,000 options, representing approximately 6.8% of the Company's outstanding stock, to be issued prior to September 30, 1997), 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. The price of the incentive stock options will be set at the date of grant following your start date as indicated above. Due to plan restrictions, 50,000 of the options granted above will be issued outside the Company's 1992 Employee Stock Option Plan. Any options issued outside the plan will unregistered securities. The Company will register any such options with any other security registration the Company may do following the grant of unregistered options. In the event of your termination, the Company will register any unregistered options held by you within twelve months of your termination date. 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. For purposes of federal immigration law, you will be required to provide to ENlighten Software Solutions documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us with three (3) business days of your date of hire, or our employment relationship with you may be terminated. 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 Mateo, 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. 2 ENlighten Software Solutions, Inc. Page 2 (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. (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 your promises in this letter; and (iii) resulting damages would not adequately compensate ENlighten Software Solutions. Accordingly, if you commit such a breach or threaten to commit 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 bond or other security, since any such 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. This offer will remain valid until August 26, 1997, unless rejected or rescinded prior to that date. We look forward to working with you at ENlighten Software Solutions. Welcome Aboard! AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED - -------------------------------- -------------------------------- Michael A. Morgan David Parker Chief Financial Officer Dated:________/________/_______ Dated:________/________/_______ 3 ENlighten Software Solutions, Inc. Page 3 ATTACHMENT A CHIEF EXECUTIVE OFFICER COMPENSATION PROGRAM This document defines the compensation program for the position of Chief Executive Officer at ENlighten Software Solutions, Inc. The total targeted compensation is made up of your base salary and deferred compensation/bonus. The total targeted compensation is $180,000 at plan, excluding any stock options. COMPENSATION 1. Base Salary: Your base salary is $120,000 per year, this will be paid through the regular semi-monthly company payroll at $5,000.00 per pay period. 2. Deferred Compensation/Bonus: For the year ending December 31, 1997, your deferred compensation/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 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. Benefits Upon Other Termination: You agree that your employment 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 cause as defined below, you shall be entitled to no compensation or benefits from the Company other than those earned under paragraphs 1 and 2 through the date of your termination. For purposes 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; 4 ENlighten Software Solutions, Inc. Page 4 (ii) violation of Confidentiality and Inventions Agreement; or (iii)any intentional act by you which causes loss, damage, or injury to the Company's property, reputation, employees, or business; (b) Termination of 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 benefits: (i) a termination severance package equal to six (6) months of your then current base salary, or $60,000 whichever is greater. Such severance package shall be payable in three (3) equal installments, each due respectively within thirty (30), sixty (60), and ninety (90) days of your termination of employment with the Company. (c) Termination for Good Reason: If your employment is terminated by you for good reason you shall be entitled to the separation benefits outlined in this paragraph 4(c). For 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 your place of performance of services outside a sixty (60) mile radius of San Mateo; 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. 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. 6. 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-10.30 4 AGREEMENT WITH SILICON GRAPHICS, INC. 1 Exhibit 10.30 SOFTWARE LICENSE, OEM AND DISTRIBUTION AGREEMENT This Software License, OEM and Distribution Agreement ("Agreement") is made as of January 21, 1998 (the "Effective Date") between Silicon Graphics, Inc., a Delaware corporation ("Licensee" or "SGI"), having its principal place of business at 2011 N. Shoreline Blvd., Mountain View, CA 94043 and ENlighten Software Solutions, Inc. ("ESSI"), having its principal place of business at 999 Baker Way, Fifth Floor, San Mateo, CA 94404. 1.0 DEFINITIONS. 1.1 "Acceptance Date" shall mean the date as of which Licensee accepts the Program as specified in Exhibit H. 1.2 "Basic Admin" means a limited function version of DSM as more fully described in Exhibit A. The feature set for Basic Admin is also set forth in Exhibit A. 1.2.1 "NewShip Basic Admin" means Basic Admin that is bundled with Licensee's Servers and Workstations. 1.2.2 "Installed Basic Admin" means Basic Admin that is shipped to Licensee's customers' for installation on Servers and Workstations that are not licensed to run NewShip Basic Admin or Upgrade Basic Admin. 1.2.3 "Upgrade Basic Admin" means Basic Admin, containing Workstation and Server agents only, that is shipped to Licensee's customers' for installation on Servers and Workstations that are upgrading from a version of the Licensee's operating system that does not contain NewShip Basic Admin to a version of the Licensee's operating system that does contain NewShip Basic Admin. 1.3 "Bundle" shall mean the act of shipping Basic Admin with a new SGI System. 1.4 "Confidential Information" shall mean all Source Code, confidential documentation, as more particularly described in section B of Exhibit C, and any other materials marked as confidential and delivered by one party to the other pursuant to this Agreement, subject to Section 6 below. Any information disclosed by the party disclosing Confidential Information to the other party under this Agreement (the "Discloser) will be considered Confidential Information by the other party only if such information is designated as confidential, or if provided orally, identified as confidential at the time of disclosure and confirmed in writing within thirty (30) days of disclosure. 1.5 "Documentation" shall mean non-confidential materials which relate to the Program and which are delivered to Licensee by ESSI pursuant to this Agreement, as more particularly described in section A of Exhibit C. 1.6 "DSM" means ESSI's SGI-based version of its Distributed System Manager software as more fully described in Exhibit A. 1.7 "Enhanced Admin" means the additional feature set version of DSM as more fully described in Exhibit A. 1.7.1 "NewShip Enhanced Admin" means Enhanced Admin that is licensed for Licensee's customers' Servers and Workstations that are licensed to run NewShip Basic Admin. [*] = Confidential Treatment Requested -- Edited Copies Page 1 2 1.7.2 "Installed Enhanced Admin" means Enhanced Admin that is licensed for Licensee's customers' Servers and Workstations that are licensed to run Installed Basic Admin. 1.8 "Enhancements" shall mean all modifications to the Program made solely on behalf of Licensee but do not include separate add-on products which contain no Program code. 1.9 "Foreign Agent" shall mean ESSI's fully functional distributed systems agents operable on all non-SGI platforms supported by ESSI that are licensed to SGI customers. 1.10 "Infringement Action" shall mean any claim, suit, or proceeding brought against Licensee that the Program or Documentation infringes any U.S. patent, copyright, trademark, or trade secret, of a third party. 1.11 "Infringing Product" shall mean any restriction on the use of the Program as the result of an injunction issued in an Infringement Action. 1.12 "Intellectual Property Rights" shall mean the following rights that pertain to the Program and the Documentation: (a) Rights in all U.S. and foreign letters patent and applications for letters patent; (b) Rights in the trademarks including, but not limited to, those listed in Exhibit B that are enforceable under common law, state law, federal law, or the laws of foreign countries; (c) Rights in copyrights and rights of authorship; and (d) Rights in trade secrets under common law, state law, federal law, and the laws of foreign countries. 1.13 "Object Code" shall mean any machine executable code derived in whole or in part from the Source Code. 1.14 "Program" shall mean DSM and any additional computer software licensed by ESSI to Licensee pursuant to this Agreement, as more particularly described in Exhibit A. 1.15 "Release" shall mean a release of the Object Code that may be either a new Version or Revision. 1.16 "Revision" shall mean a release of the Object Code incorporating corrections and minor enhancements to the prior Revision that ESSI makes generally available to the public. A Revision is designated by a numeric identification of the form "N.M" where the "M" designates the Revision. 1.17 [*] 1.18 "SGI System" shall mean servers or server systems, and workstations or workstation systems manufactured, marketed, or sold by SGI and running the IRIX operating system or other SGI operating systems, as may be agreed between the parties. 1.19 "Server" shall mean general purpose computers with high levels of data storage and/or communications capabilities, including, without limitation, SGI's CHALLENGE(R), POWER CHALLENGE(R), and Origin(R) family of systems and their successors. [*] = Confidential Treatment Requested -- Edited Copies Page 2 3 1.20 "Source Code" shall mean any human readable code, that pertains in whole or in part to the Program, including any updates or upgrades. 1.21 "Supported Release" shall mean those Releases supported by ESSI as an ESSI commercial product. ESSI will provide support for the current and one (1) prior Release of the Program. Should Licensee require support on an earlier Release than provided for in this definition, Licensee shall remunerate ESSI on a time and material basis for such support activities. Supported Releases shall operate, at a minimum, on the current and one prior (as determined by Licensee) version of Licensee's IRIX operating system. 1.22 "Version" shall mean the Object Code releases of the Program, that ESSI makes available to Licensee under the provisions of the Agreement. A Version is designated by a numeric identification of the form "N.M" where "N" designates the Version identification. 1.23 "Workstation" shall mean any SGI system that is not classified as a Server and used predominately for individual productivity. 2.0 LICENSE GRANT. 2.1 [*] 2.2 [*] 2.3 [*] 2.4 All sublicenses under sections 2.2 and 2.3 shall be consistent with the relevant terms of this Agreement. With respect to the right to sublicense in sections 2.2 and 2.3: (a) Licensee shall use a written sublicense agreement with protections and restrictions (i) consistent with this Agreement, and (ii) at least as stringent as those which Licensee uses for its own software, but in no event less stringent than the provisions set forth in Exhibits K and E.; and (b) If any sublicensee is a U.S. Government agency, Licensee shall assure that all copies of Object Code contain a "U.S. Government Restricted Rights" legend at least as protective as the following: "U.S. GOVERNMENT RESTRICTED RIGHTS LEGEND [*] = Confidential Treatment Requested -- Edited Copies Page 3 4 The Software and Documentation have been developed entirely at private expense. They are delivered and licensed as "commercial computer software" as defined in DFARS 252.227-7013 (Oct 1988), DFARS 252.211-7015 (May 1991), or DFARS 252.227-7014 (dun 1995), as a "commercial item" as defined in FAR 2.101(a), or as "Restricted computer software" as defined in FAR 52.227-19 (dun 1987) (or any equivalent agency regulation or contract clause), whichever is applicable. You have only those rights provided for such Software and Documentation by the applicable FAR or DFARS clause or the ESSI standard software agreement for the product involved." 2.5 Licensee hereby grants to ESSI a non-exclusive, royalty-free, non-transferable internal license to use the Licensee Property and intellectual property embodied therein, for the sole purpose of development and testing of DSM under this Agreement. No Licensee Property may be provided to any third party without the prior written approval of Licensee. Licensee Property consisting of hardware and software shall be provided to ESSI under the terms of Exhibit I "SGI Equipment Loan Agreement". "Licensee Property" shall mean all property, including designs, software, documentation, models, tools, devices and other materials, owned or licensed to Licensee, which may be furnished to ESSI under the SGI Equipment Loan. 2.6 ESSI retains all right, title, and interest in the Program and Documentation. Licensee shall take all reasonable measures to protect ESSI's proprietary rights in the Program and Documentation. Licensee is not granted any other rights or license to patents, copyrights, trade secrets, or trademarks with respect to the Program or Documentation or other Confidential Information. Each party shall notify the other party in writing upon its discovery of any unauthorized use or claim of infringement of the Program or Documentation or either party's patents, copyrights, trade secrets, trademarks, or other intellectual property rights. 2.7 ESSI agrees that during the term of this Agreement it shall not [*]. This Section 2.7 shall exclude [*] of the Effective Date. 2.8 ESSI agrees that it shall not [*] with any [*] as of the Effective Date for a period of [*] from the Effective Date. 3.0 PAYMENTS. 3.1 FEES 3.1.1 In consideration for the rights granted in article 2 above, Licensee shall pay ESSI: (a) A support fee of [*] according to the schedule at Exhibit F; and (b) Non-Recurring Engineering Fees according to the schedule at Exhibit L. 3.2 Royalties. 3.2.1 No royalty shall be due for any copy used or distributed by Licensee only for reasonable demonstration, training, or support purposes. 3.2.2 Licensee shall pay ESSI a royalty in accordance with the schedule attached as Exhibit F for each copy of Object Code sold, distributed or otherwise disposed of, either internally or externally, by Licensee or its sublicensees, for the rights granted in section 2.2 above. [*] = Confidential Treatment Requested -- Edited Copies Page 4 5 3.2.3 Licensee shall pay ESSI a royalty in accordance with the schedule attached as Exhibit F for support and maintenance of each copy of Object Code sold, distributed or otherwise disposed of, either internally or externally, by Licensee or its sublicensees, in accordance with Section 2.2 above. 3.3 General Terms of Payment. 3.3.1 Royalty payments due ESSI shall be made in accordance with the payment schedule described more fully in Exhibit F. All other payments shall be made within [*] of receipt of a proper invoice. Payments shall be accompanied by a report detailing how such royalties were calculated or a reference to the relevant purchase order number. 3.3.2 Licensee shall maintain true and accurate records, in accordance with generally accepted accounting principles, for the calculation of royalties. During the term of this Agreement, and for a period of [*] thereafter, ESSI may, at its expense, engage an independent auditor reasonably acceptable to Licensee to review such records (to a maximum of [*] prior) and verify royalty payments, provided that the auditors execute Licensee's confidentiality agreement and provided that ESSI may not conduct said audits more than once in any calendar year. In the event that the audit reveals an underpayment of royalties, Licensee shall pay ESSI [*] of any royalties due and, if the underpayment exceeds [*] of the total royalties due, reimburse ESSI for the reasonable cost of the audit. 3.3.3 Licensee shall be solely responsible for all taxes on royalties and other fees required to be paid to ESSI under this Agreement, including state and local use, sales, property, and other taxes, excluding only taxes calculated solely on ESSI's income. 4.0 MARKETING, DELIVERY AND MANUFACTURING. 4.1 Licensee shall, at its own expense, use commercially reasonable efforts to market the Program. Licensee shall have the right to customize the Documentation for its own marketing, distribution, sales, and support efforts. 4.1.1 Marketing Plan. During each calendar quarter, Licensee and ESSI shall meet in order to develop a joint marketing plan showing planned marketing activities and the sales forecast for the quarter. 4.1.2 Licensee Training. Within thirty (30) days after the Effective Date, Licensee and ESSI shall jointly develop a training plan to effectively train SGI personnel.. Licensee shall bear its own expenses, those of its employees, and those of ESSI and ESSI's employees in connection with such training, including but not limited to travel, living expenses, and training material aids. 4.1.3 [*] Licensee agrees, for the term of this Agreement, [*] beginning with [*]. Licensee shall have the right to [*] if it so elects. 4.2 This Agreement does not create any partnership, agency, or other relationship other than that of licensee and licenser in accordance with the express provisions of this Agreement. 4.3 ESSI shall provide [*] [*] = Confidential Treatment Requested - Edited Copies Page 5 6 4.4 ESSI agrees to make Licensee's operating system a [*] As used herein, [*] shall mean [*] during the term of this Agreement shall be [*] either [*], the [*] 5.0 SUPPORT. 5.1 ESSI shall, during the term of this Agreement, support the Program as set forth in this Section 5, provided however that: (a) Licensee pays ESSI the support and software upgrade fees specified in Section 3 of this Agreement; and (b) ESSI shall be obligated to support the Program as set forth in Exhibit G to the extent that defects are not caused by Licensee. 5.2 Licensee and ESSI shall be responsible for all support of Licensee's customers as provided in Exhibit G. 5.3 The support obligations of ESSI, together with the Licensee's royalty and payment obligations provided for in Section 3.2.3 associated with such support obligations provided for in this Section 5 shall continue for a period of twelve (12) months beyond the term of this Agreement, provided that Licensee accepts every Release for the Program issued by ESSI. ESSI shall only be obligated to support Supported Releases. 6.0 CONFIDENTIAL INFORMATION. 6.1 A recipient of Confidential Information shall protect the Information by using the same degree of care, but no less than a reasonable degree of care, to prevent any unauthorized use, dissemination, or publication as the recipient uses to protect its own Confidential Information of a like nature. The recipient shall restrict access to the Confidential Information to those of its employees having a need to know. The recipient's obligations under this section 6.1 shall continue for [*] from the expiration or termination of this Agreement, except for Source Code which may be received hereunder, which must be protected for [*] from the expiration or termination of this Agreement. 6.2 A recipient of Confidential Information acknowledges and agrees that: (a) The discloser will be irreparably injured by the disclosure or threatened disclosure of any Confidential Information in violation of this Agreement; and (b) In addition to any other remedies available at law or in equity, the discloser may obtain an injunction to prevent such disclosure or the continuation of such disclosure. 6.3 Confidential Information does not include information that: (a) Was rightfully in the recipient's possession before receipt from the discloser; (b) Is or becomes a matter of public knowledge through no fault of the recipient; (c) Is rightfully received by the recipient from a third party without a duty of confidentiality; (d) Is disclosed by the discloser to a third party without a duty of confidentiality on the third party; [*] = Confidential Treatment Requested - Edited Copies Page 6 7 (e) Is independently developed by individuals without access to, or knowledge of, Confidential Information; or (f) Is disclosed under operation of law, provided the recipient gives the discloser prior notice, so that discloser has a chance to seek a protective order. 7.0 PROPRIETARY NOTICES. 7.1 ESSI shall include within the Object Code any trademark and copyright notices as applicable. Licensee shall reproduce such notices when marketing and distributing Object Code. 7.2 Documentation distributed by Licensee shall include the following notice: "Copyright (C) 1994, 1995, 1996, 1997 by ENlighten Software Solutions, Inc. All Rights Reserved." 8.0 ENHANCEMENTS. 8.1 ESSI shall disclose all Enhancements to Licensee [*] promptly, but in any event no later than ninety (90) days after commercial release of the Object Code version of the product. 8.2 ESSI shall own all right, title, and interest to any Enhancements and derivative works of the Program created by either party. 9.0 WARRANTIES. 9.1 ESSI warrants that it has full power and authority to grant the rights under this Agreement. 9.2 ESSI shall defend at ESSI's expense any Infringement Action and pay any final awarded damages and costs of settlement provided that Licensee gives ESSI prompt notice of any Infringement Action, as well as all authority, information, and assistance (at ESSI's expense) necessary to defend the Action. With respect to any Infringing Product, ESSI may, at its expense and option: (a) Procure for Licensee the right to continue using the Product; (b) Replace the Product with a non-infringing product of comparable function or performance; (c) Modify the Product to be non-infringing; or (d) If ESSI determines that none of the foregoing alternatives is feasible, terminate Licensee's rights to the Product but only to the extent necessary to avoid the infringement; [*] 9.3 Section 9.2 states the entire liability of ESSI for infringement of intellectual property rights by the Program or Documentation. Notwithstanding Section 9.2, ESSI shall have no liability under this Agreement for any claim, suit, or proceeding which is based upon, and which could have been avoided but for: [*] = Confidential Treatment Requested - Edited Copies Page 7 8 (a) Any combination, operation, or use of the Program or Documentation with equipment, software, documentation, or other items not supplied by ESSI; (b) Any modification of the Program or Documentation by anyone other than ESSI; or (c) Any use of other than the most current Release of the Program if such claim would have been avoided by the use of such Release, provided Licensee had a reasonable opportunity to upgrade to the most current Release. 9.4 ESSI warrants that DSM shall be substantially compliant with the description contained in Exhibit A, as modified from time to time as allowed under this Agreement. 9.5 ESSI MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE PROGRAM AND THE DOCUMENTATION, INCLUDING WITHOUT LIMITATION AS TO THEIR MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. NO PERSON, INCLUDING LICENSEE, IS AUTHORIZED TO MAKE ANY OTHER WARRANTY OR REPRESENTATION CONCERNING THE PROGRAM ON ESSI'S BEHALF. LICENSEE SHALL BE SOLELY RESPONSIBLE FOR ANY CLAIMS, WARRANTIES, OR REPRESENTATIONS MADE BY LICENSEE OR ITS EMPLOYEES OR AGENTS. 9.6 EXCEPT TO THE EXTENT SPECIFICALLY SET FORTH IN SECTON 9.2, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS) ARISING OUT OF ANY PERFORMANCE OF THIS AGREEMENT THE PROGRAM, OR ANY RELATED MATTER, OR IN FURTHERANCE OF THE PROVISIONS AND OBJECTIVES OF THIS AGREEMENT, WHETHER SUCH DAMAGES ARE BASED ON TORT, CONTRACT, OR ANY OTHER LEGAL THEORY AND WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 10.0 TERM AND TERMINATION. 10.1 Except as provided in Section 10.6, this Agreement shall commence on the Effective Date and shall expire three (3) years thereafter, unless earlier terminated for cause. 10.2 Either party may terminate this Agreement if the other party breaches any provision of this Agreement and if such breach is not cured within thirty (30) days of written notice from the non-breaching party advising of such breach. For purposes of this section 10.2, to the extent permitted by applicable law, a breach of this Agreement shall include, but not be limited to, the following: (a) Is the subject of a petition in bankruptcy, whether voluntary or involuntary; (b) Is or becomes insolvent; or (c) Ceases to do business in the normal course. 10.3 Upon the expiration or termination of this Agreement, Licensee shall: (a) Immediately cease distributing the Object Code and Documentation; and (b) Either destroy (with prompt certification by an authorized representative of the Licensee) or return to ESSI, at ESSI's option, [*] all copies and [*] = Confidential Treatment Requested - Edited Copies Page 8 9 executable derivatives thereof. Notwithstanding the foregoing, provided this Agreement has not been terminated for breach by Licensee, Licensee may keep, [*] without any rights to sell, market, or distribute any additional Object Code versions [*]. All such changes [*], and all copies and executable derivatives thereof, shall be the property of ESSI and shall either be destroyed (with certification by an authorized representative of the Licensee) or returned to ESSI, at ESSI's option, upon expiration of such [*] following the expiration or termination of this Agreement. 10.4 Notwithstanding any expiration or termination of this Agreement, the following provisions expressly survive: Sections 2.6, 3, 6, 9.5, 9.6, 11.1, 11.2, 11.4, 11.5, 11.7, 11.8, 11.9 and 11.10. Further, the expiration or termination shall not affect any sublicense agreements validly granted by Licensee as of the date of expiration or termination. 10.5 In addition to the provisions of Section 10.2 and 10.3, Licensee shall have the right to terminate this Agreement [*] of written notice to ESSI [*]. Licensee shall also have the right to receive the material which has been placed in escrow as further defined in the Escrow Agreement executed by the parties contemporaneous with this Agreement, a copy of which is attached hereto as Exhibit D, which Escrow Agreement is incorporated herein. 10.6 Notwithstanding the term provided in Section 10.1, [*]. Such option must be exercised [*] of receipt of written notice of [*]. For purposes of this Section 10.6, [*]. 11.0 MISCELLANEOUS PROVISIONS. 11.1 Notices. All notices required under this Agreement shall be in writing and shall be considered given upon personal delivery or delivery by electronic means (e.g. fax), upon forty-eight hours after sending by air courier, or upon seventy-two hours after deposit in the United States Mail, certified mail return receipt requested, addressed to the appropriate Account Manager as specified below: Licensee: Silicon Graphics. Inc. 2011 North Shoreline Boulevard Mountain View. CA 94043-1389 Attention: Legal Services Phone Number: (650) 933-6448 Fax Number: (650) 932-0652 [*] = Confidential Treatment Requested - Edited Copies Page 9 10 ESSI: ENlighten Software Solutions, Inc. 999 Baker Way, Fifth Floor San Mateo, CA 94404 Attention: Legal Phone Number: (650) 578-0700 Fax Number: (650) 524-5952 11.2 Confidentiality of Agreement. Neither party shall disclose to any third party the terms of this Agreement other than its existence in general. 11.3 Assignment. Neither party may assign nor transfer its rights or responsibilities set forth in this Agreement without the prior written consent of the other party, which shall not be unreasonably withheld [*]. 11.4 Waiver. A party's failure to exercise any of its rights under this Agreement shall not constitute a waiver or forfeiture of any such rights nor of any other rights. 11.5 Export. The parties acknowledge that the export of Confidential Information may be subject to regulations which may prohibit the export of such information to certain foreign countries or the disclosure of such information to certain foreign nationals. The parties, therefore, agree to comply strictly with all applicable export laws, regulations, executive orders and the like. 11.6 Exhibits. In the event of any conflict between an Exhibit and the main body of this Agreement, the latter shall control. The following Exhibits are incorporated in full into this Agreement by the first reference to each such Exhibit: (a) Exhibit A, Program Description; (b) Exhibit B, ESSI Trademarks; (c) Exhibit C, Documentation; (d) Exhibit D, Escrow Agreement (e) Exhibit E, Object Code Sublicensing Terms; (f) Exhibit F, Royalty Schedule and Payment Terms; (g) Exhibit G, Support and Training; (h) Exhibit H, Delivery and Acceptance; (i) Exhibit I, SGI Equipment Loan Agreement; (j) Exhibit J, Loaned Equipment Schedule; (k) Exhibit K, ESSI Software License Terms; and (1) Exhibit L, Non-Recurring Engineering Items. (m) Exhibit M, DSM List Price and Support Royalty. (n) Exhibit N, ESSI Customers. 11.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, U.S.A, without giving effect to the principles of conflict of law. The United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement. 11.8 Injunctive Relief. Unauthorized use of the Program, any information contained therein, or other Confidential Information will diminish the value to either party of the trade secrets and proprietary information that are the subject of this Agreement. Therefore, if either party breaches any of its obligations hereunder, the affected party shall be entitled to equitable relief [*] = Confidential Treatment Requested - Edited Copies Page 10 11 to protect its interests therein, including but not limited to injunctive relief, as well as monetary damages. 11.9 Employees. Both parties agree to refrain from actively recruiting the other party's employees during the term of this Agreement and for [*] following the earlier of the termination of this Agreement or the voluntary termination of the employee's employment by either party. 11.10 Entire Agreement. This Agreement and the Exhibits represent the entire agreement between the parties as to the matters set forth and integrates all prior discussions and understanding between them. This Agreement may only be modified by a written instrument signed by an authorized representative of both Licensee and ESSI. SILICON GRAPHICS, INC. ENLIGHTEN SOFTWARE SOLUTIONS, INC. By: By: ----------------------------- ------------------------------- Typed Name: Typed Name: ---------------------- ------------------------ Title: Title: --------------------------- ---------------------------- [*] = Confidential Treatment Requested - Edited Copies Page 11 12 EXHIBIT A PROGRAM DESCRIPTION The ENlighten/DSM ("DSM") product and feature functionality is fully described by the DSM version 2.3 documentation set. As of the Effective Date, the current version of DSM is 2.3.0. [*] A. Basic Admin [*] 1. The [*] has been moved from [*] 2. [*] has been moved from [*] 3. [*] has been moved from [*] under the new menu location. 4. [*] will be moved from [*] 5. [*] will be moved from [*]. B. [*] will contain [*]. It is [*]. Over time, minor and major features may be added or removed [*] however, the [*] will remain [*] unless otherwise agreed to in writing by both the Licensee and ESSI. Proposed [*] will be submitted to Licensee [*] for Licensee's review. Any objections [*] must be returned to ESSI [*] ESSI retains [*] DSM will (i) process without error information and/or data that includes or refers to dates and/or time ("Date Data") on any day during any year in, before and after the twenty-first century, including any leap day or year, (ii) maintain a consistent relationship with the real (external) time and date, and (iii) when used in combination with other products not provided by ESSI, correctly and accurately exchange Date data, to the extent that such other products correctly and accurately exchange Date Data. For purposes of this paragraph, "process" includes, but is not limited to, manipulate, output, receive, retrieve, store, sort, transmit, transform, and verify Date Data. [*] = Confidential Treatment Requested - Edited Copies Page 12 13 EXHIBIT B ESSI TRADEMARKS Licensee shall include a trademark acknowledgment in all Object Code and documentation derived from Documentation. Such acknowledgment shall specify that the Object Code and documentation are based on ESSI's Program and shall be worded as follows: ENlighten is a registered trademark of ENlighten Software Solutions, Inc. ENlighten for UNIX/Distributed Systems Manager and ENlighten/DSM are trademarks of ENlighten Software Solutions, Inc. All information contained in the manual for ENlighten for UNIX/Distributed Systems Manager is proprietary to ENlighten Software Solutions and all rights are reserved. Page 13 14 EXHIBIT C DOCUMENTATION Section A - Sublicensable Documentation ESSI will provide both printed and electronic forms of the end-user customer documentation currently delivered with the Program when purchased by an ESSI customer, including, but not limited to: (1) ENlighten/DSM User's Manual Section B - Confidential Documentation This shall include any technical and business information relating to inventions or products, research and development, product planning methodologies, manufacturing and engineering processes, costs, profit, or margin information, employee skills and salaries, finances, customers, marketing and production and future business plans of the Discloser. Confidential Documentation may also include confidential proprietary and/or trade secret information that is owned by third parties who may have disclosed such information to either party in the course of such party's business. Page 14 15 EXHIBIT D ESCROW AGREEMENT This ESCROW AGREEMENT ("Escrow Agreement") is made the _day of ________, 1998 ("Effective Date"), among ___________________, a corporation ("ESSI") having a place of business at _______________, and Silicon Graphics, Inc., a Delaware corporation ("Licensee" or "SGI"), having a place of business at 2011 N. Shoreline Blvd., Mountain View, CA 94043-1389, and Data Securities International, Inc., a California escrow agent having an office at 345 California Street, Suite 1220, San Francisco, CA 94104 ("Escrow Agent"). WHEREAS, ESSI and SGI have entered into a Software License, OEM, and Distribution Agreement (the "License Agreement) involving certain ESSI products ("DSM" as defined in the License Agreement), to which this Escrow Agreement is an attachment. WHEREAS, the benefits conferred under this Escrow Agreement are a material part of the consideration given by ESSI under the License Agreement. WHEREAS, this Escrow Agreement is being entered into [*]. In consideration of the execution of the Escrow Agreement and the mutual covenants herein contained, the parties hereto agree as follows: 1.0. SOURCE CODE. 1.1. INITIAL DELIVERY. ESSI shall deliver to Escrow Agent the Material and associated documentation described in Appendix A to this Escrow Agreement [*] execution of this Agreement, or [*], whichever date is later. ESSI represents and warrants that it has all right, title and interest to such Material and any intellectual property pertaining thereto. Escrow Agent shall acknowledge in writing to SGI and ESSI receipt of the Material marked "Escrowed Material provided pursuant to a License Agreement and Escrow Agreement," but does not and shall not make any representation or warranty as to the contents of the Material or the conformity of the Material to the description set forth in Appendix A hereto. Simultaneously with such delivery to Escrow Agent, ESSI shall deliver to SGI a letter certifying that the Material being delivered to Escrow Agent is in conformity with Appendix A hereto and is in satisfaction of ESSI's obligations hereunder. 1.2. UPDATES. ESSI shall [*]. Such deliveries shall be made in accordance with Section 1.1 above. 1.3. RIGHTS TO POSSESSION. While the Material is held in escrow hereunder: (a) ESSI shall have no right of possession of such Material, and (b) SGI shall have no right of access thereto and shall have only those rights specifically provided for herein. 2.0. DELIVERY OF MATERIAL BY ESCROW AGENT. 2.1 Escrow. Escrow Agent shall hold the Material in escrow until authorized hereunder to deliver the same as follows: (a) Promptly after receipt of written notice signed by both parties that [*], Escrow Agent shall deliver to ESSI, free and clear of any interest of SGI or Escrow Agent, all Material then held by Escrow Agent. (b) At any time prior to receipt of the notice specified in Section 2.1 (a) hereof, [*]. Upon[*], Escrow Agent shall, subject to [*]. [*] = Confidential Treatment Requested - Edited Copies Page 15 16 (c) At any time prior to receipt of the notice specified in Section 2.1 (a) hereof, [*] Escrow Agent [*]. Upon [*] Escrow Agent shall, subject to [*]. 2.2. CONFIRMATION OF DELIVERY. A copy of any notice to Escrow Agent pursuant to Section 2.1 (b) or (c) hereof shall be delivered by hand or by mail (certified mail, return receipt requested) to the other party and such notice to Escrow Agent [*]. Escrow Agent shall not [*] hereof prior to the [*] on which Escrow Agent [*]. If either party [*] by the other party, such objecting party [*] and the provisions of [*] will be followed. 2.3. DELIVERY TO SGI. The Material [*] (a) the [*] (b) [*] (c) the determination, [*] (d) the determination, [*] (e) the [*] 3.0. RIGHTS OF SGI WITH RESPECT TO MATERIAL. Upon the delivery of the Material by Escrow Agent pursuant to Section 2.0 hereof, [*] provided, however, that the right set forth [*] solely for [*] and is subject to all of the provisions of Sections [*] which are incorporated herein by reference, and further provided that [*] [*] in accordance with this provision [*] its successor or its authorized legal representative. Notwithstanding the foregoing, no title or ownership interest in any trade secret or other intellectual property is included in any transfer of Material to SGI hereunder. [*] this does not include [*] 4.0. SETTLEMENT OF DISPUTES. Any dispute that may arise under this Escrow Agreement, including, without limitation, disputes arising during the period of [*] hereof with respect to the delivery of the Material, or the duties of Escrow Agent hereunder, shall be settled [*], all costs and expenses of which (including reasonable attorneys' fees ) shall be borne [*] which the [*]. Prior to the settlement of any such dispute, Escrow Agent is authorized and directed to retain the Material in its possession, without liability to anyone. 5.0. CONCERNING THE ESCROW AGENT. [*] = Confidential Treatment Requested - Edited Copies Page 16 17 5.1. Fees. [*]; Escrow Agent's fees and price schedule for services is set forth hereto in Appendix B. [*] any such fees payable to Escrow Agent. 5.2. RESIGNATION/DISCHARGE. Escrow Agent may resign and be discharged from its duties hereunder at any time by giving notice of such resignation to SGI and ESSI specifying a date when such resignation shall take effect. Upon such notice, a successor Escrow Agent shall be appointed with the consent of both SGI and ESSI, such successor Escrow Agent to become Escrow Agent hereunder upon the resignation date specified in such notice. If SGI and ESSI are unable to agree upon a successor Escrow Agent within thirty (30) days after such notice, Escrow Agent shall be entitled to appoint its successor, who shall be subject to all the terms and conditions of this Escrow Agreement. Escrow Agent shall continue to serve until its successor accepts the escrow and receives the Material. SGI and ESSI shall have the right at any time upon this mutual consent to substitute a new Escrow Agent by giving notice thereof to Escrow Agent then acting. 5.3. RELIANCE. Escrow Agent undertakes to perform such duties as are specifically set forth herein and may conclusively rely and shall be protected in acting or refraining from acting, on any written notice, instrument, or signature reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties duly authorized to do so. Escrow Agent shall have no responsibility for the contents of any writing contemplated herein and may rely without any liability upon the contents thereof, so long as Escrow Agent is not negligent in so relying. 5.4. GOOD FAITH CONDUCT. Escrow Agent shall not be liable for any action taken or omitted by it in good faith and reasonably believed by it to be authorized hereby or within the rights or powers conferred upon it hereunder, nor for action taken or omitted by it in good faith, and in accordance with advice of counsel (which counsel may be of Escrow Agent's own choosing). 6.0. MISCELLANEOUS. 6.1. MODIFICATION. This Agreement may only be modified by the prior written approval of a duly authorized representative of each party. 6.2. COUNTERPARTS. The Agreement may be executed in one or more counterparts, but all such counterparts shall constitute but one and the same instrument. 6.3. HEADINGS. Section headings contained in this Agreement have been inserted for reference purposes only, and shall not be used in the interpretation of this Agreement. 6.4. NO RIGHTS. Except as otherwise expressly provided in this Agreement, no license or rights in any ESSI software or other intellectual property are provided under this Agreement, either expressly or by implication, estoppel or otherwise. 6.5. GOVERNING LAW. This Agreement will be governed by and interpreted in accordance with the laws of the State of California, excluding its choice of laws rules. ESSI and SGI agree that any dispute regarding the interpretation or validity of, or otherwise arising out of, this Agreement, or relating to the products sold, distributed or licensed under this Agreement will be subject to the exclusive jurisdiction of the California state courts in and for Santa Clara, County, California (or, if there is federal jurisdiction, the United States District Court for the Northern District of California), and ESSI and SGI agree to submit to the personal and exclusive jurisdiction and venue of these courts. 6.6. ASSIGNMENT. This Agreement is [*], provided, however, that [*] without such [*] [*] = Confidential Treatment Requested - Edited Copies Page 17 18 6.7. WAIVER. The failure of either party to enforce at any time, or for any period of time, the provisions of this Agreement will not be interpreted to be a waiver of such provisions or of the right of such party to enforce each and every such provision. 6.8. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or by mail or (registered or certified mail, postage prepaid) (except in the case of notices given pursuant to Section 2.1 hereof, for which proof of delivery is required) to the parties at their respective address set forth in the heading of the Agreement (and in the case of Escrow Agent, as specified in Appendix B) or to such other addresses as any party may have furnished to the others in writing, in accordance herewith. Notices to SGI shall be sent to the attention of "Legal Services." 6.9. SEVERABILITY. In the event that any of the provisions of this Agreement will be held by a court or other tribunal of competent jurisdiction to be unenforceable, the remaining portions of this Agreement will remain in full force and effect, provided that in such event ESSI and SGI agree to negotiate in good faith substitute enforceable provisions which most nearly effect ESSI's and SGI's intent in entering into this Agreement. 6.10. INTEGRATION. THIS Agreement, including the attachments to this Agreement, constitutes the entire agreement between the parties, and any and all written or oral agreements previously existing between the parties pertaining to the subject matter of this Agreement are expressly canceled. Each party acknowledges that it is not entering into this Agreement on the basis of, and has not relied on, any representations not expressly contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be duly executed and delivered on the date indicated below. SILICON GRAPHICS, INC. ESCROW AGENT By: By: ----------------------------- ------------------------------- Typed Name: Typed Name: ---------------------- ------------------------ Title: Title: --------------------------- ---------------------------- COMPANY By: ----------------------------- Typed Name: ---------------------- Title: --------------------------- Page 18 19 Appendix A ESSI shall place into escrow, the following material: Source Code and all program documentation required to [*]. [*] = Confidential Treatment Requested - Edited Copies Page 19 20 EXHIBIT E OBJECT CODE SUBLICENSING TERMS 1. Sublicensee may [*]. 2. Sublicensee may [*]. 3. Sublicensee may [*]. 4. Sublicensee [*]. 5. Licensee is authorized to [*] of this Agreement. 6. Sublicensee may [*] sublicensee shall [*]. 7. Licensee is only [*]: (a) [*] [*] bundled with [*] for [*]. (b) [*] [*] for each [*] that is then [*]. (c) [*] [*] license for each [*] not [*]. Each license is [*]. (d) [*] [*] license for each [*] that is then-[*]. (e) [*] [*] license for each [*] license for each [*] that does not [*]. Each [*] is [*]. Such licenses are [*] with a [*] from a [*]. (f) [*] [*] license for any [*]. (g) [*] [*] license for any [*]. Licensee is required to report to ESSI, [*]. [*] = Confidential Treatment Requested - Edited Copies Page 20 21 EXHIBIT F ROYALTY SCHEDULE AND PAYMENT TERMS A. ROYALTY SCHEDULE
LICENSED PRODUCT LICENSE ROYALTY OR FEE SUPPORT ROYALTY OR FEE (1) [*] (a) [*] [*] [*] (b) [*] [*] See the table on Exhibit M for [*] for support (b) [*] [*] [*] for A(1)(a) above (2) [*] (a) [*] [*] See the table on Exhibit M for [*] for support (b) [*] [*] See the table on Exhibit M for [*] for support (3) [*] [*] See the table on Exhibit M for [*] for support
ESSI agrees not to [*] by more than [*] and the amounts above [*] in ESSI's [*] for the Program. [*] = Confidential Treatment Requested -- Edited Copies Page 21 22 EXHIBIT F (CONT'D) ROYALTY SCHEDULE AND PAYMENT TERMS B. ROYALTY PAYMENT TERMS
LICENSED PRODUCT LICENSE ROYALTY OR FEE SUPPORT ROYALTY OR FEE (1) [*] (a) [*] [*] [*] (b) [*] Same as [*] above Same [*] above (b) [*] Same as [*] above included in [*] above (2) [*] (a) [*] Same as [*] above Same as [*] above (b) [*] Same as [*] above Same as [*] above (3) [*] Same as [*] above Same as [*] above
[*] = Confidential Treatment Requested -- Edited Copies Page 22 23 EXHIBIT G SUPPORT AND TRAINING 1.0. DEFINITIONS RELATED TO SUPPORT 1.1. "VENDOR MANAGER" means an employee of Licensee who acts as the prime interface with ESSI for support requests and issues. [*]. 1.2. "SUPPORT SERVICES" means the technical support services described herein, and provided hereunder. 1.3. "ENGINEERING TECHNICAL CONTACT" means the ESSI technical contact with engineering expertise who will work directly with Licensee's VSR to resolve support problems. 1.4. [*] SUPPORT SERVICES" means support services provided for [*] under First Level, Second Level and Third Level Support. 1.5. [*] SUPPORT SERVICES" means support services provided for [*] under First Level, Second Level and Third Level Support. 1.6. "LICENSEE'S AGENTS" means all [*] and/or ESSI that are [*]. 1.7 "ERRORS" means [*]. 2.0. SUPPORT SERVICES OBLIGATIONS OF LICENSEE 2.1. [*] SUPPORT - [*] shall [*] its [*] and/or its [*]: (1) CALL TRACKING - shall include, receiving customer calls and determining the maintenance status of the call; - Open new cases/calls with proper customer and contact information; - Interpret customer request, create a "Case Title" and assign the case for resolution [*]; For [*] collect information on the part number, case type, severity level, operating system and [*] this information to [*]. (2) PROBLEM DETERMINATION - Licensee shall obtain information and documentation [*]. In each incidence of an Error, Licensee shall [*] and the [*] by the [*]. 2.2. [*] SUPPORT - [*] shall [*] in addition to the [*]: (1) PROBLEM RE-CREATION - shall include reproducing the environment [*] and/or program and to determine [*]; [*] = Confidential Treatment Request -- Edited Copies Page 23 24 (2) PROBLEM RESOLUTION - shall include [*] and [*] of the solution and/or [*]; 2.3. LICENSEE'S [*]: - Make [*] customer; - [*] if appropriate; - Confirm [*]; - Request [*] as needed; - [*] and forward the [*]; - In all other cases, [*] any [*] and [*] cases, or, on potential [*], identify and [*], [*]; - [*] to open [*] or [*]. 3.0. SUPPORT OBLIGATIONS [*] [*] shall provide [*]. Additionally, [*] for [*] support that shall be provided [*]. 3.1. [*] SUPPORT - Licensee shall designate Licensee employees [*] to provide [*] to the [*] to provide [*]: (1) PROBLEM RE-CREATION - shall include [*] and/or program and to [*]; (2) PROBLEM RESOLUTION - shall include [*] of the [*]; 3.2. [*] SUPPORT - [*] provide the following [*]. (1) BUG FIXES - shall include [*] to [*], and to [*]; and (2) ENHANCEMENTS - shall include [*]. 4.0. SUPPORT OBLIGATIONS TABLE The following table represents the parties [*]: [*] = Confidential Treatment Request -- Edited Copies Page 24 25
[*] LICENSED PRODUCT [*] [*] [*] ---------------- ----------- --------------- -------------- [*] Support Call Tracking [*] [*] [*] [*] Support Problem [*] [*] [*] Determination [*] [*] [*] [*] Support Problem Re-creation [*] [*] [*] [*] Support Problem Resolution [*] [*] [*] [*] Support Bug Fixes [*] [*] [*] [*] Support Enhancements [*] [*] [*]
5.0 PROGRAM SUPPORT 5.1. PROBLEM ESCALATION - The following describes the [*] for [*] under this Agreement: - [*] each [*]. When the [*] has been [*] and the [*] it according to [*]: - URGENT: The customer is [*]. This [*] solution. An [*] when there is [*] feature which [*] of a customer's [*] to the customer's [*]. - HIGH: The customer is [*]. A [*] solution [*]. A [*] feature which [*] to the customer's environment, [*] environment (ie: [*]. - MEDIUM: The customer can [*]. A [*] (ie: [*]. - LOW: The customer can [*]. An [*] which is [*] of the [*]. 5.2. PROBLEM RESOLUTION: [*] as indicated below: - URGENT: [*]. Acknowledge means [*] and has [*] to [*] understanding of the [*] and to [*] as described above. [*] but in [*], if such [*]. Additionally, [*]. - HIGH: [*] but in [*] [*] = Confidential Treatment Requested - Edited Copies Page 25 26 - MEDIUM: [*]. - LOW: [*] to provide a [*] on a [*]. - ENHANCEMENTS: [*] made by [*] product manager shall [*]. - [*] to provide [*] as stated in [*]. Each correction will [*]. Software [*] into the [*]. Corrections [*]. [*] pursuant to this Exhibit H [*]. [*] of each new [*] to the [*]. 5.3. SUPPORT COVERAGE HOURS - [*] respond to [*] Pacific Time during standard [*]. For [*] to with [*] determined to be [*], as defined in Section 5.1, that occur [*] directed to the [*]. 5.4. PROGRAM INFORMATION - [*], Subject to based on restrictions of Confidentiality and Non-Disclosure, [*] to the use and/or [*]. In the event that [*] submits to [*] description of a [*] and all such data which [*] to those present [*] such [*] provided that the [*]. ESSI shall [*]. 5.5. TRAINING - ESSI shall make available to Licensee Program and technical training to Licensee's support personnel, [*]. Such training shall be conducted on a mutually agreeable time on an as needed basis, [*]. Both parties intend to cooperate in developing plans to train and certify Licensee personnel to enable such trained personnel to train other Licensee personnel [*]. At Licensee's sole option, [*]. 5.6. DOCUMENTATION - ESSI shall provide Licensee with five (5) complete sets of Program documentation. Licensee shall have the right to use, distribute and publish documentation on Licensee's technical publication website provided that all trademarks and/or copyrights are properly attributed on any reproduction for such documentation. ESSI agrees to provide Licensee with the following services, subject to the conditions for such support set forth in the Agreement: [*] = Confidential Treatment Request - Edited Copies Page 26 27 ESSI shall provide [*]. ESSI shall [*] ESSI will [*]. ESSI will [*] ("MR") date. 5.7. TOOLS AND OTHER INFORMATION - ESSI agrees to provide Licensee with [*]. ESSI shall provide [*] assist [*]. Such access shall be [*] available, [*]. Information obtained [*] subject to the Confidentiality restrictions listed in this Agreement. Additionally, ESSI shall provide Licensee a [*] to be used [*] in accordance with the Agreement. 5.8. PROGRAM FIX DATABASE - ESSI agrees to provide Licensee [*] information on [*], on a [*] in machine readable format that can be read on a SGI platform. [*] = Confidential Treatment Request - Edited Copies Page 27 28 EXHIBIT H DELIVERY AND ACCEPTANCE Within [*] after the Effective Date, ESSI shall deliver to Licensee (i) [*]; (ii) a hard copy and electronic version of the Documentation; and (iii) a [*] [*] in a form determined by ESSI (Collectively the "Deliverables"). Licensee shall accept or reject the Deliverables within [*] after receipt thereof. If Licensee does not within such time limit reject the Deliverables by written notice to ESSI specifying the reasons for rejection, the Deliverables shall be deemed accepted. Licensee shall [*] Releases, Revisions, or Versions to the Program or Documentation delivered to Licensee in accordance with the terms of this Agreement within [*] after receipt thereof. If Licensee does not within such [*] by written notice to ESSI specifying the reasons for rejection, the Deliverables shall be deemed accepted. All shipping charges, special packing expenses and insurance, if any, will be borne by Licensee. It is the responsibility of the Licensee to provide and prepare the configuration of the system environment necessary to properly distribute the Program in accordance with the terms of this Agreement. [*]. [*] = Confidential Treatment Request - Edited Copies Page 28 29 EXHIBIT I SGI EQUIPMENT LOAN AGREEMENT Section 7.1 of the attached SGI Equipment Loan Agreement shall be stricken in its entirety and replaced with the following: 7.1 Term. COMPANY shall be entitled to utilize the Loaned Equipment [*] until the expiration or termination of COMPANY's support obligations under the Software License, OEM, And Distribution Agreement between SGI and COMPANY, dated ___________________. In the event of termination hereof, COMPANY shall [*] after termination. [*] = Confidential Treatment Request - Edited Copies Page 29 30 EXHIBIT J LOANED EQUIPMENT SCHEDULE
Item Description Operating System Version Purpose [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
[*] = Confidential Treatment Requested -- Edited Copies Page 30 31 EXHIBIT K ESSI SOFTWARE LICENSE TERMS ENLIGHTEN SOFTWARE SOLUTIONS, INC. LICENSE AGREEMENT "ENlighten": ENlighten Software Solutions, Inc. "CUSTOMER":____________________ Incorporated: California _______________________________ Address: 999 Baker Way, Fifth Floor _______________________________ San Mateo, CA 94404-1568 _______________________________ Attn: Contract Administration _______________________________ Telephone: (415) 578-0700 FAX: (415) 578-0118
This Agreement refers to End User Terms and Conditions. The End User Terms and Conditions can be accessed in any of the following ways: (1) in the install screen for the Software; (2) in electronic form on the media containing the Software; and (3) in paper form included with the Software's evaluation documentation. 1. DESIGNATED EQUIPMENT AND LICENSED FACILITY. The software described below (the "Software"), Designated Equipment (identified by system class(es)) on which the Software may reside, and the Licensed Facility(ies) at which the Software is licensed for use are as follows:
================================================================================================================ SOFTWARE QTY SYSTEM LICENSED FACILITY LICENSE FEE MAINTENANCE CLASS FEE -------------------------- ------ -------- ------------------------ -------------- -------------- ENlighten UI (Host name___) $ $ -------------------------- ------ -------- ------------------------ -------------- -------------- $ $ -------------------------- ------ -------- ------------------------ -------------- -------------- $ $ -------------------------- ------ -------- ------------------------ -------------- -------------- $ $ -------------------------- ------ -------- ------------------------ -------------- -------------- TOTAL $ $ -------------------------- ------ -------- ------------------------ -------------- -------------- ================================================================================================================
2. MAINTENANCE FEES. The annual fee for Maintenance (as described in Section 7 of the End User Terms and Conditions) is 20% of the license fee in effect (as determined by ENlighten) for new licenses of the Software at each anniversary date set out in Section 3 below. The Maintenance fee for the first year is priced according to Section 1 above. ENlighten shall provide Maintenance from its San Mateo office which makes Maintenance personnel available as described in Paragraph 7(a) of the End User Terms and Conditions during ENlighten's normal business hours. 3. BILLING AND SHIPPING ADDRESS(ES) FOR CUSTOMER.
Send Subsequent Year's Ship Product To: Send Initial Invoice To: Maintenance Invoices To: Customer: ________________________ ________________________ ________________________ Address: ________________________ ________________________ ________________________ City/State/Zip: ________________________ ________________________ ________________________ Attention: ________________________ ________________________ ________________________ Telephone: ________________________ ________________________ ________________________
Each party warrants that it has full power and authority to enter into and perform this Agreement and that the person signing this Agreement on behalf of such party has been duly authorized and empowered to enter into this Agreement. This Agreement (including the End User Terms and Conditions) constitutes the entire agreement between the parties concerning the subject matter hereof. This Agreement supersedes, and the terms of this Agreement govern, any prior agreements, proposals, or other communications, oral or written. This Agreement may only be changed by mutual agreement in writing of authorized representatives of the parties in writing. The terms of this Agreement apply to all purchase orders issued by Customer during the term of this Agreement. Any additional or conflicting terms and conditions contained on any such purchase orders are of no force and effect. By signing this Agreement, and in consideration of the mutual promises set forth herein, the parties agree to the terms and conditions set forth on this page and on the End User Terms and Conditions. PLEASE REVIEW THE END USER TERMS AND CONDITIONS, WHICH INCLUDE IMPORTANT LEGAL TERMS, SUCH AS LIMITATIONS ON WARRANTIES, ENLIGHTEN'S LIABILITY, AND YOUR REMEDIES. I, THE UNDERSIGNED, HAVE READ THIS AGREEMENT AND AGREE TO BE BOUND BY IT AND THE END USER TERMS AND CONDITIONS. Page 31 32 EXHIBIT K (CONT'D) ESSI SOFTWARE LICENSE TERMS Please read the following "End User Terms and Conditions" carefully. ENLIGHTEN SOFTWARE SOLUTIONS, INC. END USER TERMS AND CONDITIONS THIS IS A LEGAL AGREEMENT BETWEEN YOU AND ENLIGHTEN SOFTWARE SOLUTIONS, INC. ("ENLIGHTEN"). 1. Definitions. Unless defined below, all terms are as defined on the ENlighten Software Solutions, Inc. License Agreement. 2. Term. For purposes of this Agreement, the "Evaluation Term" shall mean a period commencing upon delivery of the Software to you and continuing for thirty (30) days thereafter. You may extend the license granted in Paragraph 3 ("Software License") beyond the Evaluation Term for a period continuing for the life of the copyright in the Software (the "Extended Term") by paying the then-current end user license fees and completing, signing, and returning the ENlighten Software Solutions, Inc. License Agreement. The Software shall be deemed accepted by you upon execution of the ENlighten Software Solutions, Inc. License Agreement. This Agreement commences upon the Effective Date and continues for the Evaluation Term and Extended Term, if any. 3. Software License. Subject to these End User Terms and Conditions, ENLIGHTEN hereby grants to you a non-exclusive, non-transferable license (without the right to sublicense) to use the Software and its related documentation (i) during the Evaluation Term, solely for internal evaluation by your employees and contractors, or (ii) during the Extended Term, for your internal business use on the Designated Equipment for access by your employees and contractors at the Licensed Facilities, subject to the end user quantity limits imposed by the Software's license manager ("Quantity Limit"). You can increase the Quantity Limit by paying ENLIGHTEN the applicable then-current license fee. 4. Restrictions. The Software may not be reverse compiled, reverse assembled, reverse engineered, used, executed, copied, or modified except as stated in this Agreement. You may make a reasonable number of archival copies of the Software for backup or archival purposes in accordance with applicable copyright law. You must retain, reproduce, and abide by all proprietary rights notices, serial numbers, and other notices of ENLIGHTEN and its licensors on the Software and its related documentation and any copies thereof. You will establish backup plans, restart and recovery procedures, and audit controls sufficient to maintain the security and integrity of the Software. "Software" includes but is not limited to (I) any Software updates and/or upgrades provided by ENLIGHTEN to you during the Evaluation Term and Extended Term, if any, and (ii) any documentation provided to you during this Agreement, including but not limited to hard copy and electronic manuals, release notes, installation procedures, and bug reports. 5. Designated Equipment and Licensed Facilities. You may, upon receiving ENLIGHTEN's prior written consent, change the Designated Equipment, transfer the use of the Software to another piece of Designated Equipment and/or change the Licensed Facilities. You will provide ENLIGHTEN with written notice of the proposed new Designated Equipment or Licensed Facilities. The fee for any such transfer shall be in accordance with ENLIGHTEN's then-current published price list and shall be paid by you. If you desire to transfer the use of the Software from one system class to a higher system class (as defined in ENLIGHTEN's then-current published price list), you will pay to ENLIGHTEN the difference between the then-current license fees for the lower class and the higher class. You agree to notify ENLIGHTEN thirty (30) days in advance of any requested Software relocation(s), the cost of which shall be borne by you. 6. Taxes and Payments. You are responsible for all taxes, fees, duties, governmental charges, and similar assessments (other than taxes based on ENLIGHTEN's net income) attributable to your license of the Software and procurement of Maintenance. All payments are due not later than thirty (30) days following ENLIGHTEN's invoice date. You agree to pay interest on overdue payments at the rate of 1.5% per month or, if less, the highest rate permitted by law. 7. Maintenance. Maintenance is not included with the Software, but must be separately purchased. ENLIGHTEN will provide such maintenance and continuing support ("Maintenance") on an annual basis at the rates described in the ENlighten Software Solutions, Inc. License Agreement. The following provisions shall apply to any procured Maintenance: (a) General Support. ENLIGHTEN shall provide you with telephone assistance for inquiries related to the use of the Software and the reporting of errors or other problems with the Software during ENLIGHTEN's normal business hours. (b) Error Corrections. If ENLIGHTEN is notified in writing by you of an error or other problem in the Software, and such error or other problem can be verified, either by reproduction at ENLIGHTEN's facility or through remote access to your facility, ENLIGHTEN shall use reasonable efforts to correct the error or other problem within a reasonable time. Page 32 33 (c) Provision of Updates. ENLIGHTEN shall make updates to the Software and its related documentation available to you at no additional charge. Updates shall be provided in the same form and manner as the Software was provided unless the parties otherwise agree. You agree to promptly install new updates, patches, and fixes of Software as requested by ENLIGHTEN. (d) Lapse. If you wish to purchase Maintenance after not having Maintenance for any period of time in which this Agreement was in effect ("Lapse Period"), you will be required to pay the standard Maintenance fees in effect for any such Lapse Period in addition to fees for the period for which you wish to purchase Maintenance. 8. Limited Warranties and Remedies. (a) Software. During the Evaluation Term, the Software is provided "AS IS" and without any warranty. During the Extended Term, the only warranty provided by ENLIGHTEN to you with regard to the Software is that the Software media is warranted against defects in material and workmanship under normal use for a period of ninety (90) days from the date of delivery to you. If a defect appears in this ninety (90) day period, ENLIGHTEN will either repair or replace defective Software media. (b) Maintenance. The only warranty provided by ENLIGHTEN to you with regard to Maintenance is that such Maintenance will be of professional quality and will conform to generally accepted industry standards and practices for similar services. (c) Further Warranty Limitations. In addition to the other limitations set forth in this Agreement, ENLIGHTEN will have no warranty obligations if you do not promptly notify ENLIGHTEN in writing of each defect and adequately describe the defect. ENLIGHTEN is not obligated to correct a Software media defect that cannot be reproduced. ENLIGHTEN's warranties in this Agreement do not apply to any Software media (i) improperly installed or operated, (ii) altered, except by ENLIGHTEN or in accordance with its instructions, or (iii) damaged by improper electrical power or environment, abuse, misuse, accident, or negligence. No written or oral representation regarding the capacity, suitability, or performance of Software or Maintenance, whether by an ENLIGHTEN employee or otherwise, is a warranty by ENLIGHTEN or gives rise to any liability of ENLIGHTEN. You acknowledge that no promise, representation, warranty, or undertaking has been made or given by ENLIGHTEN or by any other entity in relation to (i) the profitability of, or any other consequences or benefits to be obtained from, the delivery or use of the Software, (ii) merchantability or fitness for any purpose or purposes of the Software, or (iii) the Maintenance. You have relied upon your own skill and judgment in deciding to enter into this Agreement. (d) Except as expressly stated herein, THE SOFTWARE IS LICENSED HEREUNDER "AS IS." ENLIGHTEN DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE. ENLIGHTEN SPECIFICALLY DISCLAIMS ALL EXPRESS, IMPLIED, OR STATUTORY WARRANTIES REGARDING THE SOFTWARE, DOCUMENTATION, AND MAINTENANCE, INCLUDING THE WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, AND NON-INFRINGEMENT. 9. Limitations on Damages. ENLIGHTEN IS NOT RESPONSIBLE FOR SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF USE, LOSS OF DATA, OR LOST PROFITS OR REVENUES), REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY, OR OTHERWISE, AND WHETHER OR NOT ENLIGHTEN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ENLIGHTEN'S TOTAL LIABILITY FOR ALL DAMAGES IN ANY ACTION BASED ON, ARISING OUT OF, OR IN CONNECTION WITH THE SOFTWARE, MAINTENANCE, OR THIS AGREEMENT SHALL NOT EXCEED THE PRICE YOU HAVE PAID ENLIGHTEN FOR THE SOFTWARE. 10. Termination. ENLIGHTEN may terminate this Agreement at any time for a material breach of this Agreement by you. ENLIGHTEN will provide you with ten (10) days notice of termination. Sections 4, 8, and 9 shall survive termination of this Agreement. Upon termination of any license you must (i) either return to ENLIGHTEN or destroy all copies of the Software and its related documentation, and (ii) furnish to ENLIGHTEN a signed certificate of compliance with this provision. If you desire to terminate any Maintenance provided hereunder, you must provide ENLIGHTEN ninety (90) days advance written notice. Upon said termination of any Maintenance, ENLIGHTEN will be under no obligation to provide you with Maintenance of any type for the applicable Software. 11. Export. You acknowledge that the laws and regulations of the United States, and any other applicable foreign government, may restrict the export and re-export of certain commodities and technical data of such nation's origin, including the Software and its related documentation. You agree that you will not export or re-export the Software and its related documentation without the appropriate United States or foreign government licenses. 12. Intellectual Property Rights and Injunctive Relief. The Software and its related documentation, and all patents, copyrights, trade secrets, and trademarks embodied in or associated with the Software are proprietary to ENLIGHTEN and/or its licensors. No title to or ownership in these items is conveyed to you or to any third party. ENLIGHTEN shall be entitled to appropriate injunctive relief in the event of any unauthorized use of the Software. Page 33 34 13. Assignment. You may not assign this Agreement or any license, or transfer any Software to a different Licensed Facility or to a third party, without ENLIGHTEN's prior written consent. 14. Restricted Governmental Rights. If this product is acquired under the terms of a DoD contract, use, duplication, or disclosure by the Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of 252.277-7013 and restrictions set forth in this end user agreement. If this product is acquired under the terms of a civilian agency contract, use, reproduction, or disclosure is subject to 52.227-19 and restrictions set forth in this end user agreement. Unpublished-rights reserved under the copyright laws of the United States. ENlighten Software Solutions, Inc., 999 Baker Way, Fifth Floor, San Mateo, CA, USA 94404. 15. Miscellaneous. If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions remain in effect. This Agreement is governed by and construed under the laws of the United States of America and the State of California as applied to transactions entered into and to be performed entirely in California between residents of California. 16. Waiver. The failure of either party to require performance by the other party of any provision hereof shall not affect the full right to require such performance at any time thereafter; nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of the provision itself. -------------------------- By entering "I AGREE" followed by your name in the green text field above, you are indicating your acceptance and agree to be bound by the end user terms and conditions described herein with this software package (the "software"). If you do not agree to the end user terms and conditions described herein, please click the "do not accept" button to cancel the installation, and promptly return the software package and the accompanying items (including all written and other materials) to ENLIGHTEN. Page 34 35 EXHIBIT L NON-RECURRING ENGINEERING ITEMS Requests for non-recurring engineering (NRE) work will be submitted by Licensee to ESSI in writing. ESSI will respond [*] with a proposal including estimated costs for delivery of such NRE requests. Licensee will respond to ESSI's proposal [*] proposal either authorizing the NRE work, rejecting the proposal, or requesting revisions. After the proposal has been mutually agreed to, NRE costs will be billed to Licensee per the following schedule: Engineering development time will be billed at [*] Required purchases of tools or other supporting software necessary to complete a requested change to the Program will be billed [*]. One specific area of NRE has been identified: (1) Costs associated with [*] including but not limited to, [*] and additional [*]. Cost estimate for above NRE: [*] Cost estimate for [*]: [*] Total: [*]
[*] = Confidential Treatment Requested -- Edited Copies Page 35 36 EXHIBIT M DSM LIST PRICE AND SUPPORT ROYALTY The following table represents list prices for the various components of the Program that Licensee is eligible to sublicense to third parties. The table below also lists the [*] due ESSI. The [*].
[*] List Price Support Royalty [*] - -------------------------------------------------------------------------------------------------------------------- [*] [*] [*] - ------------------------------- ---------- ------------------------ -------- ------------------- GMS N/A* N/A* N/A* N/A* Server Agent N/A* N/A* N/A* N/A* Workstation Agent N/A* N/A* N/A* N/A* [*] GMS [*] [*] [*] [*] Server Agent [*] [*] [*] [*] Workstation Agent [*] [*] [*] [*] [*] GMS [*] [*] [*] [*] Server Agent N/A N/A N/A N/A Workstation Agent N/A N/A N/A N/A [*] GMS [*] [*] [*] [*] Server Agent [*] [*] [*] [*] Workstation Agent [*] [*] [*] [*] [*] GMS [*] [*] [*] [*] Server Agent [*] [*] [*] [*] Workstation Agent [*] [*] [*] [*] [*] Server Agent [*] [*] [*] [*] Workstation Agent [*] [*] [*] [*] NT Agent [*] [*] [*] [*] [*] Server Agent [*] [*] [*] [*] Workstation Agent [*] [*] [*] [*] NT Agent [*] [*] [*] [*]
[*] [*] [*] = Confidential Treatment Requested -- Edited Copies Page 36 37 EXHIBIT N ESSI CUSTOMERS [*] [*] = Confidential Treatment Requested -- Edited Copies Page 37 EX-23.1 5 CONSENT OF KPMG PEAT MARKWICK LLP 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, 1998, relating to the consolidated balance sheets of Enlighten Software Solutions, Inc. and subsidiary as of December 31, 1997 and 1996, 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, 1997, which report appears in the December 31, 1997, annual report on Form 10-KSB of Enlighten Software Solutions, Inc. KPMG PEAT MARWICK LLP Mountain View, California March 26, 1998 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1,406,141 286,000 240,444 0 0 2,508,876 1,633,171 (884,435) 3,714,709 1,222,370 0 0 0 5,079,505 (2,587,175) 3,714,709 4,230,842 4,230,842 976,335 976,335 5,272,863 0 0 (1,958,033) 2,390 (1,960,423) 0 0 0 (1,960,423) (0.67) (0.67)
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