UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 20, 2002
Date of Report
(Date of earliest event reported)
EVOLVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
| 000-31155 (Commission File No.) |
94-3219745 (IRS Employer Identification Number) |
1400 65th Street, Suite 100
Emeryville, California 94608
(Address of Principal Executive Offices)
510-428-6000
(Registrant’s Telephone Number, Including Area Code)
| Item 5. Other Events | ||||||||
| Item 7. Financial Statements and Exhibits | ||||||||
| SIGNATURES | ||||||||
| INDEX TO EXHIBITS | ||||||||
| EXHIBIT 99.1 | ||||||||
Item 5. Other Events
On August 20, 2002, Evolve Software, Inc., a Delaware corporation (the “Company”) completed a private placement of shares of Series B Preferred Stock of the Company (the “Series B Preferred Stock”) pursuant to the Series B Preferred Stock Purchase Agreement dated as of August 20, 2002 (the “Purchase Agreement”), by and among the Company, Warburg Pincus Private Equity VIII, L.P. (“Warburg”) and certain other investors (collectively, the “Investors”).
The following is a summary of certain terms of the Series B Preferred Stock financing and is qualified in its entirety by reference to the Series B Preferred Stock Purchase Agreement (the “Purchase Agreement”), and other documents attached to the Purchase Agreement.
Sale of Series B Preferred Stock. Pursuant to the Purchase Agreement, the Company issued and sold to the Investors an aggregate of 700,000 shares of its Series B Preferred Stock at a price of $10 per share, or for an aggregate of $7,000,000 in cash. Each share of Series B Preferred Stock is initially convertible into approximately 53 shares of Common Stock.
The number of shares of Common Stock into which the Series B Preferred Stock is convertible will increase at the rate of 8% per year from the date of issue, compounded quarterly. The Certificate of Designation of the Series B Preferred Stock (the “Certificate of Designation”) provides that the Series B Preferred Stock has a liquidation preference over the Series A Preferred Stock and Common Stock equal to the original issue price of the Series B Preferred Stock (as adjusted for stock splits, stock dividends and similar events), which liquidation preference increases 8% per year, compounded quarterly. A liquidation is deemed to occur upon:
| • | the dissolution or winding up of the Company; | ||
| • | the sale of substantially all of the Company’s business, assets or property; or | ||
| • | any transaction or series or related transaction resulting in a merger, reorganization or consolidation in which the holders of all voting equity securities of the Company immediately prior to such transaction will hold less than 50% of the voting equity securities of the surviving or resulting entity. |
Conversion of Series B Preferred Stock. Pursuant to the Certificate of Designation, the Company may cause all of the shares of Series B Preferred Stock to be automatically converted into Common Stock at any time after the fifth anniversary of the date of initial issuance of such shares, provided that the Company may only cause such automatic conversion if the closing price per share of Common Stock for 30 consecutive trading days ending within ten days of the date on which notice of such automatic conversion is given to the holders of the Series B Preferred Stock shall have been at least $5, as adjusted for any stock splits, stock dividends and similar events occurring after the date of the filing of Certificate of Designation with the Secretary of the State of the State of Delaware. All shares of Series B Preferred Stock will also automatically convert into Common Stock at the election of the holders of a majority of the outstanding shares of Series B Preferred Stock. The Series B Preferred Stock may also be converted at any time at the election of each holder.
Voting. As set forth in the Certificate of Designation, holders of Series B Preferred Stock are entitled to as many votes in all actions taken by the stockholders of the Company as the number of shares of Common Stock each share of Series B Preferred Stock was convertible into as of August 20, 2002. In addition, the Company will not, without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class on an as-converted to Common Stock basis:
| • | amend or repeal the provisions of the Certificate of Designation; | ||
| • | authorize or issue any shares of a class or series senior to the Series B Preferred Stock or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock senior to the Series B Preferred Stock; | ||
| • | issue any bonds, debentures or notes or incur similar debt obligations, other than trade debt in the ordinary course of business; | ||
| • | pay any dividend on any shares of stock junior to the Series B Preferred Stock or repurchase or redeem any such shares of stock junior to the Series B Preferred Stock, except for repurchases of unvested shares of stock at cost from employees, directors, consultants and other service providers; | ||
| • | repurchase any outstanding shares of capital stock of the Company, except for repurchase of shares held by employees pursuant to repurchase agreements approved by the board of directors and redemption of shares of Preferred Stock; | ||
| • | amend the bylaws of the Company to increase the authorized number of directors of the Company to more than eight; or | ||
| • | authorize or issue any shares of any class or series of Preferred Stock ranking on a parity with the Series B Preferred Stock, or authorize or issue any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase any shares of Preferred Stock ranking on a parity with the Series B Preferred Stock. |
Subject to applicable federal rules and the rules of the Nasdaq Stock Market, the holders of the Series B Preferred Stock shall be entitled to elect such number of additional directors which, in addition to the three directors that the holders of Series A Preferred Stock is entitled to elect, is in as close a proportion as possible to the proportion that the number of shares of Common Stock for which such Series A Preferred Stock and Series B Preferred Stock is convertible is to the total outstanding shares (treating Series A Preferred Stock and Series B Preferred Stock on an as converted to Common Stock basis) of the Common Stock of the Company.
Change of Control. Under the Certificate of Designation, the Company may not consummate any Change of Control Transaction, as defined in the Certificate of Designation, without the affirmative vote of holders of a majority of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class, on an as-converted to Common Stock basis, unless such transaction would result in aggregate consideration paid in respect of all outstanding shares of Series B Preferred Stock equal is to the original purchase price thereof, plus an additional amount such that the internal rate of return equal is at least 50%. In the event a Change of Control Transaction occurs prior to the fifth anniversary of the Closing, the Series B Preferred Stock shall be treated as if had been outstanding for five years for purposes of determining the liquidation preference payable upon such shares.
Preemptive Rights. Effective as of the date of the closing of purchase and sale of shares of Series B Preferred Stock (the “Closing”) pursuant to the Purchase Agreement and subject to certain exceptions, the Company has granted to the Investors certain rights to permit the Investors to maintain their percentage ownership in the Company in the event of future equity issuances by the Company.
Registration of Shares of Common Stock for Resale. Effective as of the Closing under the Purchase Agreement, subject to certain conditions, the Company has agreed to prepare and file with the Securities and Exchange Commission, upon request of the holders of Series B Preferred Stock after June 1, 2002, registration statements to enable the resale of the shares of Common Stock issuable upon conversion of the Series B Preferred Stock.
Set forth below is the unaudited statements of operations data for the three months and twelve months ended June 30, 2002 and the unaudited balance sheet data and pro forma unaudited balance sheet data as of June 30, 2002 that are derived from and qualified by reference to the unaudited financial statements of the Company not included in this Form 8-K. The pro forma unaudited balance sheet data give effect to the sale of 700,000 shares of our Series B Preferred Stock at a price of $10 per share, less estimated offering expenses, as if such sale had occurred on June 30, 2002. The historical results presented below are not necessarily indicative of results to be expected for any future period.
EVOLVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three months ended | Twelve months ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||
Revenues: |
||||||||||||||||||
Solutions |
$ | 3,857 | $ | 5,066 | $ | 9,248 | $ | 25,398 | ||||||||||
Subscriptions |
1,282 | 2,404 | 5,289 | 9,549 | ||||||||||||||
Total revenues |
5,139 | 7,470 | 14,537 | 34,947 | ||||||||||||||
Cost of revenues: |
||||||||||||||||||
Solutions |
1,182 | 2,032 | 4,425 | 11,487 | ||||||||||||||
Subscriptions |
82 | 721 | 1,149 | 4,337 | ||||||||||||||
Total cost of revenues |
1,264 | 2,753 | 5,574 | 15,824 | ||||||||||||||
Gross profit |
3,875 | 4,717 | 8,963 | 19,123 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Sales and marketing |
2,773 | 7,808 | 14,267 | 40,309 | ||||||||||||||
Research and development |
2,378 | 4,663 | 11,678 | 19,506 | ||||||||||||||
General and administrative |
1,257 | 2,738 | 7,129 | 11,021 | ||||||||||||||
Stock-based
and related compensation charges (credits) |
1,282 | (2,622 | ) | 12,433 | 17,883 | |||||||||||||
Amortization of goodwill and other intangible assets |
350 | 914 | 1,511 | 8,959 | ||||||||||||||
Restructuring charges |
190 | 9,724 | 773 | 9,724 | ||||||||||||||
Impairment of goodwill and other intangibles |
— | 19,647 | — | 19,647 | ||||||||||||||
Total operating expenses |
8,230 | 42,872 | 47,791 | 127,049 | ||||||||||||||
Operating loss |
(4,355 | ) | (38,155 | ) | (38,828 | ) | (107,926 | ) | ||||||||||
Other income: |
||||||||||||||||||
Interest income, net |
9 | 369 | 159 | 2,675 | ||||||||||||||
Other income (expense), net |
435 | (62 | ) | 386 | (139 | ) | ||||||||||||
Other income, net |
444 | 307 | 545 | 2,536 | ||||||||||||||
Net loss |
(3,911 | ) | (37,848 | ) | (38,283 | ) | (105,390 | ) | ||||||||||
Beneficial conversion feature of preferred stock |
(289 | ) | — | (868 | ) | (5,977 | ) | |||||||||||
Net loss attributable to common stockholders |
$ | (4,200 | ) | $ | (37,848 | ) | $ | (39,151 | ) | $ | (111,367 | ) | ||||||
Basic
and diluted net loss per common share |
$ | (0.09 | ) | $ | (1.09 | ) | $ | (0.96 | ) | $ | (3.63 | ) | ||||||
Weighted average common shares outstanding, basic and diluted |
44,249 | 34,672 | 40,644 | 30,643 | ||||||||||||||
EVOLVE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| At | At | ||||||||||
| June 30, | June 30, | ||||||||||
| 2002 | 2002 | ||||||||||
| (actual) | (pro forma) | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash, cash equivalents and short-term investments* | $ | 8,690 | $ | 15,590 | |||||||
| Restricted cash | 580 | 580 | |||||||||
| Accounts receivable, net | 2,979 | 2,979 | |||||||||
| Prepaid expenses and other current assets | 1,789 | 1,789 | |||||||||
| Notes receivable from related party | — | — | |||||||||
| Total current assets | 14,038 | 20,938 | |||||||||
| Property and equipment, net | 6,553 | 6,553 | |||||||||
| Restricted cash | 2,321 | 2,321 | |||||||||
| Deposits and other assets | 143 | 143 | |||||||||
| Goodwill and other intangibles, net | 2,215 | 2,215 | |||||||||
| Total assets | $ | 25,270 | $ | 32,170 | |||||||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS, AND STOCKHOLDERS’ EQUITY |
|||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 5,449 | $ | 5,449 | |||||||
| Deferred revenues | 7,667 | 7,667 | |||||||||
| Capital lease obligations, current portion | 202 | 202 | |||||||||
| Restructuring accrual, current portion | 2,123 | 2,123 | |||||||||
| Short-term debt | 2,376 | 2,376 | |||||||||
| Total current liabilities | 17,817 | 17,817 | |||||||||
| Capital lease obligations, less current portion | — | — | |||||||||
| Restructuring accrual, less current portion | 688 | 688 | |||||||||
| Long-term debt | 198 | 198 | |||||||||
| Deferred rent | 232 | 232 | |||||||||
| Common stock warrants | 76 | 76 | |||||||||
| Total liabilities | 19,011 | 19,011 | |||||||||
| Redeemable convertible preferred stock and warrants | 1,732 | 1,732 | |||||||||
| Stockholders’ equity * | 4,527 | 11,427 | |||||||||
| Total liabilities, redeemable convertible preferred stock and warrants, and stockholders’ equity | $ | 25,270 | $ | 32,170 | |||||||
* Pro-forma figures reflect the investment of $7.0 million less an estimated $100,000 for related offering expenses.
Item 7. Financial Statements and Exhibits
(c) Exhibits
| 99.1 | Certification of the Chief Executive Officer and
Chief Financial Officer. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: August 21, 2002 | EVOLVE SOFTWARE, INC. |
|||
| By: /s/ Linda Zecher | ||||
| Linda Zecher Chief Executive Officer |
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INDEX TO EXHIBITS
| Exhibit Number |
Description | |
|
|
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| 99.1 | Certification of the Chief Executive Officer and Chief Financial Officer. |