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February 16, 1999


By CBR Staff Writer

The widely-anticipated Marimba Inc filing for an initial public offering finally got underway late on Friday, and the company hopes to raise up to $56.4m through the IPO. The number of shares to be offered and their target price will be disclosed at a later date. The Palo Alto, California-based internet software distribution and management company has been the subject of IPO rumors almost since its inception in the Spring of 1996, but it has bided its time, building up its customer base and improving its Castanet product, version 4.0 of which will be launched next week. The filing shows a company with steadily increasing losses and revenues through last year, as might be expected, but it is already turning the corner and cutting losses on an annual basis. For the fourth quarter of 1998 the company recorded net losses of $1.6m on sales of $5.7m. For the year Marimba lost $5.7m on revenues of $17.1m. That compares to 1997’s net losses of $7.7m, on revenues of $5.6m. Cash at the end of 1998 was $3.7m. However, the company warns that currently, it depends heavily on its relationship with IBM Corp’s Tivoli Systems Inc for sales, which is morphing from a straight reseller agreement to an OEM deal, as Tivoli’s Cross-Site systems management tool, which comprises the Castanet infrastructure is due out this quarter. About 18% of 1998 revenues came from Tivoli, but that will be the high point, as the OEM deal will not garner such high margins from Marimba. It will be paid on a per-seat basis depending on how many seats of Cross-Site Tivoli sells. The reseller agreement expires on May 1, so Marimba is banking on Tivoli getting the product out on schedule to prevent an interruption in revenues. In addition, Netscape Communications Corp was Marimba’s other main reseller, accounting for another 18% of its 1998 revenues. But Marimba warns that it will not get any further revenues from Netscape as the agreement has ended. Part of the reason for going public is to hire the direct sales force needed to replace these channels. Its other main topic of discussion in its filing is the ongoing litigation with Novadigm Inc, which filed suit against Marimba in March 1997, alleging patent infringement of the fundamental fractional differencing technology within Castanet, which enables it to detect what version of software is running on a client and update it according to the user’s profile. Things have moved on and the company is in danger of facing trial by jury this coming September if the judge in the case does not intervene. Marimba issued a counterclaim in May 1997, denying Novadigm’s claims and got an opinion from an outside panel in October that year saying it did not infringe Novadigm’s patents. In August 1997 and January 1998 Marimba filed for summary adjudication citing prior art, but Novadigm protested, saying the motions were premature because it had only had limited time to do discovery. The court rejected both Marimba motions and on January 19 this year Novadigm detailed its reasons why Castanet 1.1 violated its patents, citing the comparison of file level and channel level checksums. Marimba notes that the claim is not limited to version 1.1 but says that it does not believe that Novadigm has accurately described Castanet’s functionality, nor does it infringe upon its patent. Marimba expects discovery to be completed by both sides in the first half of this year, including the exchange of reports by each side’s experts. If the court does not pass judgement on any motions either side may submit, the trial is scheduled to begin in front of a jury in September. It warns of the consequences of having to potentially pay damages to Novadigm, license its products and so on, but it is still confident that it will prevail. The offer is lead managed by Morgan Stanley Dean Witter, which is joined by Credit Suisse First Boston, BT Alex Brown and Hambrecht & Quist. Marimba could not comment on any aspect of its filing as it is in its pre-IPO quiet period.

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