I normally wouldn’t spend too much time on Attunity (Nasdaq:ATTU). After all, this is a company that has been making promises to Wall Street for years, without keeping many of them. Nonetheless, after 16 years in business, the company seems ready to make a fresh start.
Atturnity has former Precise Software Solutions managers as its new bosses: former Precise chairman Ron Zuckerman, former CEO Shimon Alon, and former president Aki Ratner. The three men represent other small Attunity investors, and they own 32% of the company, including exercisable options. Ratner is now CEO of Attunity, Zuckerman is the chairman, and Alon is a company director. The capital market consensus is that Ratner is a talented manager who was responsible for much of Precise Software's success. There are now great hopes for Attunity.
Attunity develops enterprise data integration software for connecting a range of data sources, including from mainframe applications. The cleaning of the stables at Attunity is complicated, and isn’t over yet, but the first stage has been completed.
One of the measures was the replacement of longstanding CEO Arie Gonen. It was not easy, since Gonen had a particularly generous - almost scandalous - contract, which had already been an object of criticism from Attunity's new owners and existing shareholders.
Some of Attunity's shareholders invested in the company long ago, having bought shares in more promising times, when they were traded at over $30 in 1997 and in 2000. These investors are undoubtedly displeased at the share's current price of $2.20. As battle-weary and long-suffering shareholders, they presumably have few expectations, and will be surprised by any positive movement in the share.
Attunity broke even on $5.2 million revenue in the second quarter of 2004. Its market cap is $33 million.
Gonen's dream contract
What was so profligate in Gonen's contract? Under the original contract, he received a salary of $245,000 a year and $13,500 a month for three years in consultancy fees. His total salary was therefore over $400,000 a year. Gonen was also due to receive 9% of Attunity's revenue from international distribution agreements, 16% of its revenue from Oracle (Nasdaq:ORCL) in 2003, and percentages from other contracts. Under the contract, Attunity's milestones were to continue to pad Gonen's paycheck. He was due to receive 7% of any capital raising by the company. He would have received a bonus of 7% of the gross proceeds if Attunity was sold. He even had an option to buy 400,000 Attunity shares at $1.75 a share in early 2004 and 600,000 shares later this year.
A source well-informed about Attunity's business said that when Zuckerman, Alon, and Ratner became interested in the company, they realized that Gonen was no longer fit to lead it and that he was burned, as far as the capital market was concerned. The three men had two alternatives: either not invest in the company, due to its management; or to make the challenging investment, in the hope that new management would get things moving. They chose the second.
When they made the investment in early 2004, Attunity's existing investors apparently paved the way, at least in part. One shareholder, who declined to be revealed, asked for an inquiry into the circumstances of Gonen's contract, on the grounds that amendments were made between shareholders meetings, and without the shareholders' consent. The amendments were not necessarily for the good of the company, and the contract had changed from one shareholders meeting to the next, contravening proxy and without the issue of any new document. It should nevertheless be noted that, despite its profligate generosity, Attunity's board of directors audit committee approved Gonen's contract more than once.
Gonen served on Attunity's board from December 1998, and was its chairman until May 2004. He was also CEO until 2000, and was reappointed as acting CEO in 2002, an appointment later made permanent. Shareholders recently voted in favor of replacing Attunity's management, when they convened a special meeting and approved the terms for Gonen's resignation.
"We sought a new leader for the company"
Attunity's new shareholders softened some of the clauses in Gonen's original contract, and sent him on his way with quite handsome retirement terms. Under the agreement signed on September 9, Gonen ended all roles in Attunity, retroactively from the beginning of last month. Gonen "agreed to extend his non-competition agreement", in exchange for no less than $400,000 from the company. The agreement also includes mechanisms to ensure Gonen additional payments.
Instead of company milestones that included payments from Oracle, Gonen will receive 9% of all licensing and maintenance revenue between January 1 and December 31, 2004. He will receive a bonus of no more than 5% of the net profit from international distributors or $100,000 a year. Attunity will also pay Gonen $30,000 for current expenses relating to his leaving. As for his second options package, Gonen will receive only 240,000 shares if the company is sold.
The shareholders also approved an amendment to the options plan, under which 600,000 new shares will be available for distribution. They approved Ratner's contract: he will receive a salary of $250,000 a year, plus options on at least 750,000 shares at the market price, and a bonus of up to $100,000 a year to be paid on Attunity reaching predetermined milestones.
Alon declined to comment specifically on the agreement with Gonen, saying only, "We sought a leader for the company. This job requires a number of qualities, one of which is vision. Aki has vision and he is suitable for the job." Alon said Attunity "has interesting technology and has not fulfilled even a tiny fraction of its potential. It thought in technological rather than in strategic terms. It is now formulating a new plan, based on improving the performance of existing products."
Alon is unconcerned about the hard work ahead. "I'm always looking for personal challenges, which is why I invested in a company that needs a lot of work. What's the fun of working for a successful company? Attunity resembles Precise Software at this point. Both companies were not on the road to success, but both had good infrastructures, and I hope that Attunity will follow in Precise Software's footsteps."
Published by Globes [online] - www.globes.co.il - on September 22, 2004