<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2000
REGISTRATION NO. 333-33818
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SERVICEWARE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 7372 25-1647861
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
333 ALLEGHENY AVENUE
OAKMONT, PENNSYLVANIA 15139
(412) 826-1158
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK TAPLING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SERVICEWARE.COM, INC.
333 ALLEGHENY AVENUE
OAKMONT, PENNSYLVANIA 15139
(412) 826-1158
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
EDUARDO VIDAL MARIE CENSOPLANO
NIKOS BUXEDA PAUL, HASTINGS, JANOFSKY & WALKER LLP
DAVID WEXLER 399 PARK AVENUE
MORGAN, LEWIS & BOCKIUS LLP NEW YORK, NEW YORK 10022
101 PARK AVENUE (212) 318-6000
NEW YORK, NEW YORK 10178
(212) 309-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, no par value per share..... $86,250,000 $22,770
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- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
SUCH OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED [ ], 2000
PROSPECTUS
SHARES
[SERVICEWARE.COM LOGO]
COMMON STOCK
------------------------
This is the initial public offering of ServiceWare.com, Inc. We are selling all
of the shares of common stock offered under this prospectus. We anticipate that
the initial public offering price will be between $ and $ per share.
There is currently no public market for our shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the symbol
"SVCW".
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
-------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Total proceeds, before expenses, to us...................... $ $
</TABLE>
------------------------
The underwriters may purchase up to an additional shares of common
stock from us at the initial public offering price less the underwriting
discount, solely to cover over-allotments.
The underwriters expect to deliver the shares in New York, New York on or about
[ ], 2000.
------------------------
BEAR, STEARNS & CO. INC. SG COWEN
WIT SOUNDVIEW
C.E. UNTERBERG, TOWBIN
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Summary Consolidated Financial Information.................. 3
Risk Factors................................................ 4
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Dilution.................................................... 19
Capitalization.............................................. 20
Selected Historical Financial Data.......................... 21
Unaudited Pro Forma Condensed Consolidated Financial Data... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 30
Management.................................................. 41
Certain Transactions........................................ 49
Principal Stockholders...................................... 52
Description of Capital Stock................................ 55
Shares Eligible for Future Sale............................. 57
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find Additional Information................... 62
Index to Consolidated Financial Statements.................. F-1
</TABLE>
An electronic version of this prospectus is available on the regular Web
site (http://www.witcapital.com) being maintained by Wit SoundView Corporation,
which is acting as a co-manager in this initial public offering. An electronic
version of this prospectus is also available on our Web site
(http://www.serviceware.com). Other than the electronic version of this
prospectus, the information on our Web site and Wit SoundView Corporation's Web
site is not a part of this prospectus.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all the
information that you should consider before investing in our common stock. To
understand this offering fully, you should read carefully the entire prospectus,
including the risk factors and the financial statements. In this prospectus,
"we", "us" and "our" refer to ServiceWare.com, Inc. and its subsidiaries unless
the context requires otherwise.
OUR BUSINESS
We are a leading provider of software and content solutions that businesses
use to provide an Internet-based e-service platform to their customers,
partners, suppliers and employees. We develop and market a comprehensive service
solution to meet the needs of these end-users who, together, form an extended
enterprise. Our eService Suite(TM) includes licensed and subscription-based
software and content products that enable businesses to capture enterprise
knowledge, solve their end-users' problems, reuse solutions and share captured
knowledge through the Internet. Additionally, our patented Cognitive
Processor(TM) contained in the eService Suite continually learns at each
request, keeping knowledge up-to-date and accurate and providing end-users with
relevant and useful answers to their questions. Our customers include Andersen
Consulting, Clarify, Compaq, Hewlett-Packard, Marconi Communications, Merrill
Lynch, Pfizer and Texas Instruments.
Despite the urgent need for comprehensive service solutions, current
service offerings have not kept pace with the rapid evolution of e-commerce and
traditional commerce. Traditional service solutions, such as call centers and
help desks, have proven to be neither scalable nor cost-effective for the
enterprise. Despite attempts to streamline these operations, companies have been
unable to eliminate the inefficiencies of these solutions due to labor-intensive
and time-consuming customer interactions and the high turnover rates of service
professionals. Customers are becoming increasingly dissatisfied with current
service solutions because the limitations of these systems result in
unacceptable levels of service. The increasing dissatisfaction with current
customer service and the heightened expectations resulting from the growth of
the Internet require a solution which includes intelligent application software
and content.
Using our eService Suite, our customers can develop and manage a knowledge
base of service-related support information and disseminate that knowledge
through multiple communication channels, such as telephone support, e-mail, chat
and Web-based self-service. Additionally, our Internet-based knowledge portal,
RightAnswers.com(TM), enables our customers to access a continuously updated
knowledge base of content obtained from leading technology companies, including
Microsoft, Apple, Novell and 3Com, as well as our internally produced knowledge
content. We also offer integration, training and consulting services that enable
our customers to realize the benefits of our eService Suite.
We have established distribution alliances with leading providers of
complementary Internet software technologies who resell or co-market our
solutions. We currently have strategic distribution and marketing alliances with
several vendors, including Clarify, Kana Communications, Oracle, Peregrine
Systems, Remedy, Siebel Systems and Tivoli.
Our products enable our customers to provide e-service solutions that are
intelligent in that they are interactive, adaptable, and have the capability to
update themselves automatically. Customers can use our software and content
products separately or as an integrated solution to reduce the cost and improve
the quality of customer service. We believe that our solutions provide our
customers with a number of key benefits, including:
- Strengthened Relationships with End-Users. Our solutions allow
enterprises to provide their customers and other end-users with
easy-to-use, intuitive, timely, and accurate service. By providing a
better and more user-friendly experience, our solutions increase the
likelihood that a business' customers will complete specific transactions
and that an enterprise will be able to attract and retain its customers.
1
<PAGE> 5
- Decreased Operating Costs. By enabling end-users to access customer
service online and aiding customer service agents to more effectively
handle user requests, our solutions provide cost savings and improve
employee productivity.
- Improved Dissemination of Enterprise Knowledge. Our eService Suite
enables our customers to develop a common knowledge base of intellectual
capital and make it available throughout the extended enterprise.
Additionally, our eService Suite provides a self-learning capability that
continually learns at each request keeping responses up-to-date and
accurate.
- Seamless Integration with Existing Solutions. By integrating with
existing call center and help desk products, workflow tools, knowledge
bases and other applications, our software helps customers preserve their
investments in legacy systems.
Our objective is to leverage our Internet-based platform to become the
leading worldwide provider of e-service solutions. To achieve our goal, we
intend to enhance our technology and product leadership, broaden our content
solutions to new vertical markets, expand our Internet-based delivery model,
continue to build brand awareness, strengthen strategic alliances and increase
our international presence.
CORPORATE INFORMATION
We were first incorporated as a Pennsylvania corporation in January 1991 as
ServiceWare, Inc. In March 2000, we changed our name to ServiceWare.com, Inc. We
plan to reincorporate as a Delaware corporation on or before the effective date
of this offering and simultaneously approve new by-laws, a new stock incentive
plan and a new employee stock purchase plan. For purposes of this prospectus,
the information described herein describes our company as it will be constituted
upon our reincorporation as a Delaware corporation and, unless otherwise
indicated, also assumes the occurrence of a 3-for-2 stock split that we intend
to effect on or before the effective date of this offering. Our executive
offices are located at 333 Allegheny Avenue, Oakmont, Pennsylvania 15139. Our
telephone number is (412) 826-1158. Our Web site is http://www.serviceware.com.
The information on our Web site is not part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................................. shares
Common Stock to be Outstanding After this Offering... shares
Use of Proceeds...................................... We intend to use the net proceeds from this
offering for general corporate purposes,
including the repayment of our term loan,
expanding our software development staff and
our sales and marketing capabilities,
international expansion, possible strategic
acquisitions or investments and working
capital requirements.
Proposed Nasdaq National Market Symbol............... SVCW
</TABLE>
The outstanding share information is as of February 29, 2000. This
information excludes shares of common stock issuable upon exercise of
options outstanding as of February 29, 2000, with a weighted average exercise
price of $ per share and shares of common stock issuable upon
exercise of outstanding warrants with a weighted average exercise price of
$ per share.
Unless otherwise indicated, all information contained in this prospectus:
- assumes conversion of all outstanding convertible preferred stock into
common stock upon the closing of this offering; and
- assumes the underwriters' over-allotment option is not exercised.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the financial data for our business. The
summary financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $2,906 $ 5,037 $ 9,686 $12,923 $ 17,652
Operating loss............................... (70) (995) (1,548) (3,803) (9,889)
Net loss..................................... (40) (948) (1,508) (3,816) (10,062)
Net loss applicable to common shareholders... $ (91) $(1,004) $(1,568) $(3,940) $(10,157)
Basic and diluted net loss per share(1)...... $(0.01) $ (0.14) $ (0.23) $ (0.57) $ (1.25)
Weighted average shares outstanding used in
computing basic and diluted net loss per
share(1)................................... 7,900 7,107 6,914 6,933 8,102
Pro forma net loss per share from continuing
operations(1).............................. (0.46)
Shares used in computing pro forma basic and
diluted net loss per share(1).............. 22,064
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 6,623 $ 6,623
Working capital (deficit).............................. (2,762) (2,762)
Total assets........................................... 26,734 26,734
Outstanding debt including capital leases.............. 4,402 4,402
Stockholders' equity (capital deficiency).............. 10,661 10,661
</TABLE>
- ---------------
(1) See notes 2 and 12 of "Notes to Consolidated Financial Statements" for an
explanation of the determination of the number of shares used in computing
per share data before adjustment for our 3-for-2 stock split.
(2) The pro forma amounts reflect the automatic conversion of our Series A, B,
C, D and E convertible preferred stock into our common stock, which will
occur upon the closing of this offering.
(3) Pro forma as adjusted amounts reflect the pro forma adjustments as well as
the sale of shares of our common stock in this offering at the
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
3
<PAGE> 7
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or results of operations could be materially
adversely affected. In this case, the trading price of our common stock could
decline, and you may lose all or part of your investment. The risks and
uncertainties described below may not be the only ones we will face. Additional
risks and uncertainties not presently known to us or that we currently deem not
material may also impair our business operations.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY IN OUR CURRENT LINE OF BUSINESS UPON WHICH
YOU MAY EVALUATE US.
We have undergone a number of changes in our business model. We began in
1991 as a provider of consulting services, and later developed and sold content
relating to technology products for use by customer service operations. In July
1999, we acquired the Molloy Group and its complementary software product suite.
Recently, we integrated our product offerings with those of the Molloy Group and
launched a suite of software and content products targeted at businesses. These
products are intended to form the basis of their e-service solutions. As a
result, we have a limited operating history in our current line of business upon
which an investor may evaluate the merits of investing in our common stock. Our
prospects are subject to the risks, expenses and uncertainties encountered by
companies in the new and rapidly evolving markets for e-service solutions. These
risks include:
- the failure to continue to develop and extend our online service brands
and software products;
- the rejection of our content and software products by our customers and
their end-users;
- our inability to maintain and increase traffic on our Internet-based
knowledge portal, RightAnswers.com;
- the entrance of new competitors into our market; and
- the inability to attract and retain qualified personnel.
If we fail to address successfully these risks, our business, financial
condition or results of operations could be materially adversely affected.
ALTHOUGH WE HAVE ACHIEVED RECENT REVENUE GROWTH, WE HAVE A HISTORY OF LOSSES,
ANTICIPATE THAT WE WILL CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND
MAY NEVER ACHIEVE PROFITABILITY.
Our limited operating history in our current line of business and the
uncertain nature of the markets in which we compete make it difficult or
impossible to predict future results of operations. Therefore, our recent annual
revenue growth should not be an indicator of the rate of revenue growth, if any,
we can expect in the future.
As of December 31, 1999, we had an accumulated deficit of $17.2 million.
Although our revenue has grown in recent periods, we cannot assure investors
that our revenues will continue at their current level or increase in the
future. We have not achieved profitability on a quarterly or annual basis to
date. We anticipate that we will continue to incur net losses for the
foreseeable future. In 1997, we incurred net losses of $1.5 million, while in
1998, we incurred net losses of $3.8 million, and in 1999, we incurred net
losses of $10.1 million. We currently expect to increase our operating expenses
significantly, expand our software development staff and our sales and marketing
expenditures, and continue to develop and extend our knowledge portal,
RightAnswers.com. If these expenses precede or are not followed by increased
revenues, our business, results of operations and financial condition could be
materially adversely affected.
4
<PAGE> 8
OUR QUARTERLY OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST, SO IT
IS DIFFICULT TO DRAW CONCLUSIONS ABOUT OUR FUTURE PERFORMANCE BASED ON OUR PAST
PERFORMANCE.
Our quarterly operating results have varied significantly in the past due
to factors such as the size and timing of orders, the level of price and product
competition, the demand for our products, changes in pricing policies by us or
our competitors and the number, timing and significance of product enhancements
and new product announcements by our competitors and us. As a result of these
and other factors, it is likely that in one or more future quarters our
operating results will be below the expectations of public market analysts and
investors. In this event, the price of our common stock would likely be
adversely affected.
In addition, our quarterly operating results depend on factors such as:
- our ability to develop, introduce and market new and enhanced versions of
our services and products on a timely basis;
- the budgeting cycles of our customers;
- subscriptions or maintenance agreements;
- investments in research and development;
- the expansion of marketing and sales and distribution channels;
- product life cycles, software bugs and other product quality problems;
- changes in our strategy;
- changes in the level of operating expenses; and
- general domestic and international economic conditions.
Our projected expense levels are based on our expectations regarding future
revenue and are relatively fixed in the short term. If revenue levels are below
expectations in a particular quarter, operating results and net income are
likely to be disproportionately adversely affected because our fixed expenses
are greater than our variable expenses. A significant percentage of our revenues
is typically derived from non-recurring sales to a limited number of customers.
Since we recognize licenses revenues upon installation and training, sales
orders from new customers in a quarter might not be recognized during that
quarter. Delays in the implementation and installation of our software near the
end of a quarter could cause quarterly revenue and, to a greater degree, results
of operations to fall substantially short of anticipated levels. We often
recognize revenues for existing customers shortly after an order is received
because installation and training can generally be completed in significantly
less time than for new customers. We may miss recognizing revenues at the end of
a quarter due to delays in the receipt of expected orders by existing customers.
Delays in recognizing revenues may also occur as a result of delayed reporting
by our distributors.
Because of these and other factors, revenues in any one quarter are not
indicative of revenues in any future period and, accordingly, we believe that
certain period-to-period comparisons of our results of operations are not
necessarily meaningful and should not be relied upon as indicators of future
performance.
THE E-SERVICE SOLUTIONS MARKET IS NEW AND EVOLVING AND, IF IT DOES NOT GROW
RAPIDLY, OUR BUSINESS WILL BE ADVERSELY AFFECTED.
The e-service solutions market is an emerging industry, and it is difficult
to predict how large or how quickly it will grow, if at all. Customer service
historically has been provided primarily in person or over the telephone with
limited reference materials available for the customer service representative.
Our business model assumes that companies which provide customer service over
the telephone will find value in aggregating institutional knowledge by using
our eService Suite and will be willing to access our content over the Internet.
Our business model also assumes that companies will find value in providing some
of
5
<PAGE> 9
their customer service over the Internet rather than by telephone. Our success
will depend on the broad commercial acceptance of, and demand for, these
e-service solutions.
WE ARE CURRENTLY IN THE PROCESS OF RE-BRANDING AND EXPANDING OUR PRODUCT LINES
AND INTEGRATING OUR PRODUCTS WITH RIGHTANSWERS.COM. CUSTOMERS MAY NOT ACCEPT OR
DESIRE THESE CHANGES.
Our future financial performance will depend, in significant part, on
customer acceptance of our eService Suite software product line and
RightAnswers.com, both of which became widely available to customers in December
1999. Since 1996, we have been selling technology-related content products on
CD-ROMs under the brand name Knowledge-Pak Desktop Suite(TM). These content
products form the basis of the newly released RightAnswers.com product offering
in both its Web and CD-ROM versions. In 1997, we began selling the companion
Knowledge-Pak Architect(TM) and Knowledge-Pak Viewer(TM) software applications,
which allow our customers to modify our content products or develop their own
knowledge bases for customer service and support. In 1999, we acquired a
complementary software product suite from the Molloy Group. The eService Suite
integrates Knowledge-Pak Architect(TM) and Knowledge-Pak Viewer(TM) under a
different brand name, adds the self-learning capability acquired from the Molloy
Group to the software and connects our customers' knowledge base to
RightAnswers.com. We cannot be sure that this product line will provide the
benefits described in this prospectus, gain broad commercial acceptance or
compete successfully against products from other vendors.
OUR CONTENT PARTNERSHIPS MAY BE TERMINATED OR NOT RENEWED.
We currently have content partnerships with Microsoft, Apple, Novell and
3Com. These partnerships provide our RightAnswers.com product offering with
content for the knowledge base. If these partnerships are terminated or not
renewed, our business may be adversely affected.
OUR FAILURE TO EXPAND OUR DIRECT SALES FORCE WILL IMPEDE OUR GROWTH.
Our ability to achieve significant growth in the future will largely depend
on our success in recruiting and training a sufficient number of direct sales
personnel. Our products and services require a sophisticated sales effort
targeted at the senior management of our prospective customers. New hires
require training and take time to achieve full productivity. Our recent hires
and planned new hires may not become as productive as necessary, and we may be
unable to hire sufficient numbers of qualified individuals in the future. If we
fail to expand our direct sales force, our revenue may not grow or it may
decline.
OUR FAILURE TO DEVELOP NEW RELATIONSHIPS AND ENHANCE EXISTING RELATIONSHIPS WITH
THIRD-PARTY DISTRIBUTORS, SOFTWARE VENDORS AND VALUE-ADDED RESELLERS THAT HELP
SELL OUR SERVICES AND PRODUCTS MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS.
We derive a significant portion of our product revenues from third-party
software distributors, vendors and value-added resellers. Our ability to achieve
revenue growth in the future will depend on our success in continuing to develop
new relationships and enhance existing relationships with these software
distributor, vendors and value-added resellers. Additionally, the loss of a
third-party distributor could significantly adversely affect our financial
results. In 1999, sales to one distributor accounted for 17% of our recognized
revenues. At times, we rely on these third parties to recommend and sell our
products to their customers, and to install and support our products for their
customers. Because of our reliance, we face the risk that these software
distributors, vendors and value-added resellers may:
- choose not to recommend, install or sell our products;
- develop, market or recommend software applications that compete with our
products;
- fail to implement their products and/or our e-service solutions and
services on the schedule required by the customers;
- encounter their own financial or operational problems;
6
<PAGE> 10
- change their business strategy;
- terminate their business relationships with us; or
- be acquired by companies who choose to limit or discontinue relationships
with us.
If any of these risks occur, our business, financial condition and results
of operations are likely to be materially adversely affected.
WE HAVE RELATIVELY FEW CUSTOMERS, AND THE LOSS OF ONE OR MORE OF OUR PRINCIPAL
CUSTOMERS WOULD HARM OUR FINANCIAL RESULTS.
Our results of operations in any given period have depended to a
significant extent upon sales to a small number of customers. Our loss of one or
more of our major customers could have a material adverse effect on our
business, financial condition and results of operations. Further, in the event
of any downturn in any existing or potential customer's business or general
economic conditions, licenses and subscriptions for our products and services
may be deferred or terminated, resulting in a material adverse effect on our
business, financial condition and results of operations.
DUE TO THE LENGTHY SALES CYCLES OF OUR PRODUCTS AND SERVICES, THE TIMING OF OUR
SALES ARE DIFFICULT TO PREDICT AND MAY CAUSE US TO MISS OUR REVENUE
EXPECTATIONS.
Our products and services are typically intended for use in applications
that may be critical to a customer's business. In certain instances, effective
use of our products and services involves a significant commitment of resources
by prospective customers. As a result, our sales process is often subject to
delays associated with lengthy approval processes that accompany the commitment
of significant resources. These delays may worsen in the future if a greater
proportion of our total revenues, as we anticipate, is derived from our eService
Suite, which has a high average contract size. For these and other reasons, the
sales cycle associated with the licensing of our products and subscription for
our services typically ranges between six and 18 months and is subject to a
number of significant delays over which we have little or no control. While our
customers are evaluating whether our products and services suit their needs, we
may incur substantial sales and marketing expenses and expend significant
management effort. Because of the lengthy sales cycle for our products and
services, we may not realize forecasted revenues from a specific customer in the
quarter in which we expend these significant resources.
WE MAY NOT BE ABLE TO EXPAND OUR BUSINESS INTERNATIONALLY, AND, IF WE DO, WE
FACE RISKS RELATING TO INTERNATIONAL OPERATIONS.
A component of our strategy is our planned increase in efforts to attract
more international customers. We are currently exploring business opportunities
in Europe. To date, we have only limited experience in providing our products
and services internationally. We cannot assure you that we will be able to
market our services and products successfully in international markets. In
addition, by doing business in international markets, we face risks, such as
unexpected changes in tariffs and other trade barriers, fluctuations in currency
exchange rates, difficulties in staffing and managing foreign operations,
political instability, reduced protection for intellectual property rights in
some countries, seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world, and potentially adverse
tax consequences, any of which could adversely impact our international
operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE OR UPDATE OUR
CONTENT IN A COST-EFFECTIVE MANNER.
The software industry is characterized by rapid technological change,
including changes in customer requirements, frequent new product and service
introductions and enhancements and evolving industry standards. Our content
products are comprised of a large amount of information that needs to be updated
frequently, requiring us to continue to invest substantial resources in order to
maintain the accuracy and utility of our content. Also, we rely upon some of our
customers and other third parties to provide data
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and other support for the ongoing updating of these products. Our customers or
third parties, which may have significantly greater financial and marketing
resources than we do, may compete with us in the future and could discontinue
their relationships with us. Our future success will depend, in part, on our
ability to enhance our existing services and products. We must also develop new
technologies, services and products that address the increasingly sophisticated
and varied needs of our customers and prospective customers. We must respond to
technological advances and evolving industry standards and practices on a timely
and cost-effective basis.
The development and enhancement of products and services to keep pace with
these changes entails significant technical and financial risks. We may not be
able to use new technologies effectively, adapt products and services to
evolving industry standards or develop, introduce and market new products and
services. In addition, we may experience difficulties that could delay or
prevent the successful development, introduction or marketing of these products
and services, and our new product and service enhancements may not achieve
market acceptance.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, AND THE LOSS OF THIS
TECHNOLOGY COULD DELAY IMPLEMENTATION OF OUR PRODUCTS, INJURE OUR REPUTATION OR
FORCE US TO PAY HIGHER ROYALTIES.
We rely, in part, on technology that we license from a small number of
software providers for use with our products. After the expiration of these
licenses, this technology may not continue to be available on commercially
reasonable terms, if at all, and may be difficult to replace. The loss of any of
these technology licenses could result in delays in introducing our products
until equivalent technology, if available, is identified, licensed and
integrated. In addition, any defects in the technology we license or may license
in the future could prevent the implementation or impair the functionality of
our products, delay new product introductions or injure our reputation. If we
are required to enter into license agreements with third parties for replacement
technology, we could be subject to higher royalty payments and a loss of product
differentiation.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO HIRE AND RETAIN KEY PERSONNEL.
Our business requires the employment of highly skilled personnel. The
recruitment and retention of experienced content and software developers and
proficient technologists are particularly important to our performance and
success. The loss of the services of any of our key personnel or the inability
to recruit and retain experienced content and software developers and other
proficient technologists in the future could have a material adverse effect on
our business, financial condition and operating results. Even though we expect
further growth in the number of our personnel, competition for this type of
personnel is intense. In particular, we have experienced difficulty in hiring
and retaining sales personnel, product managers, software developers and
professional services employees. Our continued ability to compete effectively in
our business depends on our ability to attract and retain the quality personnel
our operations and development require.
PROBLEMS ARISING FROM THE USE OR INTEGRATION OF OUR PRODUCTS WITH OTHER VENDORS'
PRODUCTS COULD CAUSE US TO INCUR SIGNIFICANT COSTS, DIVERT ATTENTION FROM OUR
PRODUCT DEVELOPMENT EFFORTS AND CAUSE CUSTOMER RELATIONS PROBLEMS.
Our customers generally use our products together with products from other
companies. As a result, when problems occur in a customers' systems, it may be
difficult to identify the source of the problem. Even when these problems are
not caused by our products, they may cause us to incur significant warranty and
repair costs, divert the attention of our technical personnel from our product
development efforts and cause significant customer relations problems.
Our ability to compete successfully also depends on the continued
compatibility and interoperability of our products with products and systems
sold by various third parties, specifically including customer-
relationship-management software sold by Clarify, Kana Communications, Oracle,
Peregrine Systems,
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Remedy and Siebel Systems. Currently, these vendors have open applications
program interfaces, which facilitate our ability to integrate with their
systems. If any one of them should close their programs' interface or if they
should acquire one of our competitors, our ability to provide a close
integration of our products could become more difficult and could delay or
prevent our products' integration with future systems.
WE FACE A NUMBER OF INTEGRATION RISKS AND SIGNIFICANT GOODWILL COSTS RELATED TO
THE RECENT ACQUISITION OF THE MOLLOY GROUP.
We face integration risks and significant goodwill costs as a result of our
acquisition of the Molloy Group in July 1999. In addition, we may not achieve
value from the acquisition of the Molloy Group commensurate with the purchase
price we paid. Although the integration of the Molloy Group is substantially
complete, this integration may continue to place a significant burden on our
management team. If we are unable to integrate the Molloy Group into our
operations and its products into our products, our business, financial condition
or results of operations may suffer.
As a result of the Molloy Group acquisition, we have recorded a significant
amount of goodwill that will adversely affect our operating results for the
foreseeable future. As of December 31, 1999, we had goodwill and other purchased
intangible assets of approximately $14.2 million, which we expect to amortize
over two to four years from the date of the acquisition. If the amount of
recorded goodwill or other intangible assets is increased or we have future
losses and are unable to demonstrate our ability to recover the amount of the
goodwill, the amount of amortization could be increased, or the period of
amortization could be shortened. This would increase annual amortization charges
or result in the write-off of goodwill in a one-time, non-cash charge, which
could be significant and would likely harm our operating results.
IF WE ACQUIRE OTHER COMPANIES, WE MAY NOT BE ABLE TO INTEGRATE THEIR OPERATIONS
EFFECTIVELY.
Our industry is marked by intense competition and consolidation. As a
result, we may find it necessary to expand through the acquisition of other
companies providing services or having technologies and operations which are
complementary to ours. Acquisitions entail numerous risks, including:
- difficulties in the assimilation of acquired operations and products;
- diversion of management's attention from other business concerns;
- assumption of unknown material liabilities of acquired companies;
- amortization of acquired intangible assets, which would reduce future
reported earnings; and
- potential loss of clients or key employees of acquired companies.
We cannot assure investors that we will be able to successfully integrate
any operations, personnel, services or products that might be acquired in the
future, and our failure to do so could adversely affect our financial results
and the value of our common stock.
THE INTENSIFYING COMPETITION WE FACE FROM BOTH ESTABLISHED AND RECENTLY FORMED
ENTITIES MAY ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
We compete in the emerging market for e-service solutions. We face
competition from many firms offering a variety of products and services. In
addition, we face competition from many free or low cost sources of information
generally available via the Internet. Portions of our content products provided
to us by our content providers may be the same as content offered by those
content providers as part of their Internet-based service offerings. Large
software vendors may choose to sell (or provide at low cost or no cost) content
products addressing problems encountered by users of their software. In the
future, because there are relatively low barriers to entry in the software
industry, we expect to experience additional competition from new entrants into
the e-service market. In particular, our current distributors or strategic
partners may enter our market with competitive products. Many of these potential
competitors have well-
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established relationships with our current and potential customers, extensive
knowledge of the e-service service industry, better name recognition,
significantly greater financial, technical, sales, marketing and other resources
and the capacity to offer single vendor solutions. It is also possible that
alliances or mergers may occur among our competitors and that these newly
consolidated companies could rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products. Greater competition may
result in price erosion for our products and services, which may significantly
affect our future operating margins.
CONTENT AND SOFTWARE PRODUCTS ARE PRONE TO ERRORS OR FAILURES.
Content and software products frequently contain errors or failures,
especially when first introduced or when new versions are released. In the past,
we have released products that contained defects, including inaccurate content,
and discovered software errors in certain new versions of existing products and
new products after their introduction. In the event that the information
contained in our content products is inaccurate or perceived to be incomplete or
out-of-date, our business, financial condition and results of operations could
be materially adversely affected. Our products are typically intended for use in
applications that may be critical to a customer's business. As a result, we
expect that our customers and potential customers have a great sensitivity to
product defects. We could, in the future, lose significant revenue as a result
of software errors or defects, including inaccurate content.
WE COULD INCUR SUBSTANTIAL COSTS AS A RESULT OF PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS.
Our products are critical to the operations of our customers' businesses.
Any defects or alleged defects in our products entail the risk of product
liability claims for substantial damages, regardless of our responsibility for
the failure. Although our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims, these provisions may not be effective under the laws of certain
jurisdictions. In addition, product liability claims, even if unsuccessful, may
be costly and divert management's attention from our operations. Software
defects and product liability claims may result in a loss of future revenue, a
delay in market acceptance, the diversion of development resources, damage to
our reputation or increased service and warranty costs.
WE COULD INCUR ADDITIONAL NON-CASH CHARGES ASSOCIATED WITH STOCK-BASED
COMPENSATION ARRANGEMENTS.
Our operating results may be impacted if we incur significant non-cash
charges associated with stock-based compensation arrangements with employees and
non-employees. We have issued options to employees and non-employees which are
subject to various vesting schedules of up to 48 months. These expenses may
result in us incurring net losses or increased net losses for a given period and
this could seriously harm our operating results and stock price.
OUR RECENT GROWTH HAS PLACED A STRAIN ON OUR RESOURCES, AND IF WE FAIL TO MANAGE
OUR FUTURE GROWTH, OUR BUSINESS COULD SUFFER.
We recently began to expand our operations rapidly and intend to continue
this expansion. The number of our full-time employees increased from 153 as of
January 1, 1999 to 209 as of February 29, 2000. This expansion has placed, and
is expected to continue to place, a significant strain on our managerial,
operational and financial resources. To manage any further growth, we will need
to improve or replace our existing operational, customer service and financial
systems, procedures and controls. Our failure to manage properly these system
and procedural transitions could impair our ability to attract and service
customers, and could cause us to incur higher operating costs and delays in the
execution of our business plan. We will also need to continue the expansion of
our recruiting efforts. Our management may not be able to hire, train, retain
and manage required personnel. In addition, our management may not be able to
successfully identify, manage and exploit existing and potential market
opportunities.
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INTEGRATION OF A NEW MANAGEMENT TEAM AND NEW PERSONNEL MAY STRAIN OUR OPERATIONS
AND OUR NEW MANAGEMENT TEAM MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
Five members of our senior management team have joined us since January 1,
1999. A significant reduction of employees occurred in conjunction with our
acquisition of the Molloy Group in July 1999. Our new employees include a number
of key managerial, sales, marketing, planning, technical and operations
personnel who have not yet been fully integrated into our organization. In
addition, our current senior management has limited experience working together
in the management of a rapidly growing enterprise. If we are unable to integrate
our new employees or if senior management fails to manage our growth
effectively, our business, financial condition or results of operations may be
adversely affected.
WE MAY NOT BE ABLE TO UPGRADE OUR SYSTEMS AND RIGHTANSWERS.COM TO ACCOMMODATE
GROWTH IN THE E-SERVICE MARKET.
We face risks related to the ability of RightAnswers.com to operate
effectively with increased usage while maintaining the expected quality of
performance. As the volume and complexity of e-service solutions increase, we
will need to expand our systems and our network infrastructure hosted by third
parties. The expansion and adaptation of our network infrastructure will require
substantial financial, operational and management resources. Our ability to
connect and manage a substantially larger number of customers is unknown.
Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware and network systems. Our network may be
vulnerable to disruptions due to electronic attacks. Because the techniques used
by computer hackers sabotage networks change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these
techniques. Although we have not experienced any act of sabotage by a third
party of our internal network to date, if an actual or perceived breach of
Internet security occurs in our internal systems or those of our customers, it
could adversely affect the market perception of our products and services. In
addition, a substantial number of our computer and communications systems are
located in Oakmont, Pennsylvania. Our systems and operations are vulnerable to
damage or interruption from fire, power loss, telecommunications failure and
similar events. We have entered into service agreements with some of our
customers that require minimum performance standards, including standards
regarding the availability and response time of our remote content services. If
we fail to meet these standards, our customers could terminate their
relationships with us and we could be subject to contractual monetary penalties.
Any unplanned interruption of services may harm our ability to attract and
retain customers.
IF OUR CUSTOMERS' SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD
SUFFER.
A fundamental requirement for online communications is the secure
transmission of confidential information over the Internet. Users of our
products transmit their and their customers' confidential information over the
Internet. In our license agreements with our customers, we disclaim
responsibility for the security of confidential data and have contractual
indemnities for any damages claimed against us. However, if unauthorized third
parties are successful in obtaining confidential information from users of our
products, our reputation and business may be damaged, and if our contractual
disclaimers and indemnities are not enforceable, we may be subject to liability.
OUR PLAN TO EXPAND OUR SERVICE CAPABILITY COULD ADVERSELY AFFECT GROSS PROFIT
MARGINS AND OPERATING RESULTS.
Revenues from services such as installation and training, consulting,
customer support and maintenance contracts have lower gross margins than
revenues from licenses and subscriptions. Therefore, any increase in the
percentage of revenues generated from services as compared to revenues from
licenses and subscriptions will lower our overall gross margins. In addition, an
increase in the cost of revenues from services as a percentage of revenues could
have a negative impact on overall gross margins. In the future,
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we may also choose to outsource a portion of our services business. This may
further contribute to erosion of our gross margins.
Although margins related to revenues from services are lower than margins
related to revenues from licenses and subscriptions, our services organization
currently generates gross profits, and we are seeking to expand our services
capability and our revenues from services.
Revenues from services depend in part on renewals of technical support
contracts by our customers, some of which may not renew their technical support
contracts. Our ability to increase revenues from services will depend in large
part on our ability to increase the scale of our services organization,
including our ability to recruit and train a sufficient number of qualified
services personnel successfully. We may not be able to do so.
To meet our expansion goals, we expect to hire additional services
personnel. If demand for our services does not increase in proportion to the
number of additional personnel we hire, gross profits could fall, or we may
incur losses from our services activities. In addition, the costs of delivering
services could increase, and any material increase in these costs could reduce
or eliminate the profitability of our service activities.
CHANGES IN OUR PRODUCT MIX MAY AFFECT OUR FUTURE OPERATING RESULTS.
In the future, we may begin to offer licensing arrangements in which our
customer purchases a license for a fixed or indefinite term. We plan to
recognize revenues from these arrangements ratably over the life of the
contract. If customer demand for these arrangements increases, we may have lower
revenues in the short term than we otherwise would, because revenues for
licenses sold under these arrangements will be recognized over time rather than
upon installation and training.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY CAUSE
US TO INCUR SIGNIFICANT COSTS.
Our business is dependent on proprietary technology and other intellectual
property rights. We rely primarily on patent, copyright, trade secret and
trademark law to protect our technology. We currently have two patents. One of
these patents pertains to certain proprietary data structures and the other
pertains to our Cognitive Processor. Our patents may not survive a legal
challenge to their validity or provide meaningful protection to us. In addition,
effective trademark protection may not be available for our trademarks.
Notwithstanding the precautions we have taken, a third party may copy or
otherwise obtain and use our software or other proprietary information without
authorization or may develop similar software independently. Policing
unauthorized use of our technology is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. Further, we have granted certain
third parties limited contractual rights to use proprietary information which
they may improperly use or disclose. The laws of other countries may afford us
little or no effective protection of our intellectual property. The steps we
have taken may not prevent misappropriation of our technology, and the
agreements entered into for that purpose may not be enforceable.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. This type of litigation could result in
substantial costs and diversions of resources, either of which could have a
material adverse effect on our business, financial condition and operating
results.
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WE MAY BECOME SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT, WHICH
COULD RESULT IN SIGNIFICANT COSTS, LOSS OF SIGNIFICANT RIGHTS AND HARM TO OUR
REPUTATION.
Third parties may claim that we have infringed their patent, copyright,
trademark and other intellectual property rights. This risk may increase as the
number of entrants in our market increases and the functionality of our products
is enhanced and overlaps with the products of other companies. Any claims,
whether or not valid, could:
- be time-consuming;
- result in costly litigation;
- divert the efforts of our technical and management personnel;
- cause product shipment delays;
- require us to develop non-infringing technology; or
- disrupt our relationships with our customers or require us to enter into
royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. In the event a claim against us is successful and
we cannot obtain a license to the relevant technology, we would be forced to
redesign our products or cease selling, incorporating or using products or
services that incorporate the challenged intellectual property.
CHANGES IN ACCOUNTING STANDARDS AND IN THE WAY WE CHARGE FOR LICENSES COULD
AFFECT OUR FUTURE OPERATING RESULTS.
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and later
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998. The American Institute of Certified Public
Accountants has also issued Statement of Position 98-9, which is effective for
us for transactions entered into beginning January 1, 2000. The adoption of this
pronouncement for fiscal year 2000 is not expected to materially affect our
revenue recognition policies. In December 1999, the Staff of the Securities and
Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition," to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. We believe our revenue
recognition practices are in conformity with SAB No. 101.
Accounting standard setters, including the Securities and Exchange
Commission and the Financial Accounting Standards Board, are also reviewing the
accounting standards related to business combinations and stock-based
compensation. Any changes to these accounting standards or any other accounting
standards or the way these standards are interpreted or applied could require us
to change the manner in which we recognize revenue or the way we account for
stock compensation or for any acquisition we may pursue or other aspects of our
business, in a manner that could adversely affect our reported financial
results.
FACTORS OUTSIDE OUR CONTROL MAY MAKE OUR PRODUCTS LESS USEFUL.
The effectiveness of our eService Suite depends in part on widespread
adoption and use of our software by our customers' customer service personnel
and on the quality of the solutions they generate. The knowledge base depends in
part on solutions generated by customer service personnel and, sometimes, on the
importation of a user's legacy solutions. If customer service personnel do not
adopt and use our products effectively, necessary solutions will not be added to
the knowledge base, and the knowledge base will not adequately address service
needs. Some of our users have found that customer service personnel productivity
initially drops while customer service personnel become accustomed to using our
software. If an enterprise deploying our software has not adequately planned for
and communicated its expectations regarding that initial productivity decline,
customer service personnel may resist adoption of our software.
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In addition, if less-than-adequate solutions are created and left uncorrected by
a user's quality-assurance processes or if the legacy solutions are inadequate,
the knowledge base will similarly be inadequate, and the value of our eService
Suite to our users will be impaired. Thus, successful deployment and broad
acceptance of our eService Suite will depend in part on whether our users
effectively roll-out and use our software products and the quality of the users'
existing knowledge base of solutions, each of which are outside our control.
WE DEPEND ON INCREASED BUSINESS FROM OUR NEW CUSTOMERS, AND, IF WE FAIL TO GROW
OUR CLIENT BASE OR GENERATE REPEAT BUSINESS, OUR OPERATING RESULTS COULD BE
ADVERSELY AFFECTED.
If we fail to grow our customer base or generate repeat and expanded
business from our current and future customers, our business and operating
results will be seriously harmed. Some of our customers initially make a limited
purchase of our products and services for pilot programs. These customers may
choose not to purchase additional licenses or subscriptions to expand their use
of our products. These customers have not yet developed or deployed initial
applications based on our products. If these customers do not successfully
develop and deploy such initial applications, they may choose not to purchase
deployment licenses or additional development licenses. The effectiveness of our
e-service solutions depends in part on the widespread adoption and use of our
products by customer service personnel. Some of our customers who have made
initial purchases of our software have deferred or suspended implementation of
our products due to slower than expected rates of internal adoption by customer
service personnel. If more customers decide to defer or suspend implementation
of our products in the future, we will be unable to increase our revenue from
these customers from additional licenses or maintenance agreements, and our
financial position will be seriously harmed. Our business model depends on the
expanded use of our products within our customers' organizations.
In addition, as we introduce new versions of our products or new products,
our current customers may not need our new products and may not ultimately
license these products. Because the total amount of maintenance and service fees
we receive in any period depends in large part on the size and number of
licenses and subscriptions that we have previously sold, any downturn in our
software licenses and subscriptions revenue would negatively impact our future
services revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenues could be significantly adversely affected.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET, THE CAPACITY AND VIABILITY
OF THE INTERNET INFRASTRUCTURE AND OUR ABILITY TO ADAPT IN A RAPIDLY CHANGING
INDUSTRY.
Our products address a new and emerging market for e-service solutions to
businesses' customer service needs. Therefore, our future success depends
substantially upon the widespread adoption of the Internet as a significant
medium for commerce and business applications. If this market fails to develop
or develops more slowly than expected, demand for our products and services will
be reduced. Consumers and businesses may reject the Internet as a viable
commercial medium for a number of reasons, including potentially inadequate
network infrastructure, slow development of enabling technologies or
insufficient commercial support. The Internet infrastructure may not be able to
support the demands placed on it by increased usage and bandwidth requirements.
Moreover, critical issues like security, reliability, cost, accessibility and
quality of service remain unresolved and may negatively affect the
attractiveness of conducting commerce and business transactions over the
Internet. Even if the required infrastructure, standards, protocols or
complementary products, services or facilities are developed, we may incur
substantial expenses adapting our products and services to changing or emerging
technologies.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD HARM OUR BUSINESS.
As e-commerce, e-service and the Internet continue to evolve, we expect
that federal, state and foreign governments will adopt laws and regulations
tailored to the Internet covering issues like user privacy, taxation of goods
and services provided over the Internet, pricing, content and quality of
products
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and services. If enacted, these laws and regulations could limit the market for
e-commerce and e-service and, therefore, the market for our products and
services.
The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a violation of the Telecommunications Act's
information and content provisions are currently unsettled. The imposition upon
us and other software and service providers of potential liability for
information carried on or disseminated through our applications could require us
to implement measures to reduce our exposure to this liability. These measures
could require us to expend substantial resources or discontinue certain
services. In addition, although substantial portions of the Communications
Decency Act, the Act through which the Telecommunications Act of 1996 imposes
criminal penalties, were held to be unconstitutional, similar legislation may be
enacted and upheld in the future. It is possible that this new legislation could
expose companies involved in e-commerce to liability, which could limit the
growth of e-commerce generally. This new legislation and the Communications
Decency Act could dampen the growth of Internet usage and decrease its
acceptance as a communications and commercial medium. In addition, similar or
more restrictive laws in other countries could have a similar effect and hamper
our plans to expand overseas.
THE IMPOSITION OF SALES TAX AND OTHER TAXES ON PRODUCTS SOLD BY OUR CUSTOMERS
OVER THE INTERNET COULD HAVE A NEGATIVE EFFECT ON ONLINE COMMERCE AND THE DEMAND
FOR OUR PRODUCTS AND SERVICES.
The imposition of new sales taxes or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for our products and
services. Recent federal legislation limits the imposition of state and local
taxes on Internet-related sales. Congress may choose not to renew this
legislation in 2001, in which case state and local governments would be free to
impose additional taxes on electronically purchased goods.
We believe that most companies that sell products over the Internet do not
currently collect sales or other taxes on shipments of their products into
states or foreign countries where they are not physically present. However, one
or more states or foreign countries may seek to impose sales or other tax
collection obligations on out-of-jurisdiction companies that engage in
e-commerce. A successful assertion by one or more states or foreign countries
that companies that engage in e-commerce should collect sales or other taxes on
the sale of their products over the Internet, even though not physically in the
state or country, could indirectly reduce demand for our products.
PRIVACY CONCERNS RELATING TO THE INTERNET ARE INCREASING, WHICH COULD RESULT IN
LEGISLATION THAT ADVERSELY AFFECTS OUR BUSINESS AND/OR REDUCES SALES OF OUR
PRODUCTS.
Businesses use our software capture information regarding their customers
when those customers contact them online with customer service inquiries.
Privacy concerns may cause visitors to resist providing the personal data
necessary to allow our customers to use our software products most effectively.
More importantly, even the perception of privacy concerns, whether or not valid,
may indirectly inhibit market acceptance of our products. Recently, a
high-profile public company faced adverse and widely disseminated publicity
regarding its handling of customer information. In addition, legislative or
regulatory requirements may heighten these concerns if businesses must notify
Web site users that the data captured after visiting certain Web sites may be
used by marketing entities to unilaterally direct product promotion and
advertising to that user. While we are not aware of any legislation or
regulatory requirements of this type currently in effect in the United States,
other countries and political entities, like the European Union, have adopted
this kind of legislation or regulatory requirements and the United States may do
so as well. If consumer privacy concerns are not adequately addressed, our
business could be harmed.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES, WE MAY INCUR SIGNIFICANT COSTS
AND OUR BUSINESS COULD SUFFER.
We are unaware of any problems that have arisen with respect to year 2000
issues in our current software products, our internal computer systems or in the
computer systems of our vendors and partners.
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Prior to January 1, 2000, we conducted a review of the potential impact that the
change in the date to the year 2000 would have on our current products and
computer systems. Based on this review, we determined that all of our current
products and major computer systems are able to recognize and appropriately
process dates commencing in the year 2000. Our historical costs to assess our
year 2000 readiness have not been significant. Given the lack of any problems
related to the year 2000 since the year change, we do not anticipate that we
will experience any material problems related to the year 2000 in the future. As
a result, we do not expect costs associated with these problems to have an
adverse effect on our business and financial results. Nevertheless, the customer
networks that incorporate our products and our own internal networks could fail
as a result of the inability of our products and systems to correctly recognize
dates after the year 2000. If we or our customers fail to remedy any year 2000
issues we could incur material costs or lost revenue.
RISKS RELATED TO THIS OFFERING AND OUR CAPITAL STRUCTURE
WE MAY NOT BE ABLE TO OBTAIN FINANCING IF WE NEED IT IN THE FUTURE.
We may require additional financing beyond the proceeds of this offering to
support more rapid expansion, develop new or enhanced services and products,
respond to competitive pressures, acquire complementary businesses or
technologies or respond to unanticipated requirements. We can give investors no
assurance that, when needed, additional financing will be available on favorable
terms, if at all.
WE MAY NEED ADDITIONAL CAPITAL, AND RAISING ADDITIONAL CAPITAL MAY DILUTE
EXISTING STOCKHOLDERS.
We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may choose to, or be
required to, raise additional funds due to unforeseen circumstances. If our
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. This financing may not be
available in sufficient amounts or on terms acceptable to us and may be dilutive
to existing stockholders.
WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING.
We intend to use the net proceeds from the sale of the shares of common
stock offered through this prospectus for general corporate purposes, including
expanding our software development staff and our sales and marketing
capabilities, making strategic acquisitions, expanding internationally and
meeting working capital requirements. Accordingly, our management will have
significant flexibility in applying the net proceeds of this offering. The
failure of our management to apply these funds effectively could have a material
adverse effect on our business, results of operations and financial condition.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED SO WE CANNOT PREDICT THE EXTENT
TO WHICH A MARKET WILL DEVELOP FOR OUR COMMON STOCK OR HOW VOLATILE THAT MARKET
WILL BE.
Prior to this offering, there has been no market for our common stock. The
initial public offering price of our common stock will be determined by
negotiations between us and Bear, Stearns & Co. Inc. and SG Cowen, our co-lead
underwriters. The price of our common stock after this offering may fluctuate
widely. The reasons for these fluctuations may include the business community's
perception of our prospects and of the e-service industry in general.
Differences between our actual operating results and those expected by investors
and analysts and changes in analysts' recommendations or projections could also
affect the price of our common stock. Other factors potentially causing
volatility in the price for our common stock may include changes in general
economic or market conditions and broad market fluctuations, particularly those
affecting the prices of the common stocks of companies engaged in commerce
related to the Internet. We will apply to include our common stock for quotation
on the Nasdaq National Market. Inclusion in the Nasdaq National Market does not,
however, guarantee that an active and liquid trading market for our common stock
will develop.
16
<PAGE> 20
WE MAY BECOME INVOLVED IN SECURITIES CLASS ACTION LITIGATION WHICH COULD DIVERT
MANAGEMENT'S ATTENTION AND HARM OUR BUSINESS.
The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market price for the common stocks of
technology companies, particularly Internet companies. These broad market
fluctuations may cause the market price of our common stock to decline. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in that type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.
SUBSEQUENT TO THIS OFFERING, OUR OFFICERS AND DIRECTORS WILL STILL BE ABLE TO
EXERT SIGNIFICANT CONTROL OVER OUR FUTURE DIRECTION AND OPERATIONS.
Upon completion of this offering, our officers, directors and persons and
entities affiliated with them, will beneficially own, in the aggregate,
approximately % of the outstanding shares of our common stock
( % if the underwriters' over-allotment option is exercised in full).
As a result, these stockholders, if acting together, would be able to control
matters requiring stockholder approval, including the election of directors and
the approval of a merger, consolidation or sale of all or substantially all of
our assets.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE.
Sales of a substantial number of shares of common stock in the public
market after this offering or after the expiration of lock-up or holding periods
could cause the market price of our common stock to decline. After this offering
we will have approximately shares of common stock outstanding. All the
shares sold in this offering will be freely tradable. The remaining
shares of common stock are deemed "restricted securities", as defined in Rule
144 under the Securities Act. Of the restricted securities, approximately
shares of common stock, which are not subject to the 180-day lock-up
agreements with the underwriters, will be eligible for immediate sale in the
public market pursuant to Rule 144(k) under the Securities Act. Approximately
additional shares of common stock, which are not subject to lock-up
agreements, will be eligible for sale in the public market in accordance with
Rule 144 or Rule 701 under the Securities Act beginning 90 days after the
effective date of the registration statement. Upon expiration of the lock-up
agreements 180 days after the date of this prospectus, approximately
additional shares of common stock will be available for sale in the public
market, subject to the provisions of Rule 144 under the Securities Act. The
future sale of these shares by our current stockholders may adversely affect our
stock price.
THIS OFFERING WILL CAUSE IMMEDIATE DILUTION.
Investors in this offering will experience immediate and substantial
dilution in the net tangible book value of $ per share based on the assumed
initial public offering price of $ .
WE DO NOT ANTICIPATE PAYING DIVIDENDS.
We do not anticipate paying cash dividends on our common stock in the
foreseeable future.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE IT
DIFFICULT FOR A THIRD-PARTY TO ACQUIRE US.
Certain provisions of the Delaware General Corporation Law may delay,
discourage or prevent a change in control. These provisions may discourage bids
for our common stock at a premium over the market price and may adversely affect
the market price and the voting and other rights of the holders of our common
stock. In addition, upon consummation of this offering, our governing documents
will provide for a staggered Board of Directors and authorize the issuance of up
to five million shares of preferred
17
<PAGE> 21
stock. This preferred stock, which will be issuable without stockholder
approval, could grant its holders rights and powers that would tend to
discourage changes in control.
CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including among
other things:
- implementing our business strategy;
- developing and introducing new services and products;
- obtaining and expanding market acceptance of the services and products we
offer;
- meeting our requirements with customers; and
- competition in providing customer service solutions over the Internet.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "potential," "continue," "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions. These statements are based on our current beliefs, expectations and
assumptions and are subject to a number of risks and uncertainties. A
description of some risks that could cause our results to vary appears under the
caption "Risk Factors" and elsewhere in this prospectus. In light of these
assumptions, risks and uncertainties, the forward-looking events discussed in
this prospectus might not occur.
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares
of our common stock in this offering of $ million, based on an initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that our net proceeds
will be $ million.
We intend to use the net proceeds from this offering for general corporate
purposes, including the repayment of our term loan, expanding our software
development staff and our sales and marketing capabilities, international
expansion, possible strategic acquisitions or investments and working capital
requirements. We evaluate potential strategic acquisitions or investments, but
at the present time we have no understandings, commitments or agreements with
respect to any such acquisition or investment. Pending such uses, we intend to
invest the net proceeds from this offering in United States government
securities and investment-grade, interest-bearing instruments. We have made no
material commitments or allocations for the net proceeds, and the use of the
proceeds will depend upon developments and opportunities in our business and the
Internet industry in general.
The foregoing represents our present intentions based upon our present
plans and business conditions. The occurrence of unforeseen events or changed
business conditions, however, could result in the application of the proceeds of
this offering in a manner other than described in this prospectus.
DIVIDEND POLICY
We have never declared or paid any cash dividend on our common stock and do
not expect to do so in the foreseeable future. We currently intend to retain any
earnings to finance the expansion and development of our business. Any future
payment of dividends will be made at the discretion of our Board of Directors
based upon conditions then existing, including our earnings, financial condition
and capital requirements, as well as such economic and other conditions as our
Board of Directors may deem relevant.
18
<PAGE> 22
DILUTION
The pro forma net tangible book value of our common stock, as of December
31, 1999, after giving effect to the conversion of all outstanding preferred
stock to common stock immediately prior to this offering, was $(3.6) million or
$(0.15) per share of common stock. Net tangible book value per share is equal to
our total tangible assets minus total liabilities divided by the number of
shares of common stock outstanding. After giving effect to our sale of
shares of common stock offered through this prospectus at the assumed initial
public offering price of $ per share (the mid-point of the filing range),
deducting underwriting discounts and commissions and estimated offering expenses
payable by us, our net tangible book value as adjusted as of December 31, 1999
would have been $ million, or $ per share of common stock. This
represents an immediate increase in net tangible book value as adjusted of
$ per share to existing stockholders, and an immediate dilution in net
tangible book value as adjusted of $ per share to new investors purchasing
shares of common stock in this offering. Dilution is determined by subtracting
pro forma net tangible book value per share after this offering from the amount
of cash paid by a new investor for a share of common stock.
The following table illustrates the dilution per share as described above:
<TABLE>
<S> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value as of December 31, 1999
(after giving effect to the conversion of all
outstanding preferred stock immediately prior to this
offering)..............................................
Increase in net tangible book value attributable to new
investors..............................................
Pro forma net tangible book value after this offering....... $(0.15)
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table sets forth on a pro forma as adjusted basis, as of
December 31, 1999, after giving effect to the conversion of all outstanding
preferred stock immediately prior to this offering, the number of shares of
common stock purchased from us, the total cash consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares of common stock in this offering, assuming an initial public
offering price of $ per share before deducting estimated underwriting
discounts and commissions and estimated expenses payable by us:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ % $
New investors.........................
------ ----- ------ ----- ------
Total....................... 100.0% 100.0%
====== ===== ====== ===== ======
</TABLE>
The foregoing tables assume no exercise of the underwriters' over-allotment
option. If the underwriters' over-allotment is exercised in full, the pro forma
net tangible book value per share of common stock as of December 31, 1999, as
adjusted, would have been $ per share, which would result in dilution to the
new investors of $ per share, and the number of shares held by the new
investors would increase to , or % of the total number of shares to
be outstanding after this offering, and the number of shares held by the
existing stockholders would be shares, or % of the total number of
shares to be outstanding after this offering. As of February 29, 2000, there
were outstanding options and warrants to purchase an aggregate of shares
of common stock with a weighted average exercise price of per share,
of which were then exercisable. We have also reserved up to an additional
, and shares of common stock for issuance upon the exercise
of options which had not yet been granted under our 1996 stock option plan, our
2000 stock incentive plan and our 2000 employee stock purchase plan. To the
extent options or warrants are exercised, there will be further dilution to new
investors.
19
<PAGE> 23
CAPITALIZATION
The following table shows our capitalization as of December 31, 1999:
- On an actual basis;
- On a pro forma basis to give effect to: (1) the conversion of all
outstanding preferred stock into common stock upon consummation of this
offering and (2) the increase in the number of authorized shares of
common stock; and
- On a pro forma as adjusted basis to reflect the pro forma adjustment, as
well as the sale of shares of common stock in this offering after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt including capital leases
(excluding current portion).............................. $ 2,949 $ 2,949 $
------- ------- -------
Stockholders' equity (capital deficiency)..................
Convertible preferred stock, no par value, authorized;
none issued and outstanding, pro forma and pro forma
as adjusted........................................... 21,930 --
Common stock and additional paid-in capital, no par
value, 37,500,000 shares authorized, actual; 9,583,070
shares issued and outstanding, actual; 100,000,000
shares authorized, pro forma and pro forma as
adjusted; 23,544,679 shares issued and outstanding,
pro forma and shares issued and outstanding, pro
forma as adjusted..................................... 5,264 27,194
Warrants................................................. 857 857
Note receivable from common stockholders................. (200) (200)
------- ------- -------
Accumulated deficit...................................... (17,190) (17,190)
Total stockholders' equity (capital deficiency)....... 10,661 10,661
------- ------- -------
Total capitalization.................................. $13,610 $13,610 $
======= ======= =======
</TABLE>
The information in this table does not include the following:
- shares of common stock issuable upon exercise of outstanding
options as of February 29, 2000 with a weighted average price of $
per share.
- shares of common stock reserved for issuance upon the exercise
of options which have not yet been granted under our 1996 stock option
plan, our 2000 stock incentive plan and our 2000 employee stock purchase
plan as of February 29, 2000.
This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto included elsewhere in
this prospectus.
20
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA
Our results for the year ended December 31, 1999 reflect the July 23, 1999
acquisition of the Molloy Group, which was accounted for using the purchase
method. Accordingly, the results of operations of the Molloy Group are included
in our results from the applicable closing date. Since the date of the
acquisition of the Molloy Group was completed in 1999, the effects of this
transaction are reflected in the balance sheet, dated as of December 31, 1999.
The following selected financial data are derived from our consolidated
financial statements, which have been audited by Ernst & Young LLP, independent
auditors. The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere in
this prospectus. Our historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES
Licenses and subscriptions............................... $1,799 $ 4,106 $ 9,250 $11,284 $ 13,311
Services................................................. 1,107 931 436 1,639 4,341
------ ------- ------- ------- --------
Total revenues............................................. 2,906 5,037 9,686 12,923 17,652
COST OF REVENUES
Cost of licenses and subscriptions....................... 82 250 126 372 982
Cost of services......................................... 704 720 502 1,057 3,506
------ ------- ------- ------- --------
Total cost of revenues..................................... 786 970 628 1,429 4,488
------ ------- ------- ------- --------
GROSS MARGIN............................................... 2,120 4,067 9,058 11,494 13,164
OPERATING EXPENSES
Sales and marketing...................................... 738 1,960 4,326 7,198 11,582
Research and development................................. 842 2,005 4,400 5,298 6,849
General and administrative............................... 610 1,097 1,881 2,801 2,418
Intangible assets amortization........................... -- -- -- -- 2,204
------ ------- ------- ------- --------
Total operating expenses................................... 2,190 5,062 10,607 15,297 23,053
------ ------- ------- ------- --------
LOSS FROM OPERATIONS....................................... (70) (995) (1,549) (3,803) (9,889)
Other income (expense), net................................ 27 47 40 (13) (173)
------ ------- ------- ------- --------
Loss before income taxes................................... (43) (948) (1,509) (3,816) (10,062)
Income tax benefit......................................... (3) -- -- -- --
------ ------- ------- ------- --------
NET LOSS................................................... $ (40) $ (948) $(1,509) $(3,816) $(10,062)
Less preferred dividend amounts............................ (51) (56) (59) (124) (95)
------ ------- ------- ------- --------
Net loss applicable to common stock........................ $ (91) $(1,004) $(1,568) $(3,940) $(10,157)
====== ======= ======= ======= ========
Net loss per common share, basic and diluted............... $(0.01) $ (0.14) $ (0.23) $ (0.57) $ (1.25)
====== ======= ======= ======= ========
Shares used in computing per share amounts................. 7,900 7,107 6,914 6,933 8,102
====== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 462 $2,132 $1,955 $ 891 $ 6,623
Working capital (deficit)............................. 1,165 2,128 415 (3,819) (2,762)
Total assets.......................................... 2,053 4,523 6,706 6,357 26,734
Long-term debt including capital leases............... -- 129 416 1,968 4,402
Stockholders' equity (capital deficiency)............. 1,472 2,999 1,498 (2,301) 10,661
</TABLE>
21
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected historical consolidated
financial information for the year ended December 31, 1999. The pro forma
information reflects our acquisition of the Molloy Group using the purchase
method of accounting and the effects of that acquisition. We have presented this
pro forma information to give a better understanding of what our business might
have looked like had we owned this acquired company since January 1, 1999. This
company may have performed differently if it had actually been consolidated with
our operations during the year ended December 31, 1999. Reliance should not be
placed on the unaudited pro forma information as indicative of the historical
results that would have had or the future results that will be experienced after
the acquisition. A pro forma consolidated balance sheet as of December 31, 1999
is not presented as the effects of the acquisition are included in the
historical consolidated balance sheet data as of December 31, 1999 presented in
"Selected Historical Financial Data -- Balance Sheet Data."
Our year ended December 31, 1999 column includes data for the June 23, 1999
Molloy Group acquisition beginning on July 24, 1999 through the end of the year.
The pro forma amounts give effect to the acquisition as if it had occurred on
January 1, 1999.
<TABLE>
<CAPTION>
SERVICEWARE.COM, INC. MOLLOY GROUP, INC.
YEAR ENDED 7 MONTHS ENDED ACQUISITION
DECEMBER 31, 1999 JULY 23, 1999 ADJUSTMENTS PRO FORMA
--------------------- ------------------ ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES
Licenses and subscriptions.................. $ 13,311 $ 1,596 $ -- $ 14,907
Services.................................... 4,341 1,058 -- 5,399
-------- ------- ------- --------
Total revenues................................ 17,652 2,654 -- 20,306
COST OF REVENUES
Cost of licenses and subscriptions.......... 982 10 333(1) 1,325
Cost of services............................ 3,506 628 -- 4,134
-------- ------- ------- --------
Total cost of revenues........................ 4,488 638 333 5,459
-------- ------- ------- --------
GROSS MARGIN.................................. 13,164 2,016 (333) 14,847
OPERATING EXPENSES
Sales and marketing......................... 11,582 1,083 -- 12,665
Research and development.................... 6,849 870 -- 7,719
General and administrative.................. 2,418 1,212 -- 3,630
-------- ------- ------- --------
Intangible assets amortization.............. 2,204 -- 2,806(2) 5,010
Total operating expenses...................... 23,053 3,165 2,806 29,024
-------- ------- ------- --------
LOSS FROM OPERATIONS.......................... (9,889) (1,149) (3,139) (14,177)
Other income (expense), net................... (173) (180) 193(3) (160)
-------- ------- ------- --------
NET LOSS...................................... $(10,062) $(1,329) $(2,946) $(14,337)
Less preferred dividend amounts............... (95) -- -- (95)
-------- ------- ------- --------
Net loss applicable to common stock........... $(10,157) -- -- $(14,432)
======== ======= ======= ========
Net loss per common share, basic and
diluted..................................... $ (1.25) $ -- $ -- $ (1.54)
======== ======= ======= ========
Shares used in computing per share amounts.... 8,102 -- -- 9,370
======== ======= ======= ========
</TABLE>
- ---------------
(1) Represents amortization of $1.8 million in purchased technology associated
with the acquisition as if it had occurred on January 1, 1999. Amortization
is calculated using the straight line method over three years.
(2) Represents amortization of $14.8 million in intangible assets associated
with the acquisition as if it had occurred on January 1, 1999. Amortization
is calculated using the straight line method over two to four years.
(3) Represents interest expense that would not have been paid if the acquisition
occurred on January 1, 1999 due to the conversion of subordinated
convertible notes of various shareholders of the Molloy Group.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with our financial statements and
the related notes and other financial information included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including but not limited to those listed under "Risk Factors" and included in
other portions of this prospectus.
OVERVIEW
We were founded in 1991 as a provider of consulting services focused on
helping businesses better incorporate knowledge into their customer service and
support offerings. In March 1993, we pioneered the industry's first
technical-support knowledge bases, called Knowledge-Paks, containing answers and
solutions to commonly asked questions about the use of personal computers. In
June 1996, we combined all of our existing Knowledge-Paks into a single
knowledge content product called the Knowledge-Pak Desktop Suite. In August
1997, we began marketing the Knowledge-Pak Architect and the Knowledge-Pak
Viewer software applications for knowledge management, which enable companies to
modify our content products and develop their own knowledge bases for customer
service and support.
In July 1999, we acquired the Molloy Group in a stock transaction, which
resulted in the Molloy Group's stockholders acquiring approximately 24% of our
common stock. The Molloy Group's software products and technologies were
complementary to our own existing products. Additionally, the Molloy Group
provided us with experienced software developers and its patented Cognitive
Processor technology, which has become the foundation of our self-learning
solution. In December 1999, all of our existing software products and the
newly-acquired Molloy Group's Knowledge Bridge and Knowledge Kiosk software
products were integrated and offered to our customers as our eService Suite.
In the first quarter of 2000, we combined significant new content from
Microsoft, Apple, Novell and 3Com with our existing Knowledge-Pak Desktop Suite
and Knowledge-Pak SAP R/3 Suite to create RightAnswers.com, an Internet-based
knowledge portal which enables our customers to access a continuously updated
database of technology-related content.
We market and sell our products in North America through both our direct
sales force and indirectly through software vendors and value-added resellers.
Internationally, we market products primarily through value-added resellers,
software vendors and system integrators. International revenues historically
have not been a significant percentage of total revenues.
We derive our revenues from licenses and subscriptions for software and
content products and from providing related services, including installation and
training, consulting, customer support and maintenance contracts. Licenses and
subscriptions revenues include fees for both perpetual licenses and for periodic
subscription access. Services revenues contain variable fees for installation,
training and consulting, as well as fixed fees for customer support and
maintenance contracts. We recognize revenues on license fees after a
non-cancelable license agreement has been signed, the product has been
delivered, the fee is fixed, determinable and collectable, and there is
vendor-specific objective evidence to support the allocation of the total fee to
elements of a multiple-element arrangement. We recognize revenues on periodic
subscription licenses over the subscription term. We recognize revenues on
installation, training and consulting on a time-and-material basis, and customer
support and maintenance contracts are recognized over the life of the contract.
Cost of licenses and subscriptions revenues consists primarily of the
expenses related to royalties, the cost of media on which our product is
delivered, product fulfillment costs, amortization of purchased technology and
salaries, benefits, direct expenses and allocated overhead costs related to
product fulfillment and the costs associated with maintaining our
RightAnswers.com Web site. Cost of services revenues consists of the salaries,
benefits, direct expenses and allocated overhead costs of customer support and
23
<PAGE> 27
services personnel, fees for sub-contractors and the costs associated with
maintaining our customer support site.
We classify our operating costs into four general categories: sales and
marketing, research and development, general and administrative and intangible
assets amortization, based upon the nature of the costs. We allocate the total
costs for overhead and facilities, based upon headcount, to each of the
functional areas that use these services. These allocated charges include
general overhead items such as building rent, equipment-leasing costs,
telecommunications charges and depreciation expense. Sales and marketing
expenses consist primarily of employee compensation for direct sales and
marketing personnel, travel, public relations, sales and other promotional
materials, trade shows, advertising and other sales and marketing programs.
Research and development expenses consist primarily of expenses related to the
development and upgrade of our proprietary software, content and other
technologies. These expenses include employee compensation for software
developers, content developers and quality assurance personnel and for
third-party contract development costs. General and administrative expenses
consist primarily of compensation for personnel and fees for outside
professional advisors. Intangible assets amortization expense consists of the
amortization of intangible assets acquired through our acquisition of the Molloy
Group. These assets are amortized on a straight line basis over their respective
estimated useful lives.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES
Licenses and subscriptions................................ 95.5% 87.3% 75.4%
Services.................................................. 4.5 12.7 24.6
----- ----- -----
Total revenues.............................................. 100.0 100.0 100.0
COST OF REVENUES
Cost of licenses and subscriptions........................ 1.3 2.9 5.5
Cost of services.......................................... 5.2 8.2 19.9
----- ----- -----
Total cost of revenues...................................... 6.5 11.1 25.4
----- ----- -----
GROSS MARGIN................................................ 93.5 88.9 74.6
OPERATING EXPENSES
Sales and marketing....................................... 44.7 55.7 65.6
Research and development.................................. 45.4 41.0 38.8
General and administrative................................ 19.4 21.7 13.7
Intangible assets amortization............................ 0.0 0.0 12.5
----- ----- -----
Total operating expenses.................................... 109.5 118.4 130.6
----- ----- -----
LOSS FROM OPERATIONS........................................ (16.0) (29.4) (56.0)
Other income (expense), net................................. 0.4 (0.1) (1.0)
----- ----- -----
Net loss.................................................... (15.6)% (29.5)% (57.0)%
Preferred dividends......................................... (0.5) (1.0) (0.5)
----- ----- -----
Net loss applicable to common stock......................... (16.1)% (30.5)% (57.5)%
===== ===== =====
</TABLE>
24
<PAGE> 28
FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Revenues
Total revenues were $9.7 million, $12.9 million and $17.7 million in 1997,
1998 and 1999, representing increases of $3.2 million, or 33%, from 1997 to
1998, and $4.8 million, or 37%, from 1998 to 1999. Licenses and subscriptions
revenues increased from $9.2 million in 1997 by $2.1 million, or 23%, to $11.3
million in 1998, and by $2.0 million, or 18%, to $13.3 million in 1999. The
increase in licenses and subscriptions revenues from 1997 to 1999 was
attributable to an increased number of new customers and an increase in the
average contract size. Service revenues increased from $0.4 million in 1997 by
$1.2 million or 275% to $1.6 million in 1998, and by $2.7 million, or 165%, to
$4.3 million in 1999. The increase in services revenues from 1997 through 1999
is primarily attributable to an increased number of new customers and a
significant increase in the size of service contracts.
Cost of Revenues
Cost of revenues increased from $0.6 million in 1997 to $1.4 million in
1998 and to $4.5 million in 1999. Cost of revenues as a percentage of revenues
increased from 6% in 1997 to 11% in 1998 and to 25% in 1999. Cost of licenses
and subscriptions revenues increased from $0.12 million in 1997 to $0.37 million
in 1998 and to $0.98 million in 1999. Cost of licenses and subscriptions
revenues as a percentage of revenues increased from 1.3% in 1997 to 2.9% in 1998
to 5.6% in 1999. The increase in the cost of licenses and subscriptions revenues
was primarily attributable to the overall growth in the number of customers.
Cost of services revenues increased from $0.5 million in 1997 to $1.0 million in
1998 and to $3.5 million in 1999. Cost of services revenues as a percentage of
revenues increased from 5.2% in 1997 to 8.2% in 1998 to 19.9% in 1999. The
increase in the cost of service revenues was primarily attributable to an
increase in the size of service staff.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $4.3
million in 1997 to $7.2 million in 1998 and to $11.6 million in 1999. Sales and
marketing expenses as a percentage of revenues increased from 44.7% in 1997 to
55.7% in 1998 and to 65.6% in 1999. The increase from 1997 to 1999 and the
increase as a percentage of revenues resulted primarily from increases in
additional staffing and investments in sales and marketing activities.
Research and Development. Research and development expenses increased from
$4.4 million, or 45.4% of revenues, in 1997, to $5.3 million, or 41.0% of
revenues, in 1998, and increased to $6.8 million, or 38.8% of revenues, in 1999.
The increase in research and development expenses from 1997 to 1999 was
primarily attributable to the increase in the number of software developers
hired, and the decrease in research and development expenses as a percentage of
revenues was primarily attributable to the pace of revenue growth exceeding the
rate of growth in research and development expenses.
General and Administrative. General and administrative expenses increased
from $1.9 million in 1997 to $2.8 million in 1998 and decreased to $2.4 million
in 1999. As a percentage of revenues, general and administrative expenses were
19.4% in 1997, 21.7% in 1998, and 13.7% in 1999. The increase from 1997 to 1998
resulted primarily from the addition of finance, human resources and executive
and administrative personnel. The decrease from 1998 to 1999 was due to one time
costs related to financing activities in 1998.
Intangible Assets Amortization. Intangible assets amortization consists of
the consideration in excess of the fair value of assets acquired and liabilities
assumed in the acquisition of the Molloy Group in July 1999.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income received
from the investment of proceeds from our financing activities, offset by
interest expense and other fees related to our bank
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<PAGE> 29
borrowings. Other income (expense), net decreased from $40,125 in 1997 to
$(12,978) in 1998 and to $(173,213) in 1999. The decreases were a result of
interest paid on outstanding loans.
QUARTERLY OPERATING RESULTS
The following tables set forth our unaudited quarterly results of
operations data for our eight most recent quarters, as well as the percentage of
revenues represented by each item. You should read these tables along with our
consolidated financial statements and related notes. We have prepared this
unaudited information on the same basis as our audited financial statements, and
it includes all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1998 1998 1998 1998 1999 1999 1999 1999
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES
Licenses and subscriptions....... $ 2,239 $ 2,664 $3,102 $ 3,279 $ 2,733 $ 2,767 $ 3,137 $ 4,674
Services......................... 279 305 567 488 747 872 1,223 1,499
------- ------- ------ ------- ------- ------- ------- -------
Total revenues..................... 2,518 2,969 3,669 3,767 3,480 3,639 4,360 6,173
COST OF REVENUES
Cost of licenses and
subscriptions.................. 29 49 97 197 119 118 277 468
Cost of services................. 167 203 352 335 693 697 1,010 1,106
------- ------- ------ ------- ------- ------- ------- -------
Total cost of revenues............. 196 252 449 532 812 815 1,287 1,574
------- ------- ------ ------- ------- ------- ------- -------
GROSS MARGIN....................... 2,322 2,717 3,220 3,235 2,668 2,824 3,073 4,599
OPERATING EXPENSES
Sales and marketing.............. 1,526 1,833 1,733 2,106 2,513 2,846 3,271 2,952
Research and development......... 1,307 1,443 1,179 1,369 1,550 1,514 1,932 1,853
General and administrative....... 533 912 639 717 412 452 661 893
Intangible assets amortization... -- -- -- -- -- -- 943 1,261
------- ------- ------ ------- ------- ------- ------- -------
Total operating expenses........... 3,366 4,188 3,551 4,192 4,475 4,812 6,807 6,959
------- ------- ------ ------- ------- ------- ------- -------
LOSS FROM OPERATIONS............... (1,044) (1,471) (331) (957) (1,807) (1,988) (3,734) (2,360)
Other income (expense), net........ 16 20 (18) (31) (36) (68) (29) (40)
------- ------- ------ ------- ------- ------- ------- -------
Net loss........................... $(1,028) $(1,451) $ (349) $ (988) $(1,843) $(2,056) $(3,763) $(2,400)
Preferred dividends................ (16) (16) (46) (46) (47) (48) -- --
------- ------- ------ ------- ------- ------- ------- -------
Net loss applicable to common
stock............................ $(1,044) $(1,467) $ (395) $(1,034) $(1,890) $(2,104) $(3,763) $(2,400)
======= ======= ====== ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
-----------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1998 1998 1998 1998 1999 1999 1999 1999
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Licenses and subscriptions........ 88.9% 89.7% 84.5% 87.0% 78.5% 76.0% 71.9% 75.7%
Services.......................... 11.1 10.3 15.5 13.0 21.5 24.0 28.1 24.3
------- ------- ------ ------ ------- ------- ------- -------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
COST OF REVENUES
Cost of licenses and
subscriptions................... 1.2 1.7 2.6 5.2 3.4 3.2 6.3 7.6
Cost of services.................. 6.6 6.8 9.6 8.9 19.9 19.2 23.2 17.9
------- ------- ------ ------ ------- ------- ------- -------
Total cost of revenues.............. 7.8 8.5 12.2 14.1 23.3 22.4 29.5 25.5
------- ------- ------ ------ ------- ------- ------- -------
GROSS MARGIN........................ 92.2 91.5 87.8 85.9 76.7 77.6 70.5 74.5
OPERATING EXPENSES
Sales and marketing............... 60.6 61.8 47.3 55.9 72.3 78.2 75.0 47.9
Research and development.......... 51.9 48.6 32.1 36.4 44.5 41.6 44.3 30.0
General and administrative........ 21.2 30.7 17.4 19.0 11.8 12.4 15.2 14.4
Intangible assets amortization.... 0.0 0.0 0.0 0.0 0.0 0.0 21.6 20.4
------- ------- ------ ------ ------- ------- ------- -------
Total operating expenses............ 133.7 141.1 96.8 111.3 128.6 132.2 156.1 112.7
------- ------- ------ ------ ------- ------- ------- -------
LOSS FROM OPERATIONS................ (41.5) (49.6) (9.0) (25.4) (51.9) (54.6) (85.6) (38.2)
Other income (expense), net......... 0.5 0.7 (0.5) (0.8) (1.0) (1.9) (0.7) (0.7)
------- ------- ------ ------ ------- ------- ------- -------
Net loss............................ (40.8)% (48.9)% (9.5)% (26.2)% (53.0)% (56.5)% (86.3)% (38.9)%
Preferred dividends................. (0.7) (0.5) (1.3) (1.2) (1.3) (1.3) -- --
------- ------- ------ ------ ------- ------- ------- -------
Net loss applicable to common
stock............................. (41.5)% (49.4)% (10.8)% (27.4)% (54.3)% (57.8)% (86.3)% (39.9)%
======= ======= ====== ====== ======= ======= ======= =======
</TABLE>
The increase in comparable quarterly licenses and subscriptions revenues
for the 1998 and 1999 fiscal years primarily resulted from the growth in the
number of customers and increases in the average contract size. The quarterly
increases in revenues within each fiscal year are the result of the timing of
installations and the results of sales promotions rather than an underlying
seasonality. The increases in services revenues are the result of the increasing
size of services engagements and increase in revenue from maintenance contracts.
The increases in cost of revenues between comparable quarters are primarily
the result of increases in the size of the service staff.
The increases in operating costs over the periods presented primarily
resulted from the growth in the size of the operating departments. The costs of
intangible assets amortization reflect the amortization of the assets acquired
in the acquisition of the Molloy Group.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied our cash requirements primarily through
private placements of convertible preferred stock and common stock. As of
December 31, 1999, we had $6.6 million in cash and cash equivalents. We believe
that the cash proceeds from this offering, together with our existing cash
balances, will be sufficient to meet anticipated cash requirements for at least
the 12 months following the date of this prospectus. We may, nonetheless, seek
additional financing to support our activities during the next twelve months or
thereafter. There can be no assurance, however, that additional capital will be
available to us on reasonable terms, if at all, when needed or desired.
Net cash used in operating activities was $1.4 million for 1998 and $3.1
million for 1999. Cash used in operating activities for 1998 and 1999 resulted
primarily from the net losses in those periods.
Net cash used in investing activities of $1.1 million for 1998 and $1.5
million for 1999 was primarily attributable to property and equipment
acquisitions.
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<PAGE> 31
Net cash provided by financing activities was $1.5 million for 1998 and
primarily consisted of proceeds from borrowings under our revolving line of
credit and equipment loan. Net cash provided by financing activities was $10.4
million for 1999 and primarily consisted of net proceeds from the issuance of
Series D preferred stock and our term loan.
We have a secured credit facility with PNC bank. This facility consists of
three sub-facilities: a revolving credit loan facility, a convertible equipment
loan and a term loan.
The revolving credit facility provides for $7.5 million of availability
less the principal outstanding on the term loan and matures on December 10,
2001. Any amounts drawn under this facility bear interest at the Base Rate plus
0.50%. "Base Rate" is defined as the lesser of the bank's prime rate or the
Federal Funds Effective Rate plus 2%. The availability of credit is based on a
percentage of eligible accounts receivable. At December 31, 1999, $1.5 million
was available for use and $1.25 million was outstanding on the revolving credit
facility.
The convertible equipment loan is for $0.75 million. On June 8, 2000,
outstanding amounts under this loan will be converted to a single term loan
which matures on June 1, 2003. Any amounts drawn under this facility bear
interest at the Base Rate plus 0.75%. The availability of advances on this line
is based on a percentage of invoice amounts for equipment acquisitions. At
December 31, 1999, nothing had been drawn within the year, and $0.5 million was
outstanding on the equipment loan from the previous equipment line. Principal
repayments of this loan are required to be made upon conversion of the loan into
the term loan in 36 equal installments beginning July 1, 2000.
The term loan is for $2.5 million and is due in two equal installments on
June 10, 2001 and December 10, 2001. However, upon the completion of this
offering, the term loan must be repaid. Any amounts drawn under this facility
bear interest at the Base Rate plus 2.25%. No amounts were outstanding under the
term loan on December 10, 1999. At December 31, 1999, $2.5 million was
outstanding on the term loan.
In addition, as part of the consideration for this credit facility, we
issued to PNC Bank warrants to purchase 120,000 shares of our common stock.
These warrants need not be exercised at the offering and are entitled to certain
registration rights. We also issued to PNC Bank warrants to purchase 10,221
shares of our common stock as part of the consideration for a bridge loan in the
amount of $0.75 million which was repaid with the proceeds from the sale of our
Series D convertible preferred stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop our products in the United States. We sell our products
globally, through our direct sales force and independent distributors. As a
result, our financial results are affected by factors such as changes in foreign
currency exchange rates and weak economic conditions in foreign markets. In the
future, we expect to increase our international operations in our existing
markets and in geographic locations where we do not currently have any
operations.
We collect a portion of our revenue and pay a portion of our operating
expenses in foreign currencies. As a result, changes in currency exchange rates
from time to time may affect our operating results. Currently, we do not engage
in hedging transactions to reduce our exposure to changes in currency exchange
rates, although we may do so in the future. We cannot assure you, however, that
any efforts we may make in the future to hedge our exposure to currency exchange
rate changes will be successful.
YEAR 2000 ISSUES
We are unaware of any problems that have arisen with respect to year 2000
issues in our current software products, our internal computer systems or in the
computer systems of our vendors. Prior to January 1, 2000, we conducted a review
of the potential impact that the change in the date to the year 2000 would have
on our current products and computer systems. Based on this review, we
determined that all of our current products and major computer systems are able
to recognize and appropriately process dates commencing in the year 2000. Our
historical costs to assess our year 2000 readiness have not been
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<PAGE> 32
significant. Given the lack of any problems related to the year 2000 since the
year change, we do not anticipate that we will experience any material problems
related to the year 2000 in the future. As a result, we do not expect costs
associated with these problems to have a material adverse effect on our business
and financial results.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. The adoption
of this pronouncement for fiscal year 2000 is not expected to materially affect
our revenue recognition policies.
In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation and disclosure of revenues in
financial statements. We believe our revenue recognition practices are in
conformity with SAB No. 101.
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<PAGE> 33
BUSINESS
OVERVIEW
We are a leading provider of software and content solutions that businesses
use to provide an Internet-based e-service platform to their customers,
partners, suppliers and employees. We develop and market a comprehensive service
solution to meet the needs of these end-users who, together, form an extended
enterprise. Our eService Suite includes licensed and subscription-based software
and content products that enable businesses to capture enterprise knowledge,
solve their end-users' problems, reuse solutions and share captured knowledge
through the Internet. Additionally, our patented Cognitive Processor contained
in the eService Suite continually learns at each request, keeping knowledge
up-to-date and accurate and providing end-users with relevant and useful answers
to their questions.
Our eService Suite includes software and content products which enable our
customers to develop and manage a knowledge base of service-related information.
Our solutions also permit the dissemination of knowledge through multiple
communication channels, such as telephone support, e-mail, chat and Web-based
self-service. Additionally, our Internet-based knowledge portal,
RightAnswers.com, enables our customers to access a continuously updated
knowledge base of content obtained from leading technology companies, including
Microsoft, Apple, Novell and 3Com, as well as our internally produced knowledge
content. We also offer integration, training and consulting services that enable
our customers to realize the benefits of our eService Suite. Our customers
include Andersen Consulting, Clarify, Compaq, Hewlett-Packard, Marconi
Communications, Merrill Lynch, Pfizer and Texas Instruments.
INDUSTRY BACKGROUND
Evolution of e-Commerce and Impact on Customer Service
The rapid growth in the number of users on the Internet has forced
companies and other organizations to adjust to new ways of conducting business
both online and offline. International Data Corporation projects that the number
of Internet users worldwide will grow from 196 million in 1999 to 502 million in
2003. With this growth, e-commerce has rapidly evolved from businesses
delivering predominantly static information about products and services to
online commerce sites that provide transactional capabilities linking businesses
to their customers. Today, e-commerce and traditional commerce are further
evolving to link, via the Internet, all entities involved in producing,
marketing, selling and servicing products.
This evolution in e-commerce and traditional commerce has resulted in a
growing need for improved service for end-users. The increased speed of online
transactions in conjunction with the always-on nature of the Internet has
resulted in end-users requiring information and service instantaneously on a
twenty-four hours a day, seven days a week basis. The market for supplying
products and services to businesses which allow them to provide online
self-service alone is estimated by IDC to grow from $3 billion in 1999 to over
$14 billion in 2003. Additionally, the increasingly complex nature of products
and services has resulted in a tremendous increase in the volume of information
which needs to be accessed by end-users.
The e-Service Multiplier Effect
Another important factor driving the growing need for effective online
service is that e-commerce results in an e-service multiplier effect. This means
that a single e-commerce transaction can generate multiple e-service
interactions. These e-service interactions are not limited to the resolution of
post-transaction problems, but in fact occur before, during and after an
e-commerce transaction has been completed. According to Forrester Research, for
example, in the business-to-consumer market, 19% of Internet purchasers need
assistance during the shopping experience, 58% check on order status and 19%
have questions immediately upon the receipt of shipped goods. Therefore, the
ability to provide efficient, accurate e-service is becoming a vital part of the
entire online and offline transaction experience.
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As a result of the e-service multiplier effect, superior e-service is
increasingly the key to competitive differentiation for enterprises that
formerly used price and selection as a means to attract and retain customers.
Competition is increasingly driven by customer demand for prompt, accurate and
personalized resolution of inquiries and problems. By successfully responding to
these demands, companies are able to develop closer contacts and create
long-term satisfaction and loyalty among their customers, partners, suppliers
and employees. In turn, companies have the opportunity to increase their
profitability per customer and reduce the need for continuous, substantial
expenditures on marketing and other intensive customer acquisition and retention
efforts.
Existing Service Solutions are Inadequate
Despite the urgent need for comprehensive service solutions, current
service offerings have not kept pace with the rapid evolution of e-commerce and
traditional commerce. These solutions fail to meet the expectations and demands
of the extended enterprise. Traditional service solutions, such as call centers
and help desks, are neither scalable nor cost-effective because of
labor-intensive and time-consuming customer interactions and the high turnover
rates of service professionals. Despite attempts to streamline certain segments
of the service continuum, companies have been unable to eliminate the
inefficiencies of these solutions. Additionally, alternatives to telephone
support, such as online chat or automated e-mail response applications, have
been used to augment existing service solutions. However, these applications
have proven insufficient to answer questions or solve problems in a way that
fully satisfies the service needs of the extended enterprise.
In addition, current customer service software applications, which are used
to provide information to call centers and help desks, are rarely customized or
personalized to a company's preferences. This results, among other problems, in
lengthy service cycles for even the simplest service inquiries. These problems
are particularly acute for online businesses. For example, a Jupiter
Communications survey discovered that approximately 50% of the Web sites
surveyed took five or more days to respond, never responded or failed to post an
e-mail address on their Web site to address customer service e-mail requests.
Further, the inability of customer service systems to transfer information
across existing service solutions often results in end-users having to describe
their problem at each stage of the service process as they switch from one
communication channel to another or escalate to increasing levels of assisted
service. Increased call center volumes often overwhelm call centers and lead to
inaccurate and delayed responses. Therefore, the optional e-service solution
must provide intelligent self-service and must support the agents who provide
assisted service to end-users.
Requirements of a Comprehensive e-Service Solution
The increasing dissatisfaction with current customer service and the
heightened expectations resulting from the growth of the Internet requires a
solution which includes intelligent application software and content. In order
to enable businesses to provide superior e-service, a comprehensive solution
needs to:
- provide the option for a personalized self-service experience;
- provide the end-user with the ability to escalate to assisted service and
seamlessly transfer information across all communication channels,
including e-mail, telephone, fax or chat, at any stage of interaction;
- consolidate the knowledge base and intellectual capital throughout the
organization and make it available throughout the extended enterprise;
- learn through cumulative customer feedback and rapidly develop solutions
to allow the enterprise to provide proactive service to its end-users;
- offer the flexibility necessary to integrate with existing solutions and
enable enterprises to rapidly deploy the technology; and
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- scale cost-effectively as the organization's service needs grow.
An effective solution will enable anyone in the extended enterprise to
address any question from any source via any communication channel at any time.
THE SERVICEWARE SOLUTION
We are a leading provider of e-service solutions that enterprises use to
strengthen relationships with their customers, partners, suppliers and
employees. We license software and content products to enterprises that form the
basis of their e-service solutions. Our solutions enable businesses to capture
enterprise knowledge, solve customer problems, reuse solutions and share
captured knowledge throughout the extended enterprise. Our solutions also enable
the extended enterprise to access this knowledge online. In addition, through
the self-learning features of our patented Cognitive Processor, the solutions
generated by our products are intelligent in that they are interactive,
adaptable and have the capability automatically to update themselves. Customers
can use our software and content products separately or as an integrated
solution to reduce the cost and improve the quality of their customer service.
We believe our solutions provide our customers with a number of key benefits,
including:
Strengthened Relationships with their End-Users. Our solutions allow
enterprises to provide their customers and other end-users with improved, timely
and accurate service. Enterprises realize that the service function provides
them with their closest contact with their customers, and, by providing superior
self or assisted service, they can create long-term customer satisfaction and
loyalty. By providing better and more user-friendly service, our solutions
increase the likelihood that a business' customers will complete specific
transactions and that the enterprise will be able to attract and retain its
customers.
Decreased Operating Costs. By enabling end-users to access customer
service online and by aiding customers service agents to more effectively handle
user requests, our solutions often provide cost savings and improve employee
productivity. For example, IDC states that the cost of providing live telephone
support is $30 to $50 per call as compared to only $0.45 for providing Internet
self-service. These savings and increased productivity are a result of reduced
telephone call volume, the ability to process more end-user interactions per
employee and reduced levels of employee training.
Improved Dissemination of Enterprise Knowledge. Our eService Suite enables
our customers to develop a common knowledge base of intellectual capital, which
is collected from their business systems and experts throughout their
organization, and makes it available throughout the extended enterprise. All
communications from a business to its customers, partners, suppliers or
employees, whether through telephone support, self-service, e-mail or chat, draw
from this knowledge base. Additionally, the patented Cognitive Processor
contained in our eService Suite provides a self-learning capability that
continually learns at each request, which keeps responses up to date and
accurate and provides end-users with relevant and useful answers to their
questions.
Seamless Integration with Existing Solutions. Our products are designed
for rapid deployment, typically in eight to 12 weeks, and some of our customers
have implemented our solutions in as little as three weeks. Our software helps
our customers to preserve their investments in, and deployments of, call center
and help desk products, workflow tools, knowledge bases and other applications.
Our solution enhances these capabilities and integrates them into a cohesive and
automated Internet service infrastructure by integrating with applications from
leading companies such as Clarify, Kana Communications, Oracle, Peregrine
Systems, Remedy and Siebel Systems. As a result, this enables our customers to
deploy best of breed applications configured to suit their particular e-service
needs.
Access to Our Existing Knowledge Base. We provide our customers with
immediate and user-friendly access to RightAnswers.com, our Internet-based
knowledge portal. Through natural language queries, all end-users can access and
draw from our extensive and continuously growing knowledge base of technology-
focused information. By accessing this knowledge base, an enterprise can
cost-effectively and efficiently acquire the technical expertise necessary to
resolve frequently asked inquiries.
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Consistent Service Across Communication Channels. Our solution allows
access to knowledge from a wide variety of communication channels. Our
proprietary software enables end-users to transfer inquiries easily from
self-help to e-mail responses to live interaction. Escalation of customer
inquiries helps ensure that our customers efficiently apply the appropriate
level of resources toward their customers' satisfaction while reducing the risk
of losing a customer because of perceived unresponsiveness.
Scalability for Large and Growing Enterprises. The architecture of the
eService Suite allows both large and growing organizations to maintain a
consistent level of service as the volume of traffic across their communication
channels increases. By adding additional servers, providing replication features
between servers and capitalizing on the capabilities of our Java-based
architecture, our products provide consistent responsiveness to end-user
interactions despite rising volumes of traffic.
STRATEGY
Our solutions enable enterprises to provide an Internet-based e-service
platform for their customers, partners, suppliers and employees to access and
manage business critical knowledge. Our objective is to leverage this platform
to become the leading worldwide provider of e-service solutions. To achieve our
goal, we intend to:
Enhance Technology and Product Leadership.
We intend to broaden our leadership position in the e-service solutions
market by continuing to increase the depth of content, performance,
functionality and scalability of RightAnswers.com and our eService Suite. We
plan to continue to design our products to be highly scalable throughout the
extended enterprise, easily configurable and able to integrate with both
front-end best of breed applications and existing enterprise systems. We plan to
continue to devote substantial resources to the development of new and
innovative technologies, including our patented Cognitive Processor, to increase
efficiencies, offer real time answers and minimize service response time. We
will expand the current eService Suite offering to incorporate advances in
wireless and handheld technology for mobile users which will allow us to add
value to existing customer implementations, leverage the capabilities of the
technologies we deploy and extend our reach within the enterprise.
Broaden Content Solutions to New Vertical Markets.
We intend to broaden the reach of our content offerings into new vertical
markets. Our customers currently use our knowledge content to access
technology-focused information. Our alliances with leading technology content
providers have provided us with a deep knowledge of end-user service demands as
well as industry knowledge. Initially, we plan to extend our content to include
other vertical markets with similar characteristics to technology-related
industries, including financial services, health care, entertainment,
telecommunications and industrial products. These industries market and sell
complex products and require strong customer service or support. We intend to
enter these new vertical markets by developing alliance relationships with
existing customers and other content providers in those vertical markets.
Expand Internet-Based Delivery Model.
We have recently introduced RightAnswers.com, our Internet-based knowledge
portal. We also plan to expand our software offerings to businesses by deploying
a hosted Web-based delivery model for our eService Suite. By offering a
traditional license model and a new Web-based subscription model, our customers
will have the flexibility to choose how to roll out our products and determine
their preferences in terms of price, speed of implementation, depth and
customization of knowledge base and complexity of the user interface. This will
minimize our customers' upfront investment in hardware, software, content and
services. To facilitate this Web-based delivery model, we are planning to
partner with leading application service providers to host our eService Suite.
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Continue to Build Brand Awareness.
To enhance public awareness of our e-service offerings, we are pursuing an
aggressive brand development strategy by increasing mass market and targeted
advertising, continuing visible presence at industry/partner events, and
maintaining relationships with recognized industry analysts and the public. We
believe that our marketing programs will highlight the advantages of our
eService Suite relative to our competitors. We also believe that enhancing our
brand will increase opportunities with corporate customers.
Expand Strategic Alliances.
In order to broaden our market presence, enter new geographic and vertical
markets, and increase adoption of our solutions, we plan to strengthen existing
and pursue additional strategic alliances. Our strategic alliances are with
consultants, systems integrators, value-added resellers and independent software
vendors of complementary products. We intend to use these partners to increase
our sales by leveraging our partners' industry expertise, business relationships
and sales and marketing resources. Currently, we have strategic alliances with
Clarify, Kana Communications, Oracle, Peregrine Systems, Remedy, Siebel Systems
and Tivoli. Additionally, we plan to increase our service capabilities by
pursuing strategic relationships with leading systems integrators and
consultants.
Expand International Presence.
To expand our sales to both new and existing customers, we intend to
increase our worldwide sales effort by adding direct sales personnel and new
office locations to complement our existing international operations in the
United Kingdom. In addition, to capitalize on international opportunities for
our knowledge service solutions, we intend to commence product localization
efforts, initially concentrating on Europe and then later expanding to other
international markets. Furthermore, we will expand our international presence by
establishing additional overseas offices, adding direct sales personnel and
increasing our relationships with local distributors.
PRODUCTS AND SERVICES
Our eService Suite is a software and content solution allowing our
customers to provide personalized, automated e-service tailored to the needs of
their end-users. Our eService Suite includes our eService Site, eService
Architect and eService Professional software products and RightAnswers.com. In
addition to our products, we offer integration, training, consulting and
maintenance services related to our eService Suite. Customers usually purchase
our entire suite of products along with various services. Additionally,
RightAnswers.com is frequently licensed as an independent content product. The
following diagram depicts the eService Suite:
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[Flow Chart depicting the components of our products and services and the manner
in which they are accessed by end-users]
eService Site. The eService Site allows our customers to provide Web-based
self-service to their end-users. End-users can access the eService Site through
an Internet or corporate intranet connection. This Web-based e-service solution
allows self-help users to access the knowledge base at any time, using a simple,
easy-to-use, intuitive interface via a natural language query. The eService Site
can be customized to conform to the look and feel of a customer's Web site.
Finally, eService Site provides access to our customers' knowledge sources, as
well as those of RightAnswers.com.
eService Professional. The eService Professional provides a Web-based
application interface for customer service professionals to more easily navigate
through the knowledge base, view various components of the knowledge base as
well as capture and revise additional knowledge. eService Professional
integrates with many of our partners' customer relationship applications to
provide a seamless interface for a customer service professional.
eService Architect. The eService Architect provides a robust set of
knowledge tools that allows customers' subject matter experts and system
administrators to administer, design, manage and maintain knowledge bases. The
eService Architect provides knowledge authoring and editing capabilities as well
as administrative tools for all necessary product suite functions.
RightAnswers.com. RightAnswers.com is an Internet-based knowledge portal
that enables our customers to access a continuously updated database of
currently over 350,000 problem-solution pairs in a cost effective and timely
manner. RightAnswers.com enables customer support organizations and end-users
to have direct access to solutions to the most commonly asked technology-related
questions. Through RightAnswers.com, customers can simply go to our Web site,
type a natural language query and receive
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back a single, unified list of probable answers from our licensed knowledge
bases. We currently offer multi-vendor support content obtained from leading
technology companies, including Microsoft, Apple, Novell and 3Com. In addition
to the technology content supplied by our partners, RightAnswers.com includes
technology content that we produce in-house for common desktop, network and SAP
R/3 applications. RightAnswers.com is primarily distributed on a subscription
basis. A CD-ROM version of this product, previously marketed as Knowledge-Pak
Desktop Suite, is also available.
Professional Services and Customer Support. Our professional services
organization provides our customers with implementation and integration services
which allows them to deploy our e-service solutions effectively. In addition,
our professional services organization offers education and training to enable
our customers' internal team to support the implementation and maintenance of
our solutions. All customers under a maintenance agreement have access to our
technical support engineers via telephone, fax or e-mail. In addition, we
provide self-service support to our customers on a twenty-four hours a day,
seven days a week basis through our RightAnswers.com Web site.
TECHNOLOGY AND ARCHITECTURE
Our eService Suite employs industry-standard technologies to create an
object-based open architecture for all our applications. The suite is based on
an n-tiered architecture which permits the use of multiple servers for
scalability and a clear division of responsibility between our software
programs. This division provides flexibility and scalability.
At the core of our technology is our Cognitive Processor, which provides
self-learning capability to our eService Suite. The Cognitive Processor uses
patented algorithm technology based on neural network and Bayesian statistical
principles. Through these algorithms, the Cognitive Processor is capable of
learning from past transactions. Access to the Cognitive Processor is provided
via our knowledge server, which performs the role of an application server. The
knowledge server, written in the C++ programming language, performs session
management, thread management, spooling, caching and access management to the
Cognitive Processor. The replication capability of the server was designed to
update multiple databases worldwide on a distributed network by using any
leading database application. This permits our customers to locate servers in
various locations close to their end-user base.
We refer to the architecture of our family of Web-based products as Java
Knowledge Management Architecture, or JKMA. The JKMA is a framework built using
Java and XML that includes components specifically designed to take advantage of
each element of the modern Web environment. This enables an extremely
configurable, extensible application to be delivered based on current Internet
standards. New tools and products based on the JKMA framework can be built at an
accelerated pace as standard system functionality is already available in the
core framework.
The core technology for RightAnswers.com is based on industry standard
commercial software. All servers are based on Microsoft Windows NT and Microsoft
Internet Information Server. Server components are written in C++. Client
interfaces are implemented with HTML, Java and XML. The core search engine is
Verity's K2 architecture. RightAnswers.com is hosted by GTB Internetworking who
provides tier 1 Internet services including load balancing, security,
communications and hardware services.
CUSTOMERS
To date, we have licensed our eService Suite to over 200 customers and
licensed our Knowledge-Pak Desktop Suite to over 4,000 customers. We have
traditionally targeted our products and services to a wide range of industry
groups.
The following is a representative list of our customers and the industries
which they serve.
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<TABLE>
<S> <C>
SERVICES CONSUMER
ADP Kimberly Clark
Andersen Consulting The Disney Store
DecisionOne Yamaha Corporation of America
Fourth Shift
Marriott TECHNOLOGY/COMMUNICATIONS
Stream International Canon
CDW
FINANCIAL SERVICES Clarify Direct
Bear Stearns Compaq
First Union National Bank Data General
Fleet Services Hewlett-Packard
Merrill Lynch Ingram Micro
Transamerica Occidental Life Insurance Jamcracker
Lucent Technologies
EDUCATION/GOVERNMENT Marconi Communications
Gelco Government Services National Computer Systems
U.S. Air Force Sharp Electronics
U.S. Navy Texas Instruments
U.S. Patent & Trademark Office United Messaging
University of Utah U.S. Cellular Wireless Communications
Wake Forest University
INDUSTRIAL
HEALTH CARE Eaton Cutler-Hammer
Allina Health Systems Grumman Systems Support
Amgen Hughes Supply
Hoechst HiServ Johnson Controls
McKesson -- HBOC
Pfizer
</TABLE>
The following case studies illustrate the issues encountered by our
customers in providing e-service and the benefits achieved through utilization
of our products and services.
Stream International
Stream International provides customer care and technical support services
for many of the world's premier technology businesses. With over 7,000
employees, innovative technologies and the commitment to continuously exceed the
expectations of its clients, Stream has a global reputation for enhancing the
customer experience. On a twenty-four hours a day, seven days a week basis and
in 13 languages, Stream harnesses its knowledge resources to resolve over 20
million customer and technical issues annually in its eleven contact center
locations in the United States, Europe and a joint venture in Japan.
To manage these complex inquiries and improve responsiveness to customers,
Stream wanted to put a knowledge management infrastructure in place that would
leverage best practices throughout the organization. Using our solutions, Stream
can now gather, document and refine knowledge, and make that knowledge available
through several mechanisms to internal employees. Stream selected our solution
for its technically advanced knowledge engine, its ability to be integrated with
other information technology systems and our expertise in the knowledge
industry. For Stream's agents using Knowledge Bridge to support their clients,
information that is captured from a customer interaction, whether via telephone,
email or chat, is channeled by Knowledge Bridge into Stream's knowledge base.
Additionally, this knowledge is exported and made available as a self-service
option to Stream's customers via the Web. After installing Knowledge Bridge,
Stream became more effective in their ability to solve and report customer
problems. Support agents have decreased call escalations and improved the
consistency and quality of answers.
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Marconi Communications
Marconi Communications is one of the world's fastest growing communications
and information technology companies. Before becoming Marconi Communications on
November 30, 1999, the company was known as GEC (The General Electric Company,
p.l.c.). Today, the company is comprised of a wide range of organizations,
including companies recently purchased by Marconi Communications such as Fore
Systems, RELTEC, Picker Medical, Positron Fibre and others. It is a
global-leader in smart broadband optical networks, ATM backbone switches,
telephony products, wireless products, medical imaging and more.
A team of internal analysts and a worldwide network of field-service
personnel provide customer service, installation and trouble-shooting for
Marconi's constantly expanding product line. In a two-pronged effort to provide
consistent and high quality information while reducing the training necessary to
prepare analysts and field personnel, Marconi turned to us for the foundation of
a consolidated online knowledge management system and self-service Web site. As
the program continues to roll out across Marconi's worldwide enterprise, it will
be integrated with the Remedy call management software and an email management
package.
With its internal analysts fully trained in the use of our knowledge
management software, expert knowledge is now available to even the most junior
analyst. Marconi is already experiencing a 25 percent reduction in the time it
takes to train new hires and anticipates this reduction to reach 40 percent
improvement as the program is deployed to its worldwide field-service network.
Marconi anticipates a soon-to-be-launched, Web-based self-help feature will
further reduce incoming calls to the Marconi help desk, and provide improved
time-to-resolution for the company's customer base.
Yamaha Corporation of America
With an inventory that includes a wide range of music-making devices, from
pianos and synthesizers to electric guitars, sound equipment and CD recorders,
the Product Information Department at Yamaha Corporation of America supports
over 1,700 products, including newly-added new lines to its U.S. product
offerings and all products carrying the Yamaha name, even if they have been
discontinued. With the interactive Yamaha Solutions Network(TM) located on the
Service & Support section of its Web site, Yamaha has made its knowledge
directly available to its customers via the Web and, in the process, improved
customer satisfaction.
Based upon our eService Suite, the Yamaha Solutions Network features a
constantly evolving knowledge base that provides the answers that customers need
when they need them. Since its deployment, Yamaha has experienced a decrease in
its time-to-resolution as well as in the number of calls to Yamaha's support
center, while improving customer satisfaction significantly. In addition,
because the product information is categorized and managed by our software,
Yamaha has been able to partially outsource the support related to one of its
new high-tech products. Yamaha has recently been awarded the prestigious WebStar
award by the Software Support Professionals Association, which recognizes
companies that utilize the Web to excel at meeting their customer service
expectations.
SALES AND MARKETING
We market our solutions through a direct sales force and indirect sales
channels. We sell our eService Suite primarily through our direct sales force.
The CD-ROM version of RightAnswers.com, which was previously marketed as
Knowledge-Pak Desktop Suite, is sold primarily through indirect distribution
channels consisting of software vendors and value-added resellers. The online
version of RightAnswers.com is being sold both directly and through software
vendors and value-added resellers.
As of February 29, 2000, our sales team consisted of 32 sales
representatives and managers. We have sales personnel throughout North America
and, internationally, in the United Kingdom.
To increase the effectiveness of our direct selling efforts and our
penetration of the e-service market, we build brand awareness of ServiceWare.com
and our solutions through numerous marketing programs.
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These programs include print and Internet advertisements, direct mailings,
public relationship activities, trade shows, seminars and other major
industry/partner events, market research and our Web site.
Our marketing organization creates materials to support the sales process,
including brochures, data sheets, case histories, return-on-investment analyses,
presentations, white papers and demonstrations. In addition, our marketing group
helps identify and develop key partnership opportunities and channel
distribution relationships. As of February 29, 2000, our marketing team
consisted of 12 full-time employees. In May 2000, we plan to initiate a major
marketing program to promote the new release of our eService Suite, as well as
significantly increase our brand recognition.
STRATEGIC ALLIANCES
We have established strategic alliances with leading providers of Internet
software technologies. These alliances augment our sales and marketing
organization by enabling us to increase both market awareness, distribution and
market penetration of our products and services, as well as to extend the
technical and functional application of our e-service solutions.
Distribution Alliances
We have established distribution alliances with leading providers of
complementary e-commerce technologies who resell or co-market our solutions. We
benefit from the lead generation and established marketing capabilities of these
firms. In turn, our partners benefit from being able to offer a more
comprehensive solution in their product offerings and thereby increase their
customers' satisfaction. We currently have strategic distribution and marketing
alliances with several vendors, including Clarify, Kana Communications, Oracle,
Peregrine Systems, Remedy, Siebel Systems and Tivoli. In 1999, sales to Tivoli
accounted for 17% of our total revenue.
Content Alliances
We have established content alliances with leading technology vendors. Our
relationships with these content providers help us offer customers a diverse
range of technical information and problem-solving techniques. We currently have
content partnerships with Microsoft, Apple, Novell and 3Com.
RESEARCH AND DEVELOPMENT
We develop most enhancements to our existing and new products internally.
We plan to continue to evaluate externally developed technologies for
integration into our product line as well. In 1999, we directed the majority of
our research and development expenditure towards fully integrating the
technology acquired from the Molloy Group and towards making platform changes
that provided us with the capability of building new applications and expanding
into new markets.
Our research and development expenditures for fiscal 1997, 1998 and 1999
were approximately $4.4 million, $5.3 million and $6.8 million. In order to keep
pace with the rapidly changing technology environment, we expect to continue to
devote significant resources toward research and development.
COMPETITION
We compete in the emerging market of e-service. Competition in this market
is rapidly evolving and intense, and we expect competition to intensify further
in the future as current competitors expand their product offerings and new
competitors enter the market. Current competitors include in-house developed
applications and providers of commercially available e-service solutions,
including Ask Jeeves, Inference (which recently announced its acquisition by
eGain Communications), Peregrine Systems, Primus Knowledge Solutions, Quintus
and Servicesoft Technologies. In addition, we face competition in our content
product solutions from firms such as EarthWeb. We also face competition from
many free or low cost sources of information generally available via the
Internet, including portions of our content products provided to us by software
developers, who may choose to provide this content as part of their Internet-
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based support offerings. As there are relatively low barriers to entry in the
software industry, we expect to experience additional competition from new
entrants in our markets.
We believe that the principal competitive factors affecting our market
include referenceable customers, the breadth and depth of a given solution,
product quality and performance, core technology, product scalability and
reliability, product features and the ability to implement solutions and respond
timely to customer needs.
Although we believe that we currently compete favorably with respect to the
principal competitive factors in our market, we may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources. It is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. We also
expect that competition will increase as a result of industry consolidations.
INTELLECTUAL PROPERTY
Our success and ability to compete effectively depends, in part, upon our
proprietary rights. We rely on a combination of patent, copyright, trade secret
and trademark laws, confidentiality procedures and contractual provisions to
establish and protect our proprietary rights in our software, documentation and
other written materials. These legal protections afford only limited protections
for our proprietary rights and may not prevent misappropriation of our
technology or deter third parties from developing similar or competing
technologies.
We have two patents, one pertaining to certain proprietary data structures
and the other pertaining to our Cognitive Processor. We also have one trademark
registration and one pending trademark application in the United States.
We seek to avoid disclosure of our intellectual property by generally
entering into confidentiality or license agreements with our employees,
consultants and alliance partners, and generally control access to, and
distribution of, our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology or to
develop products with the same functionality as our products.
Policing unauthorized use of our proprietary information is difficult, and
we may be unable to determine the extent of unauthorized copying or use of our
products or technology. Further, third parties which have been granted certain
limited contractual rights to use proprietary information may improperly use or
disclose such proprietary information. In addition, certain of our products
require us to have licenses from third parties for use. These licenses may be
subject to cancellation or non-renewal. In this event, we will be required to
obtain new licenses for use of these products, which may not be available on
commercially reasonable terms, if at all, and could result in product shipment
delays and unanticipated product development costs.
EMPLOYEES
We believe that one of our strengths is the quality and dedication of our
people and the shared sense of being part of a team. We strive to maintain a
work environment that fosters professionalism, excellence, diversity and
cooperation among our employees. As of February 29, 2000, we had 209 employees.
PROPERTIES
Our principal executive offices are located in Oakmont, Pennsylvania where
we lease 28,200 square feet of office space. The term of the lease expires in
2006. We also operate a 24,300 square foot office in Parsippany, New Jersey.
This lease expires in 2002. We also lease a 3,871 square foot office in Redwood
City, California with the term of lease expiring in 2002 and a smaller office in
the United Kingdom.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of our
executive officers, directors and key employees, their ages, and their
respective positions with the company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rajiv Enand............................... 38 Chairman of the Board of Directors, Secretary and
Treasurer
Mark Tapling.............................. 43 President, Chief Executive Officer and Director
Mark Finkel............................... 45 Chief Financial Officer
Peggy Biddison............................ 51 Vice President of Marketing
Richard Joslin............................ 37 Vice President of RightAnswers.com
Richard Koloski........................... 37 Vice President of Software Development
Lou Venezia............................... 49 Vice President of Global Sales
Susie Sedlacek............................ 41 Vice President of Global Enterprise Services
Kevin Hall(2)............................. 41 Director
Susanne Harrison(1)....................... 55 Director
Bruce Molloy(2)........................... 45 Director
Timothy Wallace(1)(2)..................... 42 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Rajiv Enand has served as Chairman of the Board of Directors since August
1999. Mr. Enand previously served as our President from July 1998 to May 1999,
Chief Executive Officer from July 1998 to January 2000, Vice President of
Business Development from May 1996 to July 1998, Vice President of Operations
from February 1995 to May 1996 and Vice President of Engineering from April 1993
to February 1995. Mr. Enand received a Bachelor of Science degree in Computer
Science from West Virginia University and has completed graduate courses at East
Tennessee State University and Southern Methodist University.
Mark Tapling has served as our President and Chief Executive Officer since
January 2000. Mr. Tapling previously served as our President and Chief Operating
Officer from May 1999 to January 2000 and as our Vice President of Worldwide
Sales from February 1998 to May 1999. From September 1996 to February 1998, Mr.
Tapling was employed by Comshare, most recently as Senior Vice President of
Operations for the Americas. From April 1994 to September 1996, Mr. Tapling was
employed by Lotus Development Corporation, most recently as Region Director for
the Northeast. Mr. Tapling received a Bachelor of Science degree in Economics
and Management from Michigan State University. Mr. Tapling will become a
director upon the effectiveness of our registration statement.
Mark Finkel has served as our Chief Financial Officer since January 2000.
From June 1996 to January 2000, Mr. Finkel was employed as a consultant and/or
acting executive officer for a variety of technology companies, including
InterWorld, BackWeb Technologies and the Molloy Group. From May 1995 to June
1996, Mr. Finkel was employed by Logic Works as Executive Vice President and
Chief Financial Officer. Prior to May 1995, Mr. Finkel served as Chief Financial
Officer for a number of technology companies, including Consilium and Neuron
Data (now Blaze Software), and also practiced corporate and securities law in
California. Mr. Finkel received a Bachelor of Arts degree from Oberlin College,
a Master's degree in Business Administration from New York University and a
Juris Doctor degree from the University of California at Davis.
Peggy Biddison has served as our Vice President of Marketing since June
1999. Ms. Biddison was previously employed by QAD as Vice President of Marketing
from October 1994 to June 1999. From
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September 1993 to November 1994, Ms. Biddison was employed by Fourth Shift as
Vice President of Professional Services. Ms. Biddison received a Bachelor of
Arts degree from the University of California at Santa Cruz.
Richard Joslin has served as our Vice President of RightAnswers.com since
September 1999. From October 1995 to September 1999, Mr. Joslin held a variety
of positions with us, most recently as Vice President of Knowledge Engineering.
Previously, Mr. Joslin was employed by a division of Westinghouse Electric,
which was acquired by Eaton Cutler-Hammer, most recently as Manager of
Commercial Systems Support. Mr. Joslin received a Bachelor of Science degree in
Computer Science from Indiana University of Pennsylvania. Mr. Joslin has
received a number of industry commendations in the customer service field,
including the 1999 Service 25 Award from ServiceNews magazine.
Richard Koloski has served as our Vice President of Software Development
since July 1999. From October 1997 to June 1999, Mr. Koloski was employed in the
same capacity by the Molloy Group. From June 1996 to October 1997, Mr. Koloski
was employed by Claremont Technology Group as Director of the Technology
Infrastructure Laboratories and Vice President of Telecommunications.
Previously, Mr. Koloski was employed by EDS, most recently as a Senior Software
Engineer and Architect. Mr. Koloski received a Bachelor of Arts degree in the
International Business Honors Program from William Paterson College.
Susie Sedlacek has served as our Vice President of Global Enterprise
Services since October 1998. From 1994 to 1998, Ms. Sedlacek was employed by Sun
Microsystems, most recently as the Professional Services Area General Manager
for the Latin America region. Ms. Sedlacek received a Master's degree in
Business Administration and a Bachelor of Science degree in Economics from the
University of San Francisco.
Lou Venezia has served as our Vice President of Global Sales since July
1999. From April 1998 to November 1998, Mr. Venezia was Vice President of Sales
of the Molloy Group. From November 1998 to July 1999, Mr. Venezia was President
and Chief Operating Officer of the Molloy Group. From 1993 to 1998, Mr. Venezia
was employed by Versatility as Senior Vice President of Enterprise Solutions.
Mr. Venezia received a Bachelor of Science degree in Mathematics and Physics
from the University of Massachusetts.
Kevin Hall has served as a director since April 1996. Mr. Hall has been a
General Partner of Norwest Equity Partners since 1993. He serves on the board of
directors of Continuus Software and many other private companies. Mr. Hall
received a Master's degree in Business Administration from Stanford University
and Master of Science and Bachelor of Science degrees in Electrical Engineering
from Purdue University.
Susanne Harrison has served as director since July 1994. Ms. Harrison has
been a General Partner of Poly Ventures, LP and Poly Ventures II, LP since 1989
and 1991, respectively. Ms. Harrison is also President of Harrison Enterprises,
a technology Angel investment fund. She serves as Director of several privately
held companies, as well as a director of Long Island Venture Group, and the Long
Island Capital Forum. Ms. Harrison received a Master's degree in Business
Administration from Adelphi University, a Master of Arts degree from the State
University of New York and a Bachelor of Arts degree from Hunter College of the
City University of New York.
Bruce Molloy has served as a director since July 1999. Mr. Molloy founded
the Molloy Group and served as its Chief Executive Officer and Chairman of the
Board of Directors from October 1992 until its acquisition in July 1999. Mr.
Molloy is the inventor of the patented Cognitive Processor used in
ServiceWare.com's products. Mr. Molloy received a Bachelor of Arts degree in
Music and Physics from Columbia University.
Timothy Wallace has served as a director since July 1994. Since January
2000, Mr. Wallace has served as the Chairman and Chief Executive Officer of Full
Tilt Solutions, a business-to-business professional service company. Prior to
Full Tilt, Mr. Wallace was the President and Chief Executive Officer of Xerox
Connect, a network integration technology company. From May 1996 until May 1998,
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Mr. Wallace was the President, Chief Executive Officer and a director of
XLConnect Solutions, which he founded. Xerox acquired XLConnect in May 1998.
From August 1991 to March 1996, Mr. Wallace was the Vice President of
Professional Services of The Future Now, a national systems integration company.
Mr. Wallace received a Bachelor of Science degree in Business Administration
from Indiana University of Pennsylvania and a Master's degree in Business
Administration from Miami University of Ohio.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two standing committees: an Audit Committee and
a Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of our books and records, reviewing the proposed scope of the
audit and approving the audit fees to be paid, reviewing our accounting and
financial controls with the independent public accountants and our financial and
accounting staff, and reviewing and approving transactions between us and our
directors, officers and affiliates. Kevin Hall, Bruce Molloy and Timothy Wallace
are the members of the Audit Committee.
The Compensation Committee provides a general review of our compensation
plans to ensure that they meet corporate objectives. The responsibilities of the
Compensation Committee also include administering our stock incentive plans.
Susanne Harrison and Timothy Wallace are the members of the Compensation
Committee.
None of the members of our Compensation Committee or Audit Committee has
ever been an officer or employee of our company. None of our executive officers
serves as a member of the Board of Directors or on the compensation committee of
any entity that has one or more executive officers serving on our Board of
Directors.
DIRECTOR COMPENSATION
Effective August 18, 1999, three directors who are not our employees or
consultants were each granted 60,000 non-qualified stock options under our 1996
stock option plan with an exercise price of $2.50 per share. 15,000 of these
options vested on August 18, 1999, with an additional 15,000 options vesting on
August 18 of each of the three subsequent years, provided that such individual
remains a member of our Board of Directors on such date of vesting. We also
reimburse our directors for their reasonable out-of-pocket expenses incurred in
attending meetings of our Board of Directors or its committees.
AMENDED AND RESTATED STOCK OPTION PLAN
In December 1996, our Board of Directors adopted and our stockholders
approved the ServiceWare, Inc. Amended and Restated Stock Option Plan, effective
January 1, 1996, which we refer to as the 1996 stock option plan. This plan
amended and restated the ServiceWare, Inc. 1994 Stock Option/Stock Issuance
Plan. The 1996 stock option plan will terminate on February 15, 2004, unless it
is earlier terminated by our Board of Directors. As discussed below, the Board
of Directors intends to terminate the 1996 stock option plan and replace it with
the 2000 stock incentive plan prior to the effectiveness of this registration
statement. We may grant incentive or nonqualified stock options under the 1996
stock option plan to our employees, directors, consultants and advisors.
We are authorized to issue 6,000,000 shares of our common stock under the
1996 stock option plan. As of February 29, 2000, we had options outstanding to
purchase shares of common stock under the 1996 stock option plan.
The Compensation Committee of our Board of Directors administers the 1996
stock option plan and is responsible for determining the terms and conditions of
all grants of options under the 1996 stock option plan. Subject to certain
exceptions, all rights to exercise options will terminate on the first to occur
of (1) the scheduled expiration date as set forth in the applicable stock option
agreement, (2) 90 days following the date of termination of employment for any
reason other than death or permanent disability of
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the participant, or (3) one year following the date of termination of employment
by reason of the participant's death or permanent disability.
If control of our company changes through, for example, a merger,
acquisition or consolidation of more than 50% of our stock by another person or
company, or through a merger with another company, and the acquiror fails to
assume or replace with equivalent options all outstanding options under the 1996
stock option plan, then all outstanding options that have not vested prior to
the change of control will immediately vest.
2000 STOCK INCENTIVE PLAN
Introduction. We intend to adopt a 2000 stock incentive plan to serve as
the successor program to our 1996 stock option plan. After it is adopted by our
Board of Directors and approved by our stockholders, the 2000 stock incentive
plan will become effective immediately prior to the consummation of this
offering.
Awards. We may grant incentive stock options, nonqualified stock options
or restricted stock under the 2000 stock incentive plan.
Share Reserve. Three million shares of our common stock will be reserved
for issuance under the 2000 stock incentive plan, plus any shares of our common
stock covered by any unexercised portion of terminated stock options granted
under the 1996 stock option plan. The shares reserved under our 2000 stock
incentive plan will automatically increase on the first trading day in January
of each calendar year, beginning with calendar year 2001, by an amount equal to
the lesser of 1.5 million or 6.25% of the total number of shares of our common
stock outstanding on the last trading day of December in the prior calendar
year, unless our Board of Directors determines to increase the amount by a
lesser number of shares.
Eligibility. The individuals eligible to participate in our 2000 stock
incentive plan will include our officers, other employees, members of our Board
of Directors and any consultants we hire.
Administration. Our 2000 stock incentive plan will be administered by our
Compensation Committee. The Compensation Committee will determine which eligible
individuals are to receive option grants or stock issuances under the 2000 stock
incentive plan, the time or times when the issuances are to be made, the number
of shares subject to each grant or issuance, the status of any granted option as
either an incentive stock option or a nonstatutory stock option under the
federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding.
Change of Control. If control of our company changes through, for example,
an acquisition of more than 50% of our stock by another person or company, or
through a merger with another company, and the acquiror fails to assume or
replace with equivalent awards all outstanding awards under the 2000 stock
incentive plan, then all outstanding options that have not vested prior to the
change of control will immediately vest and the restrictions on any restricted
stock that have not lapsed before the change of control will immediately lapse.
In addition, any replacement options issued by the acquiror to any participant
will vest, and any restrictions on any replacement restricted stock issued to
such participant will lapse, if the participant is terminated without cause
within 12 months after the change of control.
2000 EMPLOYEE STOCK PURCHASE PLAN
We intend to adopt a 2000 employee stock purchase plan. Subject to approval
by our stockholders, the plan will become effective immediately prior to the
consummation of this offering and, unless our Board of Directors terminates it
earlier, will continue for a term of 20 years. The plan is designed to permit
eligible employees to purchase common stock, through payroll deductions, at a
discount from its fair market value. We will initially reserve 500,000 shares of
our common stock for issuance under the 2000 stock incentive plan. The reserve
will automatically increase on the first trading day of each calendar year
beginning in 2001 in an amount equal to the total number of shares purchased
under the 2000
44
<PAGE> 48
employee stock purchase plan during the immediately preceding fiscal year, up to
a maximum of one million shares that can be reserved for issuance under the
plan.
We intend for the 2000 employee stock purchase plan to be qualified under
Section 423 of the Internal Revenue Code. The 2000 employee stock purchase plan
will consist of six-month purchase periods. Participating employees will
automatically make stock purchases at the end of each purchase period. The
initial purchase period will begin on the date of this prospectus.
Our Board of Directors or a committee appointed by our Board of Directors
will administer the 2000 employee stock purchase plan. The 2000 employee stock
purchase plan will permit eligible employees to purchase common stock through
payroll deductions, which may not exceed 15% of an employee's compensation,
unless our Board of Directors decides to modify such amount. The purchase price
will be equal to the lower of 85% of the fair market value of the common stock
at the beginning of the applicable purchase period or 85% of the fair market
value of the common stock at the end of each such purchase period. Our
employees, including officers and employee directors, will be eligible to
participate in the 2000 employee stock purchase plan if they are employed by us
for at least 20 hours per week and more than five months in the year. Employees
will be permitted to withdraw from participation in the 2000 employee stock
purchase plan at any time and receive a refund of their payroll deductions made
since the last purchase date. Participation will end automatically upon
termination of employment.
If another company acquires us, the 2000 employee stock purchase plan
generally will provide that the acquiror will assume each right to purchase
stock or shall substitute equivalent rights; otherwise, each right to purchase
common stock will accelerate and become exercisable immediately before the
acquisition. Our Board of Directors will have the power to amend or terminate
the 2000 employee stock purchase plan at any time.
EXECUTIVE BONUS
The Board of Directors has established an executive bonus plan for fiscal
year 2000. The plan will pay performance-based bonuses of up to a maximum of
$75,000 to each senior executive and up to a maximum of $100,000 to our Chief
Executive Officer, as incentive for the participants to contribute to our
growth. The Compensation Committee of the Board of Directors will administer the
plan. The bonus will be determined based on whether we meet and/or exceed our
corporate and financial goals.
401(K) PLAN
We maintain a 401(k) retirement savings plan. All of our employees meeting
certain minimum eligibility requirements are eligible to participate in the
401(k) plan. Under the 401(k) plan, an employee may contribute up to 15% of his
or her pre-tax gross compensation. The contribution cannot exceed a statutorily
prescribed annual limit. The 401(k) plan permits us, but does not require us to
make additional contributions to the 401(k) plan. All amounts contributed by the
employee participants in conformance with plan requirements and earnings on such
contributions are fully vested at all times. For the years ended December 31,
1997, 1998 and 1999, we did not contribute to the 401(k) plan. As of January 1,
2000, however, we provide a 25% company match to participant contributions.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION MATTERS
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
45
<PAGE> 49
- unlawful payments or dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which a director derives an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our Amended and Restated Certificate of Incorporation and Bylaws provide
that we will indemnify our directors and executive officers, and may indemnify
our other officers and employees and other agents, to the fullest extent
permitted by law. We believe that indemnification under our Bylaws covers at
least negligence and gross negligence on the part of indemnified parties. Our
Bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity and certain other capacities, such as serving as a director of
another corporation at the request of the Board of Directors, regardless of
whether the Bylaws would permit indemnification.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered during 1999 by (1) the Chief Executive Officer
and (2) the four other most highly compensated executive officers as of December
31, 1999 whose total salary and bonus in 1999 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------
------------------- NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- --------------------------- -------- ------- -------------------- -------------
<S> <C> <C> <C> <C>
Rajiv Enand
Chairman(a)............................ $200,000 $45,000 150,000 $ 1,846(e)
Mark Tapling
President and CEO(b)................... $185,417 $45,000 465,000 $39,190(f)(g)
Lou Venezia
Vice-President of Global Sales......... $177,083(c) $47,500 138,000
Peggy Biddison
Vice-President of Marketing............ $ 93,817(d) $58,750 150,000
Susie Sedlacek
Vice-President of Global Enterprise
Services............................... $125,000 $66,657 30,000
</TABLE>
- ---------------
(a) Mr. Enand was our Chief Executive Officer during 1999 and President for a
portion of that year.
(b) Mr. Tapling was President, Chief Operating Officer and Vice President of
Worldwide Sales at various times during 1999. His current base salary is
$200,000.
(c) Includes earnings of $99,167 paid while at the Molloy Group prior to its
acquisition by us.
(d) Part year salary, based upon a base salary of $165,000.
(e) Includes $1,846 in automobile allowance.
(f) Includes $35,340 in commissions paid while Vice President of Worldwide
Sales.
(g) Includes $3,850 in automobile allowance.
46
<PAGE> 50
STOCK OPTIONS
OPTION GRANTS IN 1999
The following table provides information concerning grants of stock options
to the Chief Executive Officer and the four other most highly compensated
executive officers during 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------------
NAME GRANTED(1) IN 1999(2) ($/SHARE) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Rajiv Enand................. 150,000 5.05% $1.67 10/20/2009
Mark Tapling................ 15,000 0.51% $0.67 1/01/2009
450,000 15.16% $0.67 6/11/2009
Lou Venezia................. 138,000 4.65% $1.67 7/23/2009
148,500(4) 5.00% $0.81 7/23/2009
Peggy Biddison.............. 150,000 5.05% $0.67 6/07/2009
Susie Sedlacek.............. 30,000 1.01% $0.67 6/11/2009
</TABLE>
- ---------------
(1) All options granted in 1999 were granted under the 1996 stock option plan.
(2) These percentages are based on grants of 2,968,680 options which include the
590,925 options given to the Molloy Group option holders in exchange for
their Molloy Group options upon our acquisition of the Molloy Group.
(3) Potential realizable value is based on the assumption that the price per
share of common stock appreciates at the assumed annual rate of stock
appreciation on the market value of the common stock on the date of option
grant over the term of the option. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set forth
in accordance with the rules and regulations adopted by the Securities and
Exchange Commission, do not represent our estimate of stock price
appreciation and do not take into account any other appreciation in the
common stock from the date of grant to the date hereof.
(4) These options were issued in exchange for Mr. Venezia's Molloy Group options
upon our acquisition of the Molloy Group.
AGGREGATE OPTION EXERCISES IN 1999 OPTION VALUES
The following table sets forth certain information regarding the stock
options exercised during 1999 and the stock options held as of December 31, 1999
by our Chief Executive Officer and the other four most highly compensated
executive officers. None of these executive officers exercised options in 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON VALUE OF UNEXERCISED
STOCK UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rajiv Enand.............................. 0 150,000 $ $
Mark Tapling............................. 28,125 550,875
Lou Venezia.............................. 123,701 162,800
Peggy Biddison........................... 0 150,000
Susie Sedlacek........................... 18,750 86,250
</TABLE>
47
<PAGE> 51
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
All of our executive officers serve at the discretion of the Board of
Directors.
Pursuant to a resolution of our Board of Directors, 50% of the then
unvested options held by executive officers and employees with a title of "Vice
President" will vest and become exercisable upon the occurrence of a "Change of
Control," as defined in the 1996 stock option plan, provided such executive
officer or employee is employed by us on the date of a Change of Control. This
right is in addition to any rights such individuals may have under the 1996
stock option plan.
Pursuant to Mark Tapling's letter of employment, 75% of Mr. Tapling's
unvested stock options will automatically vest upon a Change of Control, as
defined in the 1996 stock option plan. As of June 1, 2000, 100% of Mr. Tapling's
options, which were granted to him prior to December 31, 1999, would
automatically vest upon a Change of Control. In addition, 75% of the options
granted to Mr. Tapling on January 19, 2000 would vest upon a Change of Control,
with the remaining options to vest proportionally over the subsequent 12 months.
Mr. Tapling is also entitled to a severance package equal to six months of his
base salary should Mr. Tapling's employment with us be terminated, whether
voluntarily or not, without cause.
Mark Finkel, who became our Chief Financial Officer in January 2000, will
receive an annual salary of $150,000 per year. In addition, Mr. Finkel was
granted 450,000 options to purchase common stock. Mr. Finkel's stock options are
immediately exercisable, subject to various rights of repurchase by the Company.
Upon a Change of Control, as defined in the 1996 stock option plan, Mr. Finkel's
shares eligible for repurchase will be reduced by 50% where we are not the
controlling entity. In addition, within 12 months of a Change of Control, no
shares will be eligible for repurchase if Mr. Finkel is terminated without cause
or if his responsibilities significantly change.
Pursuant to an agreement with our Board of Directors dated January 19,
2000, Rajiv Enand's cash compensation and employee benefits are guaranteed
through June 30, 2001.
48
<PAGE> 52
CERTAIN TRANSACTIONS
SALE OF SERIES D PREFERRED STOCK
In July 1999, we sold 2,400,000 shares of our Series D convertible
preferred stock, par value $1.00 per share and warrants to purchase 540,000
shares of our common stock for an aggregate purchase price of $9,000,000 to a
total of 22 investors. Pursuant to the terms of the warrants, because we failed
to meet certain performance targets for the year ended December 31, 1999, the
warrants became exercisable. However, we expect to receive waivers of these
exercise rights from the holders of these warrants. The investors received
certain registration rights in connection with the purchase of the Series D
preferred stock.
SALE OF SERIES E PREFERRED STOCK
In connection with our acquisition of the Molloy Group in July 1999, we
issued 2,647,984 shares of our Series E convertible preferred stock, par value
$1.00 per share, to the former holders of preferred stock and promissory notes
of the Molloy Group, warrants to purchase of 60,710 shares of common stock, and
2,319,596 shares of our common stock to former holders of common stock of the
Molloy Group, including 2,269,646 shares of our common stock to Bruce Molloy,
one of our directors. The former security holders of the Molloy Group received
certain registration rights in connection with their receipt of our common
stock. Under the terms of the agreement and plan of merger, shares of our common
stock and Series E preferred stock representing approximately 2% of the total
consideration issuable to each former security holder of the Molloy Group were
placed in an escrow account pending determination of certain performance targets
relating to the business of the Molloy Group from July 1, 1999, as if the
acquisition had occurred on July 1, 1999. Because these performance targets were
not met, the escrowed shares are required to be returned to us.
WARRANTS
In April 1999, PolyVentures II, L.P. loaned us $150,000; in May 1999,
Geocapital III, L.P. loaned us $250,000; and in June 1999, Norwest Equity
Partners V loaned us $650,000. These loans were made for short-term working
capital purposes. As partial consideration for these loans, we issued warrants
to purchase 6,000, 10,000 and 26,000 shares of our common stock to each of
PolyVentures II, L.P., Geocapital III, L.P. and Norwest Equity Partners V,
respectively. We used a portion of the proceeds from the sale of our Series D
preferred stock in July 1999 to repay these loans in full. We expect the
warrants to be exercised prior to the consummation of this offering; however, if
not exercised, these warrants will expire upon this offering. Susanne Harrison
and Kevin Hall, each of whom are members of our Board of Directors, are general
partners of PolyVentures II, L.P. and Norwest Equity Partners V, respectively.
TRANSACTIONS INVOLVING C.E. UNTERBERG, TOWBIN
C.E. Unterberg, Towbin, one of our underwriters, and associated persons and
entities, beneficially own 3,362,155 shares of our common stock, comprising
12.5% of our total outstanding common stock. This ownership interest was
acquired in several transactions that occurred on or prior to July 1999. Prior
to July 1999, C.E. Unterberg, Towbin and related entities invested a total of
$5.2 million in the Molloy Group. As a result of our acquisition of the Molloy
Group in July 1999, C.E. Unterberg, Towbin and these entities received an
aggregate of 1,904,266 shares of our Series E convertible preferred stock. Also
in July 1999, certain entities associated with C.E. Unterberg, Towbin purchased
306,666 shares of our Series D convertible preferred stock at a purchase price
of $3.75 per share, as well as a warrant granting the conditional right to
purchase 39,999 shares of our common stock at an exercise price of $2.50 per
share. The warrant is currently exercisable but as of March 30, 2000 had not
been exercised.
In addition, in July 1999 C.E. Unterberg, Towbin was paid $245,000 as a
finder's fee in consideration for its services identifying potential purchasers
of our Series D convertible preferred stock. C.E. Unterberg, Towbin also served
as an advisor to the Molloy Group during the July 1999
49
<PAGE> 53
acquisition but did not receive compensation for these services. Finally, Thomas
Unterberg has the right to attend meetings of our Board of Directors as an
observer.
Robert Harris, a Senior Managing Director at Bear, Stearns & Co. Inc.,
beneficially owns approximately 30,000 shares of our common stock. He also has
various interests in Unterberg, Harris Private Equity Partners L.P. and
Unterberg, Harris Interactive Media L.P., which hold shares in our company. C.E.
Unterberg, Towbin, where he was a partner until February 1998, had previously
invested in the Molloy Group.
COMPENSATION, CONSULTATION AND SEVERANCE AGREEMENT
Upon consummation of our acquisition of the Molloy Group in July 1999,
Bruce Molloy, one of our directors, retired from his position as an officer of
the Molloy Group. At the same time, we entered into a compensation, consultation
and severance agreement with Mr. Molloy pursuant to which we agreed to pay Mr.
Molloy $5,000 per week for a period of 18 months as a consulting/severance fee,
and Mr. Molloy agreed to consult with and advise our management and officers in
respect of transition matters, including personnel matters, arising in
connection with our acquisition of the Molloy Group and matters relating to our
technology and strategic planning.
LICENSE AGREEMENT
In connection with our acquisition of the Molloy Group in July 1999, Bruce
Molloy sold his rights in certain intellectual property, including the patented
Cognitive Processor, to the Molloy Group. Concurrently, Mr. Molloy entered into
a license agreement with the Molloy Group permitting Mr. Molloy to use that
intellectual property in certain fields which we believe are not competitive
with our business.
LOANS TO OFFICERS
Certain executive officers were given loans by us to purchase shares of our
common stock pursuant to the exercise of their outstanding options. These
officers are personally liable for the principal of and interest due on their
loans. Each loan is secured by the shares purchased with the proceeds of that
loan. Each loan becomes due and payable three years from the date it is made or
earlier if the individual's employment is terminated or he or she no longer owns
the shares. These loans did not reduce our cash balance. The respective total
number of shares purchased and the amounts loaned are set forth in the table
below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
STOCKHOLDER ACQUIRED ON EXERCISE LOAN AMOUNTS
- ----------- -------------------- ------------
<S> <C> <C>
Rajiv Enand................................................. 150,000 $250,000
Mark Tapling................................................ 510,000 887,500
Mark Finkel................................................. 450,000 750,000
Lou Venezia................................................. 148,500 119,790
Susie Sedlacek.............................................. 63,750 138,750
Richard Koloski............................................. 39,330 51,076
Richard Joslin.............................................. 92,625 125,395
</TABLE>
50
<PAGE> 54
STOCK EXERCISES BY EXECUTIVE OFFICERS
The following table sets forth exercises of shares of our common stock by
our executive officers. All purchases during 2000 by officers were pursuant to
the exercise of their outstanding options.
<TABLE>
<CAPTION>
PRICE PER SHARE
STOCKHOLDER SHARE AMOUNTS ISSUANCE DATE
- ----------- --------- ------- -----------------
<S> <C> <C> <C>
Rajiv Enand.......................................... $1.67 150,000 January 19, 2000
Mark Tapling......................................... 1.67 60,000 January 31, 2000
2.29 450,000 February 29, 2000
Mark Finkel.......................................... 1.67 450,000 January 31, 2000
Lou Venezia.......................................... 0.81 148,500 January 31, 2000
Susie Sedlacek....................................... 3.40 18,750 January 31, 2000
1.67 45,000 February 29, 2000
Richard Koloski...................................... 0.81 16,380 January 31, 2000
1.67 22,500 February 29, 2000
Richard Joslin....................................... 1.06 47,625 January 31, 2000
1.67 45,000 February 29, 2000
</TABLE>
STOCK OPTION GRANTS TO EXECUTIVE OFFICERS
The following table sets forth grants of options to purchase shares of our
common stock to our executive officers in the current fiscal year.
<TABLE>
<CAPTION>
PRICE PER SHARE
STOCKHOLDER SHARE AMOUNTS ISSUANCE DATE
- ----------- --------- ------- ----------------
<S> <C> <C> <C>
Mark Tapling.......................................... $1.67 450,000 January 19, 2000
Mark Finkel........................................... 1.67 450,000 January 31, 2000
Susie Sedlacek........................................ 1.67 45,000 January 19, 2000
Richard Koloski....................................... 1.67 22,500 January 19, 2000
Richard Joslin........................................ 1.67 45,000 January 19, 2000
</TABLE>
51
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 29, 2000, as adjusted to reflect
the sale of common stock in this offering (assuming no exercise of the
underwriters' over-allotment option) by:
- each person (or group of affiliated persons) known by us to be the
beneficial owner of more than five percent of the outstanding common
stock;
- each of the Chief Executive Officer and our other four most highly
compensated executive officers;
- each of our directors; and
- all of our directors and the Chief Executive Officer and the other four
most highly compensated executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1)(2) OFFERING(1)(2)
--------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT PERCENT
- ------------------------ ---------- ------- -------------------
<S> <C> <C> <C>
Norwest Equity Partners V, LLP(3)...................... 3,672,940 13.7%
Suite 105
Building 3
300 Sand Hill Road
Menlo Park, CA 94025
Kevin Hall(3)(4)....................................... 3,695,440 13.8%
c/o Norwest Equity
Partners V, LLP
Suite 105
Building 3
300 Sand Hill Road
Menlo Park, CA 94025
Jeffrey Pepper(5)...................................... 3,575,421 13.3%
c/o ServiceWare.com, Inc.
333 Allegheny Avenue
Oakmont, PA 15139
C.E. Unterberg, Towbin L.P.(6)(7)...................... 3,362,155 12.5%
10 East 50th Street
New York, NY 10022
Geocapital III, L.P(8)................................. 2,661,433 9.9%
One Bridge Plaza
Fort Lee, NJ 07024
Poly Ventures II, L.P.(9).............................. 2,398,329 8.9%
901 Route 110
Farmingdale, NY 11735
Susanne Harrison(9)(10)................................ 2,420,829 9.0%
c/o Poly Ventures II, L.P.
901 Route 110
Farmingdale, NY 11735
Rajiv Enand(11)........................................ 2,388,705 8.9%
c/o ServiceWare.com, Inc.
333 Allegheny Avenue
Oakmont, PA 15139
Bruce Molloy(6)........................................ 2,096,493 7.8%
c/o ServiceWare.com, Inc.
333 Allegheny Avenue
Oakmont, PA 15139
</TABLE>
52
<PAGE> 56
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1)(2) OFFERING(1)(2)
--------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT PERCENT
- ------------------------ ---------- ------- -------------------
<S> <C> <C> <C>
Lovett Miller Venture Fund II, LP(12).................. 1,149,999 4.3%
c/o Scott Miller, Managing Director
100 North Tampa Street
Suite 2675
Tampa, FL 33602
Timothy Wallace(13).................................... 63,000 *
c/o ServiceWare.com, Inc.
333 Allegheny Avenue
Oakmont, PA 15139
Mark Tapling........................................... 510,000 1.9%
Mark Finkel............................................ 450,000 1.7%
Lou Venezia............................................ 387,909 1.4%
Susie Sedlacek......................................... 63,750 *
Peggy Biddison......................................... 0 *
All directors and executive officers as a group (13
persons)............................................. 12,280,632 45.7%
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each shareholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting power or
investment power and also any shares which the individual or entity has a
right to acquire within 60 days of February 29, 2000 through the exercise
of any stock option, warrant or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
shareholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
(2) Applicable percentage of ownership is based on 26,856,869 shares of common
stock outstanding on February 29, 2000 and shares of common
stock outstanding after the completion of this offering.
(3) Includes (a) 337,500 shares of common stock currently issued, (b) 2,583,441
shares of common stock issuable upon conversion of Series C preferred stock
held by Norwest, (c) 540,000 shares of common stock issuable upon
conversion of Series D preferred stock held by Norwest, (d) 105,000 shares
of common stock issuable to Norwest upon issuance to the holders of our
Series A preferred stock and Series B preferred stock of an aggregate of
889,620 shares of common stock in payment of dividends accrued on the
Series A preferred stock and Series B preferred stock through July 29, 1997
and June 29, 1998, respectively, and (d) 107,000 shares of common stock
issuable upon the exercise of outstanding warrants.
(4) Includes 22,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days. Mr. Hall may be deemed to own
beneficially the common stock owned by Norwest because he is affiliated
with the general partner of Norwest. Mr. Hall disclaims beneficial
ownership of the common stock and other of our securities owned
beneficially by Norwest, other than his beneficial interest in such
securities through his interest in the general partner of Norwest.
(5) Includes an aggregate of 315,000 shares owned by two separate trusts of
which Mr. Pepper is co-trustee and his children are beneficiaries.
(6) Includes 4,125 options exercisable within 60 days.
(7) Includes 810,108 shares held by C.E. Unterberg, Towbin Capital Partners I,
LP; 748,946 shares held by Unterberg, Harris Private Equity Partners, L.P.;
499,020 shares held by C.E. Unterberg, Towbin
53
<PAGE> 57
L.P.; 459,999 shares held by Tamar Venture Capital Ltd.; 312,411 shares
held by Thomas Unterberg, a managing director of C.E. Unterberg, Towbin
L.P.; 191,534 shares held by Unterberg, Harris Interactive Media LP;
159,969 shares held by Unterberg, Harris Private Equity Partners, L.P.;
31,598 shares held by C.E. Unterberg, Towbin LLC; 21,006 shares held by
Robert Towbin, a managing director of C.E. Unterberg, Towbin L.P.; 6,900
shares held by Estelle Konviser, a managing director of C.E. Unterberg,
Towbin L.P.; 4,599 shares held by Andrew Blum, a managing director of C.E.
Unterberg, Towbin L.P.; and an aggregate of 116,007 shares held by one
trust, one limited partnership, one sole proprietorship and three 401(k)
profit sharing accounts, all of which have beneficiaries or trustees who
are affiliated with C.E. Unterberg, Towbin L.P. or the principals of C.E.
Unterberg, Towbin L.P.
(8) Includes (a) 71,079 shares of common stock currently issued, (b) 1,896,612
shares of common stock issuable upon conversion of Series B preferred stock
held by Geocapital, (c) 200,000 shares of common stock issuable upon
conversion of Series D preferred stock held by Geocapital, (d) 453,741
shares of common stock issuable to Geocapital in payment of dividends
accrued on the Series B preferred stock through June 29, 1998, and (e)
40,001 shares of common stock issuable upon exercise of outstanding
warrants.
(9) Includes (a) 68,181 shares of common stock currently issued, (b) 1,096,754
shares of common stock issuable upon conversion of Series A preferred stock
held by Poly Ventures, (c) 722,516 shares of common stock issuable upon
conversion of Series B preferred stock held by Poly Ventures, (d) 60,000
shares of common stock issuable upon conversion of Series D preferred stock
held by Poly Ventures, (e) an aggregate of 435,879 shares of common stock
issuable to Poly Ventures in payment of dividends accrued on Series A
preferred stock and Series B preferred stock through July 29, 1997 and June
29, 1998, respectively, and (f) 15,000 shares of common stock issuable upon
exercise of outstanding warrants.
(10) Includes 22,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days. Ms. Harrison may be deemed to own
beneficially the common stock owned by Poly Ventures because she is a
general partner of Poly Ventures. Ms. Harrison disclaims beneficial
ownership of the common stock and other of our securities owned by Poly
Ventures, other than her beneficial interest in such securities through her
partnership interest in Poly Ventures.
(11) Includes an aggregate of 178,500 shares owned by two separate trusts of
which Mr. Enand is co-trustee and his children are beneficiaries.
(12) Includes (a) 999,999 shares of common stock issuable upon conversion of
Series D preferred stock held by Lovett Miller, and (b) 150,000 shares of
common stock issuable upon exercise of outstanding warrants.
(13) Consists of shares issuable upon the exercise of options exercisable within
60 days.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue 100
million shares of common stock, no par value, and five million shares of
undesignated preferred stock, no par value. The following description of our
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, our Amended and Restated Certificate of Incorporation and
our Bylaws, which we have included as exhibits to the registration statement of
which this prospectus forms a part.
COMMON STOCK
As of February 29, 2000, there were 26,736,869 shares of common stock
outstanding, held of record by approximately 130 stockholders. These amounts
assume the conversion of all outstanding shares of preferred stock into common
stock, the exercise of all outstanding warrants that would otherwise expire upon
the consummation of this offering and conversion of accrued dividends on
preferred stock into common stock, which is to occur upon completion of this
offering. In addition, as of February 29, 2000, there were 3,631,242 shares of
common stock subject to outstanding options. Upon completion of this offering,
there will be shares of common stock outstanding, assuming no
additional exercise of outstanding stock options or warrants.
Each share of common stock entitles its holder to one vote on all matters
to be voted upon by stockholders. Subject to preferences that may apply to any
outstanding preferred stock, holders of common stock may receive ratably any
dividends that our Board of Directors may declare out of funds legally available
for that purpose. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and any liquidation preference of
preferred stock that may be outstanding. The common stock has no preemptive
rights, conversion rights or other subscription rights, or redemption or sinking
fund provisions. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock that we will issue upon
completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Prior to this offering, we had five series of convertible preferred stock:
Series A, Series B, Series C, Series D and Series E. As of February 29, 2000,
the number of outstanding shares of each series of our preferred stock was:
- 243,723 shares of Series A;
- 1,058,574 shares of Series B;
- 1,111,111 shares of Series C;
- 2,400,000 shares of Series D; and
- 2,647,984 shares of Series E.
Upon the closing of this offering, all outstanding shares of our Series A
preferred stock (and accrued common stock), Series B preferred stock (and
accrued common stock), Series C preferred stock (and certain anti-dilution
adjustments), Series D preferred stock and Series E preferred stock will be
converted into 1,096,754, 2,709,435, 2,583,441, 3,600,000 and 3,971,976 shares
of common stock, respectively, and these classes of preferred stock will be
canceled. Thereafter, our Board of Directors will have the authority, without
further action by the stockholders, to issue up to five million shares of
preferred stock in one or more series and to designate the rights, preferences,
privileges and restrictions of each such series. The issuance of preferred stock
could have the effect of restricting dividends on the common stock, diluting the
voting power of the common stock, impairing the liquidation rights of the common
stock, or delaying or preventing a change of control without further action by
the stockholders. We have no present plans to issue any shares of preferred
stock after the completion of this offering.
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<PAGE> 59
WARRANTS
As of December 31, 1999, there were warrants outstanding to purchase
772,931 shares of our common stock. We expect the warrants to be exercised prior
to the consummation of this offering; however, to the extent not exercised,
warrants to purchase shares of our common stock shall expire. The
other warrants to purchase shares of our common stock expire at
various dates through December 10, 2006.
REGISTRATION RIGHTS
The holders of shares of common stock (after conversion of our
existing preferred stock) and warrants to purchase shares of our
common stock are entitled to require us to register the sales of their shares
under the Securities Act pursuant to the terms of an agreement between us and
the holders of these securities. Subject to limitations specified in this
agreement, these registration rights include the following:
- an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering
(not including this public offering), subject to the discretion of the
managing underwriter of the offering to decrease the amount that holders
may register;
- two demand registration rights that holders may exercise no sooner than
six months after this offering, which require us to register sales of a
holder's shares; and
- an unlimited number of rights to require us to register sales of shares
on Form S-3, a short form of registration statement permitted to be used
by some companies, which holders may exercise if they request
registration following such time as we qualify for the use of this form
of registration with the Securities and Exchange Commission.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. These registration
rights terminate as to a holder's shares when that holder sells those shares
within two successive three-month periods without registration under the
Securities Act.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our Amended and Restated Certificate of Incorporation and Bylaws, to be
effective upon or prior to the effectiveness of our registration statement,
divide the Board of Directors into three classes as nearly equal in size as
possible, with each class serving a three-year term. The terms are staggered, so
that one-third of the Board of Directors is to be elected each year. Susanne
Harrison and Rajiv Enand are Class I directors with their terms of office
expiring in 2001, Timothy Wallace and Kevin Hall are Class II directors with
their terms expiring in 2002, and Bruce Molloy and Mark Tapling are Class III
directors with their terms of office expiring in 2003. The classification of the
Board of Directors could have the effect of making it more difficult than
otherwise for a third party to acquire control of us, because it would typically
take more than a year for a majority of the stockholders to elect a majority of
our Board of Directors. In addition, our Amended and Restated Certificate of
Incorporation and Bylaws provide that any action required or permitted to be
taken by our stockholders at an annual or special meeting may be taken only if
it is properly brought before the meeting, and may not be taken by written
action in lieu of a meeting. The Bylaws also provide that special meetings of
the stockholders may be called only by the Board of Directors, the Chairman of
the Board of Directors or the Chief Executive Officer. Under our Bylaws,
stockholders wishing to propose business to be brought before a meeting of
stockholders must comply with various advance notice requirements. Finally, our
Amended and Restated Certificate of Incorporation and Bylaws do not permit
stockholders to take any action without a meeting.
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<PAGE> 60
DELAWARE ANTI-TAKEOVER PROVISIONS
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates acquisitions of some Delaware corporations. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person becomes an interested stockholder, unless:
- our Board of Directors approved the business combination or the
transaction in which the person became an interested stockholder prior to
the date the person attained this status;
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the person owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- at or after the date the person became an interested stockholder, our
Board of Directors approved the business combination and the stockholders
other than the interested stockholder authorized the transaction at an
annual or special meeting of stockholders.
A "business combination" generally includes a merger, asset or stock sale
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with the person's affiliates and associates, owns, or within three years prior
to the determination of interested stockholder status did own, 15% or more of a
corporation's voting stock.
LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "SVCW".
TRANSFER AGENT AND REGISTRAR
will serve as transfer agent and registrar for the common
stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our securities.
Upon completion of this offering, based upon the number of shares outstanding at
February 29, 2000, there will be shares of common stock outstanding
(assuming no exercise of outstanding options or warrants that do not expire on
consummation of this offering). Of these shares, the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act, may
generally only be sold in compliance with the limitations of Rule 144 described
below.
The remaining shares of common stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately
shares of common stock, which are not subject to the 180-day lock-up
agreements with the underwriters, will be eligible for immediate sale in the
public market pursuant to Rule 144(k) under the Securities Act. Approximately
additional shares of common stock, which are not subject to lock-up
agreements, will be eligible for sale in the public market in accordance with
Rule 144 or Rule 701 under the Securities Act beginning 90 days after the
effective date of the registration statement. Upon expiration of the lock-up
agreements 180 days after the date of this prospectus, approximately
additional shares of common stock will be available for sale in the public
market, subject to the provisions of Rule 144 under the Securities Act.
LOCK-UP AGREEMENTS
Officers and directors, and certain security holders, holding in the
aggregate approximately shares of common stock (including
shares of common stock that may be acquired pursuant to
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<PAGE> 61
the exercise of options held by them) on February 29, 2000, have agreed that,
for a period of 180 days after the date of this prospectus, they will not sell,
consent to sell or otherwise dispose of any shares of common stock, or any
shares convertible into or exchangeable for shares of common stock, owned
directly by such persons or with respect to which they have the power of
disposition, without the prior written consent of the underwriters. Bear,
Stearns & Co. Inc., on behalf of the underwriters, may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; and
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written compensatory
plan or contract to resell such shares in reliance upon Rule 144, but without
compliance with certain restrictions. Rule 701 provides that affiliates may sell
their Rule 701 shares under Rule 144 90 days after effectiveness without
complying with the holding period requirement and that non-affiliates may sell
such shares in reliance on Rule 144 90 days after effectiveness without
complying with the holding period, public information, volume limitation or
notice requirements of Rule 144.
OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act to register approximately shares of common stock issuable under
our stock incentive plan approximately 90 days after the effectiveness of the
registration statement. Shares issued upon the exercise of stock options after
the effective date of the Form S-8 registration statements will be eligible for
resale in the public market without restriction, subject to Rule 144 limitations
applicable to affiliates and the lock-up agreements noted above, if applicable.
REGISTRATION RIGHTS
The holders of shares of our common stock that will be
outstanding after this offering and the holders of warrants to purchase
shares of our common stock are entitled to require us to register the
sale of their shares under the Securities Act.
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<PAGE> 62
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of our common stock or the availability of shares for sale will have
on the market price of our common stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of our common stock in the
public market could adversely affect the market price of our common stock and
could impair our future ability to raise capital through an offering of our
equity securities.
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<PAGE> 63
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement between us
and the underwriters named below, who are represented by Bear, Stearns & Co.
Inc., SG Cowen Securities Corporation, Wit SoundView Corporation and C.E.
Unterberg, Towbin, the underwriters have severally agreed to purchase from us
the following respective number of shares of common stock less the underwriting
discounts and commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
SG Cowen Securities Corporation.............................
Wit SoundView Corporation...................................
C.E. Unterberg, Towbin......................................
[other].....................................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock set forth above, other than shares of
our common stock covered by the over-allotment option described below, if they
purchase any of the shares. Those obligations are subject, however, to various
conditions, including the approval of legal matters by their counsel.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act, and, where such indemnification
is unavailable, to contribute to payments that the underwriters may be required
to make in respect of such liabilities.
The underwriters propose to offer the shares of our common stock directly
to the public initially at the public offering price set forth on the cover page
of this prospectus and to selected dealers at such price less a concession not
to exceed $ per share. The underwriters may allow, and such selected dealers
may reallow, a concession not to exceed $ per share. After the commencement
of this offering, the public offering price and the concessions may be changed
by the underwriters.
We have granted to the underwriters an option to purchase in the aggregate
up to additional shares to be sold in this offering at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. The underwriters may exercise this option solely to cover
over-allotments, if any. The option may be exercised in whole or in part at any
time within 30 days after the date of this prospectus. To the extent the option
is exercised, the underwriters will be severally committed, subject to several
conditions, including the approval of legal matters by their counsel, to
purchase the additional shares of common stock in proportion to their respective
purchase commitments as indicated in the preceding table.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The following table shows the underwriters' discounts to be paid to the
underwriters by us. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------------- ----------------------
WITHOUT WITH WITHOUT WITH
OVER- OVER- OVER- OVER-
ALLOTMENT ALLOTMENT ALLOTMENT ALLOTMENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions payable
by us......................................... $ $ $ $
</TABLE>
C.E. Unterberg, Towbin, one of our underwriters, is an affiliate of our
company. See "Principal Stockholders." The offering, therefore, is being
conducted in accordance with the applicable provisions of Rule 2720 of the
National Association of Securities Dealers, Inc. Conduct Rules. Rule 2720
requires that the initial public offering price of the shares of common stock
not be higher than that recommended by a
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<PAGE> 64
"qualified independent underwriter" meeting certain standards. Accordingly,
Bear, Stearns & Co. Inc. is assuming the responsibilities of acting as the
qualified independent underwriter in pricing the offering and conducting due
diligence. The initial public offering price of the shares of common stock will
be no higher than recommended by Bear, Stearns & Co. Inc.
From time to time, C.E. Unterberg, Towbin has provided financial services
to us and, in connection with our acquisition of the Molloy Group in July 1999,
to the Molloy Group as well. See "Certain Transactions." Robert C. Harris Jr., a
Senior Managing Director of Bear, Stearns & Co. Inc. is the beneficial owner of
approximately 30,000 shares of our common stock.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ . The offering of the
shares is made for delivery, when, as and if accepted by the underwriters and
subject to prior sale and to withdrawal, cancellation or modification of the
offering without notice. The underwriters reserve the right to reject an order
for the purchase of our shares in whole or in part.
Wit SoundView is making available a prospectus in electronic format on its
regular Internet Web site. In addition, all dealers purchasing shares from Wit
SoundView in this offering have agreed to make a prospectus in electronic format
available on Web sites maintained by each of them. Other than the electronic
version of this prospectus, the information on Wit SoundView's Web site and any
information contained on any other Web site maintained by Wit SoundView or any
dealer purchasing shares from it is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by ServiceWare.com or any underwriter in its capacity
as underwriter and should not be relied on by prospective investors.
At our request, the underwriters have reserved for sale at the initial
public offering price up to % of the number of shares of common stock to be
sold in this offering to persons associated with us, such as associates of some
of our employees and selected employees of companies with which we are
developing or have commercial relationships. The number of shares available for
sale to the general public will be reduced to the extent any reserved shares are
purchased. Any reserved shares not so purchased will be offered by the
underwriters on the same basis as the other shares offered hereby and will not
be subject to resale restrictions.
We and our executive officers, directors and our current shareholders, who
own in the aggregate shares of common stock, have agreed not to, directly
or indirectly, offer, sell, contract to sell, grant any option to purchase,
pledge or otherwise dispose of, or, in any manner, transfer all or a portion of
the economic consequences associated with the ownership of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock beneficially owned during the 180-day period following the date of
this prospectus, subject to limited exceptions, without the prior written
consent of Bear, Stearns & Co. Inc.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price has been determined
through negotiations among us and the representatives of the underwriters. The
primary factors considered in determining the public offering price were:
- our financial and operating history and condition;
- market valuations of other companies engaged in activities similar to
ours;
- our prospects and prospects for the industry in which we do business in
general;
- our management;
- prevailing equity market conditions; and
- the demand for securities considered comparable to ours.
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock during and after this offering. Specifically, the underwriters may
over-allot or otherwise create a short position in our common stock for their
own account
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<PAGE> 65
by selling more shares of common stock than have been sold to them by us. The
underwriters may elect to cover any such short position by purchasing shares of
common stock in the open market or by exercising the over-allotment option
granted to them. In addition, the underwriters may stabilize or maintain the
price of our common stock by bidding for or purchasing shares of common stock in
the open market and may impose penalty bids, under which selling concessions
allowed to syndicate members or other broker-dealers participating in this
offering are reclaimed if shares of common stock previously distributed in this
offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of our common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of our common stock to the extent that it discourages resales of our
common stock. No representation is made as to the magnitude or effect of any
such stabilization or other transactions. Such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
We have applied to have our common stock listed on the Nasdaq National
Market under the symbol "SVCW."
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon by Morgan, Lewis & Bockius LLP, New York, New York. Certain legal matters
related to this offering will be passed upon for the underwriters by Paul,
Hastings, Janofsky & Walker LLP, New York, New York.
EXPERTS
Our consolidated financial statements at December 31, 1998 and 1999 for
each of the three years in the period ended December 31, 1999, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form S-1 with respect to
the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to us and
the shares of common stock offered hereby, reference is made to the registration
statement, including the exhibits and schedules thereto. Statements contained in
this prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, where such contract is an exhibit to
the registration statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which such reference is hereby made. You may
read and copy any document we file at the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Securities and Exchange Commission's Regional
Offices located at 500 West Madison Street, Suite 1400, Chicago, IL 60661, and 7
World Trade Center, 13th Floor, New York, NY 10048.
As a result of this offering, we will become subject to information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
statements and other
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<PAGE> 66
information may also be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports (including our registration statement on Form S-1), proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address of the
Securities and Exchange Commission's Web site is http://www.sec.gov.
In addition, an electronic version of this prospectus is available on Wit
SoundView Corporation's regular Web site (http://www.witcapital.com) and on our
Web site (http://www.serviceware.com). Other than the electronic version of this
prospectus, the information on our Web site and on Wit SoundView Corporation's
web site is not a part of this prospectus.
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<PAGE> 67
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SERVICEWARE.COM, INC.
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Shareholders' Equity (Capital
Deficiency)............................................ F-5
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-8
MOLLOY GROUP, INC.
Report of Independent Auditors............................ F-22
Balance Sheets............................................ F-23
Statement of Operations................................... F-24
Statement of Shareholders' Equity (Capital Deficiency).... F-25
Statement of Cash Flows................................... F-26
Notes to Financial Statements............................. F-27
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ServiceWare.com, Inc.
We have audited the accompanying consolidated balance sheets of
ServiceWare.com, Inc. (formerly ServiceWare, Inc.), as of December 31, 1998 and
1999, and the related consolidated statements of operations, shareholders'
equity (capital deficiency), and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of
ServiceWare.com, Inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Pittsburgh, Pennsylvania
January 28, 2000
F-2
<PAGE> 69
SERVICEWARE.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 890,952 $ 6,623,033
Accounts receivable, less allowance for doubtful accounts
of $312,206 in 1999 and $241,788 in 1998................ 3,246,364 3,282,745
Other current assets...................................... 483,147 456,533
----------- ------------
Total current assets........................................ 4,620,463 10,362,311
Long term assets
Purchased technology, net of amortization of $259,199..... -- 1,518,168
Property and equipment
Office furniture, equipment, and leasehold
improvements........................................... 916,346 1,162,078
Computer equipment...................................... 2,237,040 3,468,761
----------- ------------
Total property and equipment............................ 3,153,386 4,630,839
Less accumulated depreciation........................... (1,467,053) (2,635,341)
----------- ------------
Property and equipment, net............................... 1,686,333 1,995,498
Intangible assets, net of accumulated amortization of
$2,203,580.............................................. -- 12,695,588
Other long term assets.................................... 50,000 162,338
Total long term assets...................................... 1,736,333 16,371,592
----------- ------------
Total assets................................................ $ 6,356,796 $ 26,733,903
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities
Revolving line of credit.................................. $ 1,450,000 $ 1,250,000
Accounts payable.......................................... 755,939 426,883
Accrued compensation and benefits......................... 487,671 1,324,840
Deferred revenue.......................................... 4,954,928 9,086,272
Other current liabilities................................. 790,661 1,036,459
----------- ------------
Total current liabilities................................... 8,439,199 13,124,454
Long term debt, less current portion........................ 204,167 2,930,328
Other long term liabilities................................. 14,038 18,207
----------- ------------
Total liabilities........................................... 8,657,404 16,072,989
Shareholders' equity (capital deficiency)
Series A convertible preferred stock, $1 par; 243,723
shares authorized, issued and outstanding in 1999 and
1998.................................................... 501,316 348,261
Series B convertible preferred stock, $1 par; 1,058,574
shares authorized, issued and outstanding in 1999 and
1998.................................................... 1,918,666 1,978,475
Series C convertible preferred stock, $1 par; 1,111,111
shares authorized, issued and outstanding in 1999 and
1998.................................................... 1,720,779 1,720,779
Series D convertible preferred stock, $1 par; 2,400,000
shares authorized, issued and outstanding in 1999....... -- 7,952,907
Series E convertible preferred stock, $1 par; 3,000,000
shares authorized, 2,647,984 issued and outstanding in
1999.................................................... -- 9,929,944
Common stock and additional paid in capital, no par value;
25,000,000 and 13,000,000 shares authorized in 1999 and
1998; 6,388,713 and 4,629,125 shares issued and
outstanding in 1999 and 1998............................ 779,460 5,263,743
Warrants.................................................. -- 856,734
Note receivable from common shareholder................... -- (199,999)
Deficit................................................... (7,220,829) (17,189,930)
----------- ------------
Total shareholders' equity (capital deficiency)............. (2,300,608) 10,660,914
----------- ------------
Total liabilities and shareholders' equity (capital
deficiency)............................................... $ 6,356,796 $ 26,733,903
=========== ============
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE> 70
SERVICEWARE.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES
Licenses and subscriptions....................... $ 9,249,904 $11,283,614 $ 13,311,177
Services......................................... 436,285 1,639,623 4,340,698
----------- ----------- ------------
Total revenues..................................... 9,686,189 12,923,237 17,651,875
COST OF REVENUES
Cost of licenses and subscriptions............... 126,413 371,769 981,657
Cost of services................................. 501,571 1,057,354 3,506,085
----------- ----------- ------------
Total cost of revenues............................. 627,984 1,429,123 4,487,742
GROSS MARGIN....................................... 9,058,205 11,494,114 13,164,133
OPERATING EXPENSES
Sales and marketing.............................. 4,325,681 7,198,572 11,582,553
Research and development......................... 4,400,191 5,298,241 6,848,842
General and administrative....................... 1,880,551 2,800,768 2,418,292
Intangible assets amortization................... -- -- 2,203,580
----------- ----------- ------------
Total operating expenses........................... 10,606,423 15,297,581 23,053,267
-----------
LOSS FROM OPERATIONS............................... (1,548,218) (3,803,467) (9,889,134)
OTHER INCOME (EXPENSE)
Interest expense................................. (12,408) (73,061) (221,771)
Other (net)...................................... 52,533 60,083 48,558
----------- ----------- ------------
Other (expense) income, net........................ 40,125 (12,978) (173,213)
----------- ----------- ------------
NET LOSS........................................... (1,508,093) (3,816,445) (10,062,347)
Less preferred dividend amounts.................... (59,499) (124,050) (94,586)
----------- ----------- ------------
NET LOSS APPLICABLE TO COMMON STOCK................ $(1,567,592) $(3,940,495) $(10,156,933)
=========== =========== ============
NET LOSS PER COMMON SHARE, BASIC AND DILUTED....... $ (0.34) $ (0.85) $ (1.88)
SHARES USED IN COMPUTING PER SHARE AMOUNTS......... 4,609,051 4,621,794 5,401,652
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 71
SERVICEWARE.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... 243,723 $377,577 1,058,574 $1,980,000 1,111,111 $1,720,779 --
Exercise of stock options.... -- -- -- -- -- -- --
Dividends and interest on
Series A redeemable
convertible preferred
stock...................... -- 59,499 -- -- -- -- --
Accretion of Series B
redeemable convertible
preferred stock............ 405,000 -- -- --
Net loss..................... -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- ---------
Balance at December 31, 1997... 243,723 437,076 1,058,574 2,385,000 1,111,111 1,720,779 --
Exercise of stock options.... -- -- -- -- -- -- --
Dividends and interest on
redeemable convertible
preferred stock............ -- 64,240 -- 59,810 -- -- --
Adjustment to accretion of
Series B redeemable
convertible preferred
stock...................... -- -- -- (526,144) -- -- --
Net loss..................... -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- ---------
Balance at December 31, 1998... 243,723 501,316 1,058,574 1,918,666 1,111,111 1,720,779 --
Issuance of Series D
convertible preferred stock
and warrants, net of
$271,251 issuance costs.... -- -- -- -- -- -- 2,400,000
Issuance of Series E
convertible preferred
stock, common stock,
warrants and options to
acquire The Molloy Group... -- -- -- -- -- -- --
Reversal of Series A
redemption premium......... -- (187,832) -- -- -- -- --
Exercise of stock options.... -- -- -- -- -- -- --
Dividends on preferred
stock...................... -- 34,777 -- 59,809 -- -- --
Issuance of warrant -- credit
facility................... -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- ---------
Balance at December 31, 1999... 243,723 $348,261 1,058,574 $1,978,475 1,111,111 $1,720,779 2,400,000
======= ======== ========= ========== ========= ========== =========
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-----------------------------------
SERIES E
AMOUNT SHARES AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
Balance at January 1, 1997..... $ -- -- $ --
Exercise of stock options.... -- -- --
Dividends and interest on
Series A redeemable
convertible preferred
stock...................... -- -- --
Accretion of Series B
redeemable convertible
preferred stock............ -- -- --
Net loss..................... -- -- --
---------- --------- ----------
Balance at December 31, 1997... -- -- --
Exercise of stock options.... -- -- --
Dividends and interest on
redeemable convertible
preferred stock............ -- -- --
Adjustment to accretion of
Series B redeemable
convertible preferred
stock...................... -- -- --
Net loss..................... -- -- --
---------- --------- ----------
Balance at December 31, 1998... -- -- --
Issuance of Series D
convertible preferred stock
and warrants, net of
$271,251 issuance costs.... 7,952,907 -- --
Issuance of Series E
convertible preferred
stock, common stock,
warrants and options to
acquire The Molloy Group... -- 2,647,984 9,929,944
Reversal of Series A
redemption premium......... -- -- --
Exercise of stock options.... -- -- --
Dividends on preferred
stock...................... -- -- --
Issuance of warrant -- credit
facility................... -- -- --
Net loss..................... -- -- --
---------- --------- ----------
Balance at December 31, 1999... $7,952,907 2,647,984 $9,929,944
========== ========= ==========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 72
SERVICEWARE.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY) (CONTINUED)
<TABLE>
<CAPTION>
NOTE TOTAL
COMMON STOCK AND RECEIVABLE SHAREHOLDERS'
ADDITIONAL PAID IN CAPITAL FROM EQUITY
-------------------------- COMMON (CAPITAL
SHARES AMOUNT WARRANTS SHAREHOLDER DEFICIT DEFICIENCY)
----------- ------------ -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997................... 4,601,505 $ 754,577 $ -- $ -- $ (1,833,886) $ 2,999,047
Exercise of stock options.................. 11,270 6,918 -- -- -- 6,918
Dividends and interest on Series A
redeemable convertible preferred stock... -- -- -- -- (59,499) --
Accretion of Series B redeemable
convertible preferred stock.............. -- -- -- -- (405,000) --
Net loss................................... -- -- -- -- (1,508,093) (1,508,093)
--------- ---------- -------- --------- ------------ ------------
Balance at December 31, 1997................. 4,612,775 761,495 -- -- (3,806,478) 1,497,872
Exercise of stock options.................. 16,350 17,965 -- -- -- 17,965
Dividends and interest on redeemable
convertible preferred stock.............. -- -- -- -- (124,050) --
Adjustment to accretion of Series B
redeemable convertible preferred stock... -- -- -- -- 526,144 --
Net loss................................... -- -- -- -- (3,816,445) (3,816,445)
--------- ---------- -------- --------- ------------ ------------
Balance at December 31, 1998................. 4,629,125 779,460 -- -- (7,220,829) (2,300,608)
Issuance of Series D convertible preferred
stock and warrants, net of $271,251
issuance costs........................... -- -- 775,842 -- -- 8,728,749
Issuance of Series E convertible preferred
stock, common stock, warrants and options
to acquire the Molloy Group.............. 1,512,307 4,209,882 34,492 -- -- 14,174,318
Reversal of Series A redemption premium.... -- -- -- -- 187,832 --
Exercise of stock options.................. 247,281 274,401 -- (199,999) -- 74,402
Dividends on preferred stock............... -- -- -- -- (94,586) --
Issuance of warrants....................... -- -- 46,400 -- -- 46,400
Net loss................................... -- -- -- -- (10,062,347) (10,062,347)
--------- ---------- -------- --------- ------------ ------------
Balance at December 31, 1999................. 6,388,713 $5,263,743 $856,734 $(199,999) $(17,189,930) $ 10,660,914
========= ========== ======== ========= ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 73
SERVICEWARE.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................... $(1,508,093) $(3,816,445) $(10,062,347)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation and amortization.................... 441,793 794,626 3,701,033
Changes in operating assets and liabilities, net
of effects from purchase of Molloy Group:
Accounts receivable........................... (1,814,246) (162,003) 782,765
Other current assets.......................... (197,482) (158,367) 105,565
Accounts payable.............................. 2,437 426,305 (1,022,089)
Accrued compensation and benefits............. 365,769 120,576 495,095
Other liabilities............................. 234,983 229,657 (233,010)
Deferred revenue.............................. 2,794,623 1,121,223 3,098,524
----------- ----------- ------------
Net cash provided by (used in) operating
activities....................................... 319,784 (1,444,428) (3,134,464)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquisitions................ (395,107) (1,136,400) (1,080,927)
Payments for purchase of Molloy Group, net of cash
acquired......................................... -- -- (346,016)
Payment for rights to the "ServiceWare" name....... -- -- (75,000)
----------- ----------- ------------
Net cash used in investing activities.............. (395,107) (1,136,400) (1,501,943)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of principal of capital lease
obligation....................................... (108,580) (217,516) (243,535)
Repayments of principal of term loan............... -- (54,035) (686,688)
Repayments of principal of line of credit.......... -- (29,166) (1,800,000)
Repayments of principal of equipment line.......... -- -- (205,556)
Repayments of principal of bridge loans............ -- -- (1,800,000)
Proceeds from borrowings under revolving line of
credit........................................... -- 1,450,000 4,100,000
Proceeds from borrowings under equipment line...... -- 350,000 401,116
Proceeds from bridge loans......................... -- 1,800,000
Proceeds from stock option issuances............... 6,918 17,965 74,402
Net proceeds from Series D Preferred stock
issuance......................................... -- -- 8,728,749
----------- ----------- ------------
Net cash provided by (used in) financing
activities....................................... (101,662) 1,517,248 10,368,488
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents... (176,985) (1,063,580) 5,732,081
Cash and cash equivalents at beginning of year..... 2,131,517 1,954,532 890,952
----------- ----------- ------------
Cash and cash equivalents at end of year........... $ 1,954,532 $ 890,952 $ 6,623,033
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................... $ 12,408 $ 73,061 $ 232,967
=========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-7
<PAGE> 74
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION OF THE COMPANY
ServiceWare.com, Inc. (the "Company") is a leading provider of software and
content solutions that businesses use to provide an Internet-based e-service
platform to their customers, partners, suppliers and employees.
The Company's eService Suite includes software and content products which
enable its customers to develop and manage a knowledge base of service-related
information. Its solutions also permit the dissemination of knowledge through
multiple communication channels, such as telephone, e-mail, chat and Web-based
self-service. Additionally, its Internet-based knowledge portal,
RightAnswers.com(TM), enables customers to access a continuously updated
knowledge base of content obtained from leading technology companies as well as
the Company's internally produced knowledge content. The Company also offers
integration, training, consulting and maintenance services that enable its
customers to realize the benefits of its eService Suite.
The Company's products (the "Products") include:
eService Architect. The eService Architect provides a robust set of
knowledge tools that allows customers' subject matter experts and system
administrators to administer, design, manage and maintain knowledge bases.
eService Professional. The eService Professional provides a Web-based
application interface for use by customer service professionals to more
easily navigate through the knowledge base, view various components of the
knowledge base as well as capture and revise additional knowledge.
eService Site. The eService Site allows customers to provide Web-based
self-service to their end-users.
RightAnswers.com. RightAnswers.com is an Internet-based knowledge portal
that enables customers to access a continuously updated database of
problem-solution pairs in a cost effective and timely manner.
RightAnswers.com is also sold in a CD-ROM version, previously marketed as
Knowledge-Pak Desktop Suite(R).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all significant
intercompany accounts and transactions.
REVENUE RECOGNITION
The Company's revenue recognition policy is governed by Statement of
Position (SOP) 97-2, Software Revenue Recognition, issued by the American
Institute of Certified Public Accountants (AICPA), as amended by SOP 98-4,
Deferral of the Effective Date of a Provision of SOP 97-2. The Company derives
its revenues from licenses and subscriptions for its Products sold directly to
end-users and indirectly through distributors as well as from the provision of
related services, including installation and training, consulting, customer
support and maintenance contracts
F-8
<PAGE> 75
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues are recognized only if persuasive evidence of an agreement exists,
delivery has occurred, all significant vendor obligations are satisfied, the fee
is fixed or determinable, and collection of the amount due from the customer is
deemed probable. If extended payment terms or acceptance criteria are in the
contract, revenue recognition is deferred until payment is within normal
payments terms or acceptance has occurred. If a transaction includes multiple
elements, the value given to each element is based on the value of that element
if sold separately. Additional revenue recognition criteria by revenue type are
listed below.
Licenses and subscriptions revenues
Licenses and subscriptions revenues include fees for perpetual licenses and
periodic subscription licenses. We recognize revenues on license fees after a
non-cancelable license agreement has been signed, the product has been
delivered, the fee is fixed, determinable and collectable, and there is
vendor-specific objective evidence to support the allocation of the total fee to
elements of a multiple-element arrangement. We recognize revenues on periodic
subscription licenses over the subscription term. Product returns and sales
allowances (which have not been significant through December 31, 1999) are
estimated and provided for at the time of sale.
Due to the significant delay in receiving sales reports from distributors,
the Company recognizes licenses revenues from distributors when the sales
reports are received because at the time of delivery the fees are not fixed or
determinable and collection is not probable. Accordingly, Annual Subscription
Agreement (ASA) sales included in these reports are recognized on a
straight-line basis over the remaining term of the contract beginning in the
period that the report is received. If certain multi-element arrangements are
not able to be allocated the entire arrangement is deferred and revenue is
recognized over the period of the last undelivered element.
Subscriptions revenues are derived from the sale of ASAs for content, which
provides mainly product updates. ASA revenues are recognized on a straight-line
basis over the term of the contract. Payments for ASAs are normally made in
advance and are nonrefundable.
Services revenues
Services revenues are derived from variable fees for installation,
training, consulting and building customized knowledge bases as well as from
fixed fees for customer support and maintenance contracts.
Maintenance and support revenues are derived from the sale of software
support contracts, which provide end-users with the right to product
enhancements, updates, and customer support. Maintenance revenues are recognized
on a straight-line basis over the term of the contract. Payments for maintenance
fees are normally made in advance and are nonrefundable.
Revenues for installation and training, system integration projects,
consulting and building customized knowledge bases services are recognized as
the services are performed.
Cost of revenues
Cost of licenses and subscriptions revenues consists primarily of the
expenses related to royalties, the cost of media on which a product is
delivered, product fulfillment costs, amortization of purchased technology and
salaries, benefits, direct expenses and allocated overhead costs related to
product fulfillment and the costs associated with maintaining our Web site.
F-9
<PAGE> 76
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cost of services revenues consists of direct and indirect costs related to
service revenues which primarily include salaries, benefits, direct expenses and
allocated overhead costs related to the customer support and services personnel,
fees for subcontractors and the cost associated with maintaining our customer
support site.
Deferred revenues relate to product licenses, ASAs, maintenance services,
professional services, and unearned inventory sale revenue from distributors,
all of which generally have been paid for in advance.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and interest-bearing money market
deposits with financial institutions having original maturities of ninety days
or less. Cash equivalents are stated at cost, which approximates market value.
The amounts held by major financial institutions may exceed the amount of
insurance provided on such deposits. These deposits may generally be redeemed
upon demand and, therefore, subject the Company to minimal risk.
OTHER CURRENT ASSETS
Other current assets consists primarily of deposits and prepayments for
expenses to be realized within the next year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
(generally two to five years). Leasehold improvements are amortized over the
lesser of their useful lives or the remaining term of the lease. Amortization of
assets recorded under capital leases is included in depreciation expense.
Capital leases are amortized over the term of the lease. Upon disposal, assets
and related accumulated depreciation are removed from the Company's accounts,
and the resulting gains or losses are reflected in the statement of operations.
INTANGIBLE ASSETS
Intangible assets resulted primarily from the acquisition of Molloy Group
(Note 3) and consist of the following identifiable assets:
<TABLE>
<CAPTION>
AMORTIZATION
DESCRIPTION AMOUNT PERIOD
- ----------- ------------ ------------
<S> <C> <C>
Assembled workforce......................................... $ 1,041,900 2 years
Customer list............................................... 1,043,543 4 years
Noncompetition agreement.................................... 345,174 3 years
Goodwill.................................................... 12,393,551 3 years
------------
Total intangible assets resulting from the Molloy
acquisition............................................... 14,824,168
Payment for rights to the "ServiceWare" name................ 75,000 3 years
------------
Total intangible assets..................................... 14,899,168
Less accumulated amortization............................... (2,203,580)
------------
Intangible assets, net...................................... $ 12,695,588
============
</TABLE>
Intangible assets are recorded at cost, net of accumulated amortization.
Amortization is computed using the straight-line method over the estimated
useful lives of the related assets (two to four years).
F-10
<PAGE> 77
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On an ongoing basis, when there are indicators of impairment such as
recurring losses, the Company evaluates the carrying value of intangibles
resulting from business acquisitions. If such indicators are apparent, the
Company compares the carrying value of the intangibles to the estimated future
undiscounted cash flows expected to be generated from the businesses acquired
over the remaining life of the intangible. If the undiscounted cash flows are
less than the carrying value of the intangibles, the cash flows will be
discounted to present value and the intangibles will be reduced to this amount.
There was no impairment for the year ended December 31, 1999.
CONCENTRATION OF CREDIT RISK/MAJOR CUSTOMERS
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company sells its products to enterprises directly and through third-party
distributors (Distributors), and the Company's customer base is dispersed across
many different geographic areas throughout North America, parts of Europe, the
South Pacific / Australia, and Japan. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally no collateral,
such as letters of credit and bank guarantees, is required. The Company
maintains adequate reserves for potential credit losses and such losses have
been minimal and within management's estimates.
One direct sales customer accounted for 15% of total revenues in 1997 and
24% of total accounts receivable at December 31, 1997.
The Company recognized approximately $5,096,000, $6,253,000, and
$7,771,000, in product revenues related to Distributor sales in 1997, 1998, and
1999, respectively. In any given year, the revenue from a single Distributor may
be material to total revenue and/or total accounts receivable. For the years
ended December 31, 1997, 1998 and 1999, a single Distributor, two distributors
and a different single distributor accounted for approximately 12%, 15% and 17%
of total revenues and 13%, 14% and 0% of total accounts receivable,
respectively.
PRODUCT CONCENTRATION
The Company currently derives the majority of its revenue from the
licensing of its Products and related services. These products and services are
expected to account for the majority of the Company's revenue for the
foreseeable future. Consequently, a reduction in demand for these products or a
decline in sales of these products, would adversely affect operating results.
RESEARCH AND DEVELOPMENT
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers provided recoverability is reasonably assured. The Company follows the
"working model" approach, whereby technological feasibility is established at
the time the Company has a beta customer. The Company releases updated products
periodically soon after technological feasibility has been established for new
enhancements. For 1997, 1998, and 1999, costs which were eligible for
capitalization were insignificant and, thus, the Company has charged its
software development costs to research and development expense in the
accompanying statements of operations with the exception of the technology
acquired from Molloy (see Note 3). The value of the purchased technology was
capitalized and is being amortized on a straight line basis over 3 years.
F-11
<PAGE> 78
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING COSTS
Advertising and sales promotions are charged to expense during the period
in which they are incurred. Total advertising and sales promotions expense for
the years ended December 31, 1997, 1998, and 1999 were approximately $562,000,
$675,000, and $1,039,000, respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 permits the Company to continue
accounting for stock-based compensation as set forth in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB Opinion
No. 25), provided the Company discloses the pro forma effect on net income and
earnings per share of adopting the full provisions of SFAS No. 123. Accordingly,
the Company continues to account for stock-based compensation under APB Opinion
No. 25 and has provided the required pro forma disclosures (see Note 7).
STATEMENT OF CASH FLOWS
Noncash transactions for the years ended December 31, 1997, 1998, and 1999
include capital lease additions of approximately $395,000, $65,000 and $182,000,
respectively.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the balance sheet dates and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
NET LOSS PER SHARE
In accordance with SFAS No. 128, basic and dilutive net loss per share have
been computed using the weighted-average number of shares of common stock
outstanding during the period.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. The adoption
of this pronouncement for fiscal year 2000 is not expected to materially affect
the Company's revenue recognition policies.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the adoption of SFAS No. 133 is not expected to have a
significant impact on its financial position, results of operations or cash
flows. The Company will be required to implement SFAS No. 133, as amended, for
the year ending December 31, 2001.
In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation and disclosure of revenues in
financial statements. Management believes the Company's revenue recognition
practices are in conformity with SAB No. 101.
F-12
<PAGE> 79
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITION
On July 23, 1999, the Company acquired the outstanding preferred stock,
common stock, and warrants and stock options to purchase common stock of Molloy
Group, Inc. (Molloy), a leading provider of knowledge-empowered software for
strengthening customer relationships. The acquisition was effected by issuing
2,647,984 shares of Series E Preferred Stock, 1,512,307 shares of common stock,
and 40,473 warrants and 393,950 options to purchase common stock. The
consideration was valued at approximately $14.2 million plus $445,000 in
transaction costs. This transaction was accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16, Business
Combinations. The consideration in excess of the fair value of assets acquired
and liabilities assumed in the merger of $16.6 million is classified as
purchased technology and intangible assets and is being amortized over two to
four years.
The estimated fair value of the assets acquired and liabilities assumed of
Molloy are as follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ----------- -----------
<S> <C>
Current assets.......................................... $ 903,184
Property and equipment.................................. 475,663
Purchased technology.................................... 1,777,367
Intangibles............................................. 14,824,168
Other long term assets.................................. 80,298
Current liabilities..................................... 3,468,996
Other long term liabilities............................. 51,905
</TABLE>
The following unaudited pro forma statements of operations give effect to
the Molloy acquisition as if the acquisition occurred on January 1, 1998. Basic
and diluted net loss per share has been calculated utilizing the basic and
diluted weighted average of ServiceWare, Inc. shares outstanding during the
years adjusted for 1,512,307 shares of common stock issued July 23, 1999 for the
Molloy acquisition assuming these shares were outstanding as of the beginning of
the years presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1999
PRO FORMA PRO FORMA
-------------- --------------
<S> <C> <C>
Revenue................................................. $ 16,093,986 $ 20,305,946
Net loss................................................ $(13,507,433) $(14,337,826)
------------ ------------
Net loss applicable to common stock..................... $(13,631,483) $(14,432,412)
============ ============
Basic and diluted net loss per share.................... $ (2.22) $ (2.31)
Shares used in computing per share amounts.............. 6,134,101 6,246,863
</TABLE>
The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma results do not reflect
anticipated cost savings and do not necessarily represent results which would
have occurred if the Molloy acquisition had taken place at the date and on the
basis assumed above.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments consisting
principally of cash and cash equivalents, accounts receivable and payable, debt,
and note receivable from common shareholder approximate their fair values at
December 31, 1998 and 1999.
F-13
<PAGE> 80
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
BALANCE
--------
<S> <C>
Balance, December 31, 1996................................ $ 19,457
Net charge to expense..................................... 79,106
Amounts written off....................................... --
--------
Balance, December 31, 1997................................ 98,563
Net charge to expense..................................... 150,875
Amounts written off....................................... (7,650)
--------
Balance, December 31, 1998................................ 241,788
Net charge to expense..................................... 90,420
Amounts written off....................................... (20,002)
--------
Balance, December 31, 1999................................ $312,206
========
</TABLE>
6. DEBT
In December 1999, the Company entered into a new credit facility with a
bank. This facility consists of three notes, a revolving loan facility, a
convertible equipment loan, and a term loan. The outstanding balances from the
previous revolving credit facility discussed below were transferred to the new
notes.
The amount available under the revolving credit note is $7,500,000 less
principal outstanding on the term loan and matures on December 10, 2001. Any
amounts drawn under the facility bear interest at the Base Rate plus 0.50%.
"Base Rate" is defined as the lesser of the bank's prime rate or the Federal
Fund's Effective Rate plus 2%. The availability of credit is based on a
percentage of eligible accounts receivable. At December 31, 1999, $1,520,658 was
available for use and $1,250,000 was outstanding on the revolving credit note.
The amount available under the convertible equipment note was $750,000 on
December 31, 1999. On June 8, 2000, outstanding amounts under this line will be
converted to single term loan which matures on June 1, 2003. Any amounts drawn
under the facility bear interest at the Base Rate plus 0.75%. The availability
of advances on this line is based on a percentage of invoice amounts for
equipment acquisitions. At December 31, 1999, nothing had been drawn and
$516,394 was outstanding on the new equipment line from the previous equipment
line (see discussion below). Of this amount, $86,066 is classified as other
current liabilities and $430,328 is classified as long term debt. Principal
repayments of this loan will be made upon conversion of the loan in 36 equal
installments beginning July 1, 2000.
The term loan is $2,500,000 and is due in two equal installments on June
10, 2001 and December 10, 2001. Any amounts drawn under the facility bear
interest at the Base Rate plus 2.25%. The total proceeds of the loan were
available on December 10, 1999. At December 31, 1999, $2,500,000 was outstanding
on the term loan.
In September 1998, the Company amended and restated its revolving credit
facility with a bank. This facility consisted of two lines, a revolving credit
line and an equipment line.
The revolving credit line was $3,000,000 and matured in September 1999. Any
amounts drawn under the facility bore interest at the Base Rate plus 0.75%.
"Base Rate" is defined as the greater of the bank's prime rate or the Federal
Funds rate plus 2%. The availability of credit was based on a percentage of
eligible accounts receivable. At December 31, 1998, $1,303,559 was available for
use and $1,450,000 was outstanding on the revolving credit line.
F-14
<PAGE> 81
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The equipment line was $750,000 and matures in September 2001. Any amounts
drawn under the facility bore interest at the Base Rate plus 1.0%. The
availability of advances on this line were based on a percentage of invoice
amounts for equipment acquisitions. At December 31, 1998, $350,000 had been
drawn and $320,833 was outstanding on the equipment line.
The Base Rate is variable and was 8.50% and 7.75% at December 31, 1999 and
1998, respectively.
The December 1999 revolving credit agreement contains covenants that
require the Company to, among other things, maintain a minimum tangible net
worth and provide certain financial reports to the bank. In addition, the
agreement restricts the Company's ability to pay cash dividends without the
bank's consent. The Company's accounts receivable, inventory, equipment, and
cash are pledged as collateral.
In conjunction with the new credit facility the Company issued 80,000
warrants to buy common stock. Additionally, the Company issued 6,814 and 28,000
warrants in connection with bridge loans in the amount of $750,000 and
$1,050,000 to its bank and Series A, B and C Shareholders, respectively. The
bridge loans were repaid with the proceeds from the Sale of Series D Convertible
preferred stock. Using the Black-Scholes pricing model described in note 8 the
value of warrants was $46,400.
Aggregate maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000..................................................... $ 86,066
2001..................................................... 2,672,131
2002..................................................... 172,131
2003..................................................... 86,066
----------
3,016,394
Less current portion..................................... 86,066
----------
Long term debt, less current portion..................... $2,930,328
==========
</TABLE>
7. SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
The Company has two classes of capital stock consisting of Common Stock and
Preferred Stock. There are five series of Preferred Stock as discussed below.
SERIES A CONVERTIBLE PREFERRED STOCK
On July 25, 1994, the Company sold 243,723 shares of Series A Preferred
Stock for approximately $250,000. The proceeds from this sale were used for
working capital, marketing, closing expenses, and existing liabilities. The
holders of Series A are entitled to receive dividends of $.082 per share from
July 29, 1994 through June 30, 1999, payable when and if declared by the Board
of Directors. The accrued dividends may be paid (at the option of the holder) in
cash or shares of Common Stock for dividends accruing for the first three years
and cash thereafter through June 30, 1999. The holders of Series A are also
entitled to dividends paid on the Common Stock as if the Series A was converted
into the Common Stock. Each share of Series A is currently convertible into
three shares of Common Stock, to be adjusted proportionally for future stock
splits, stock dividends, etc.
Prior to July 23, 1999, Series A had redemption privileges such that on
July 29, 1999 and thereafter, any holder of Series A representing at least 50%
of all of the shares of Series A outstanding or any holder with the consent of
the majority Series A holders, could require the Company to redeem the remaining
Series A at the redemption price plus a redemption premium, if applicable. The
redemption price was equal to the original issuance, plus any accrued dividends
unpaid, plus a redemption premium equal to
F-15
<PAGE> 82
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest on the original conversion price compounded at 12% per annum from July
25, 1994. The Company has accounted for the cumulative annual dividends and
redemption premium through periodic accretion to Series A through June 30, 1999.
On July 23, 1999, the redemption privileges were revoked and the dividend
accrual was limited through June 30, 1999. At December 31, 1999, the Company has
recorded the value of Series A to be the original issuance plus the accrued
dividends. No dividends have been declared or paid as of December 31, 1999.
SERIES B CONVERTIBLE PREFERRED STOCK
On June 29, 1995, the Company sold 1,058,574 shares of Series B Preferred
Stock for approximately $1.5 million. The proceeds from this sale were used for
working capital purposes and to repurchase 180,000 shares of Common Stock for
$1.417 per share. The holders of Series B are entitled to receive dividends of
$.113 per share from June 29, 1995 through June 30, 1999, payable when and if
declared by the Board of Directors. Such dividends accrued, whether or not
earned or declared, and are cumulative and payable upon liquidation, business
combination, or redemption or conversion of the Series B into Common Stock. The
accrued dividends can be paid (at the option of the holder) in cash or shares of
Common Stock for dividends accruing for the first three years and cash
thereafter through June 30, 1999. The holders of Series B are also entitled to
dividends declared on the Common Stock as if the Series B was converted into the
Common Stock. Each share of Series B is currently convertible into approximately
1.706 shares of Common Stock, to be adjusted proportionally for future stock
splits, stock dividends, etc.
Prior to July 23, 1999, Series B had redemption privileges such that on
June 29, 2002, 2003 and 2004, any holder of Series B representing at least a
majority of all of the shares of Series B outstanding could require the Company
to redeem one-third, one-half of the remaining Series B shares and all of the
Series B shares, respectively, outstanding on the applicable redemption date at
the redemption price. The redemption price was equal to the greater of the
original issuance, plus any accrued dividends unpaid or the fair market value of
the Series B shares as determined at that date. The Company has accreted Series
B in accordance with these terms through June 30, 1999. On July 23, 1999, the
redemption privileges were revoked and the dividend accrual was limited through
June 30, 1999. At December 31, 1999, the Company has recorded the value of
Series B to be the original issuance plus the accrued dividends. No dividends
have been declared or paid as of December 31, 1999.
SERIES C CONVERTIBLE PREFERRED STOCK
On April 24, 1996, the Company sold 500,051 shares of Series C Preferred
Stock and the contingent right to receive 320,095 shares of Common Stock
(subsequently issued) for $2.5 million less $18,116 for transaction costs. The
proceeds from this sale were used for general working capital purposes. Each
share of Series C is currently convertible into 1.550 shares of Common Stock, to
be adjusted proportionally for future stock splits, stock dividends, etc.
In connection with the sale of Series C shares to Norwest Equity Partners V
(Norwest) on April 24, 1996, the Company's common shareholders approved the
reclassification of 611,060 shares of Common Stock sold by certain shareholders
to Norwest into Series C.
There are no dividends or interest provisions related to Series C, however,
the terms of the Series C Preferred Stock include antidilution provisions with
respect to stock dividends that have accrued to the Series A and Series B
shareholders.
SERIES D CONVERTIBLE PREFERRED STOCK
On July 23, 1999, the Company sold 2,400,000 shares of Series D Preferred
Stock and the contingent right to exercise 360,000 warrants to buy common stock
for $9 million less $271,251 for transaction costs.
F-16
<PAGE> 83
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The exercise price of the warrants are $2.50, and they are exercisable if
certain performance targets are not met. The proceeds from this sale were used
for general working capital purposes. Each share of Series D is currently
convertible into one share of Common Stock, to be adjusted proportionally for
future stock splits, stock dividends, etc.
The estimated fair value of the warrants granted of $775,842 was recorded
on December 31, 1999, the date when the performance criteria were deemed
satisfied (see Note 8).
There are no dividends or interest provisions related to Series D.
SERIES E CONVERTIBLE PREFERRED STOCK
On July 23, 1999, the Company issued 2,647,984 shares of Series E Preferred
Stock in connection with the acquisition of The Molloy Group (see Note 3). Each
share of Series E is currently convertible into one share of Common Stock, to be
adjusted proportionally for future stock splits, stock dividends, etc.
There are no dividends or interest provisions related to Series E.
Conversion, Voting, Liquidation Preference and Other Rights of Preferred Stock
Holders
The Preferred Stock may be converted to Common Stock at any time by the
holder and will be mandatorily converted to Common Stock upon the closing of the
Company's initial public offering of shares of Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
subject to a minimum per share price and gross proceeds. Each Preferred Stock
holder has the right to vote as if their shares of Preferred Stock had been
converted to Common Stock at the then current conversion rate.
The terms of the Preferred Stock provide for preferences upon liquidation
and other rights. In general, the Preferred Stock holders have a preference at
liquidation equal to the issuance price, plus any accrued, unpaid dividends
whether or not declared for Series A and Series B. The remaining assets, if any,
would be distributed ratably to the Common Stock holders. The holders of
Preferred Stock are also parties to various agreements with the Company which
contain, among other provisions, preemptive rights, the exclusive selection of
one director to the Board of Directors, and other rights.
COMMON STOCK
The Company has reserved the following number of shares of Common Stock:
<TABLE>
<CAPTION>
SHARES PURPOSE OF ISSUANCE
- ---------- -------------------
<C> <S>
731,169 Upon conversion of Series A
1,806,290 Upon conversion of Series B
1,722,294 Upon conversion of Series C
2,400,000 Upon conversion of Series D
2,647,984 Upon conversion of Series E
3,659,599 Upon exercise of stock options
515,288 Upon exercise of warrants
- ----------
13,482,624 Total
==========
</TABLE>
STOCK OPTION PLAN
Effective January 1996, the Company's Board of Directors approved the
ServiceWare, Inc. Amended and Restated Stock Option Plan (the Plan) which
amended and restated the ServiceWare, Inc. 1994
F-17
<PAGE> 84
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option/Stock Issuance Plan. The Plan is administered by the Board of
Directors and provides for awards of stock options to employees, officers,
directors, consultants and advisors. A total of 4,000,000 shares of the
Company's Common Stock may be issued pursuant to the Plan. The exercise price of
incentive stock options is equal to the estimated fair market value of the
Company's Common Stock at the date of the grant as determined by management and
the Board of Directors for the years ended December 31, 1997, 1998 and 1999. The
exercise price of nonqualified options is also determined by the Board of
Directors. Options generally vest over a three to four year period in equal
annual amounts, or over such other period as the Board of Directors determines,
and may be accelerated in the event of certain transactions such as merger or
sale of the Company. These options expire within ten years after the date of
grant.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and loss per share would have been increased by approximately
$72,000, $154,000 and $398,000 or $0.02, $0.04 and $0.01 per share in 1997, 1998
and 1999, respectively. The average fair value of the options granted is
estimated as $0.42 during 1997, $0.57 during 1998, and $0.61 during 1999 on the
date of grant using the Black-Scholes pricing model with the following
assumptions: volatility 0.6, dividend yield 0.0%, assumed forfeiture rate of
4.2% for 1999 and 3.5% for 1998 and 1997, an expected life of 3 years, and
average risk-free interest rates of 6.13%, 4.60%, and 5.40% for 1997, 1998 and
1999, respectively.
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years. SFAS 123 does not apply to awards prior to 1995 and additional awards in
future years are anticipated.
The following table summarizes option activity for the years ended December
31, 1997, 1998, and 1999:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE WEIGHTED AVERAGE
OUTSTANDING RANGE PER SHARE EXERCISE PRICE
----------- ----------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1996.................... 1,208,975 $0.0110 - $2.3000 $1.3459
Options granted............................... 268,600 $2.3000 - $3.6000 $2.4684
Options exercised............................. 11,270 $0.3330 - $2.3000 $0.7154
Options forfeited............................. 90,205 $0.3330 - $2.3000 $1.6826
---------
Balance, December 31, 1997.................... 1,376,100 $0.0110 - $3.6000 $1.5247
Options granted............................... 742,700 $3.6000 - $5.1000 $4.5595
Options exercised............................. 16,350 $0.3330 - $2.3000 $1.0999
Options forfeited............................. 411,044 $0.9400 - $5.1000 $2.3512
---------
Balance, December 31, 1998.................... 1,691,406 $0.0110 - $5.1000 $2.6605
Options granted............................... 1,979,120 $1.0000 - $5.1000 $1.6029
Options exercised............................. 247,281 $0.0110 - $5.1000 $1.1100
Options forfeited............................. 775,835 $0.1670 - $5.1000 $2.6215
---------
Balance, December 31, 1999.................... 2,647,410 $0.0560 - $5.1000 $1.8858
=========
</TABLE>
F-18
<PAGE> 85
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options outstanding as of December 31, 1999 have been segregated into
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ------------------------------------
OPTIONS WEIGHTED AVERAGE
RANGE OF OUTSTANDING AS OF REMAINING WEIGHTED AVERAGE EXERCISABLE AS OF WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE
- ----------------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.000 - $0.5100 196,500 4.9 $0.3125 196,500 $0.3125
$0.5101 - $1.0200 850,100 9.0 $0.9930 75,937 $0.9269
$1.0201 - $1.5300 383,460 8.7 $1.2100 249,909 $1.2100
$2.0401 - $2.5500 890,000 9.2 $2.4644 141,525 $2.3707
$3.5701 - $4.0800 160,000 8.1 $3.6000 40,600 $3.6000
$4.5901 - $5.1000 167,350 8.5 $5.1000 44,650 $5.1000
--------- --- ------- ------- -------
2,647,410 8.6 $1.8858 749,121 $1.5266
========= === ======= ======= =======
</TABLE>
8. WARRANTS
The following table summarizes warrant activity for the year ended December
31, 1999:
<TABLE>
<CAPTION>
WARRANTS WARRANT PRICE
OUTSTANDING RANGE PER SHARE
----------- ---------------
<S> <C> <C>
Balance, December 31, 1998............................... --
Warrants granted......................................... 515,288 $1.50 - $9.00
Warrants exercised....................................... --
Warrants forfeited....................................... --
-------
Balance, December 31, 1999............................... 515,288 $1.50 - $9.00
=======
</TABLE>
The valuation of warrants was calculated using the Black-Scholes pricing
model with the following assumptions: volatility of 0.6, dividend yield 0.0%,
assumed forfeiture rate of 0.0%, an expected life of 2 years, and an average
risk-free interest rate of 5.40%. The holders of the warrants have the right to
exercise at anytime until the expiration of the warrant which is 3 to 6 years
from the date of grant.
9. NOTE RECEIVABLE FROM COMMON SHAREHOLDER
On January 24, 1999, a former employee exercised options to purchase 86,956
shares of common stock at a purchase price of $2.30 per share. A promissory note
in the amount of $199,999 was issued in conjunction with the sale. The note
bears interest at the applicable federal rate defined in the Internal Revenue
Code of 1986, as amended and is due January 2001.
10. OPERATING LEASES
The Company has several operating leases covering office space and certain
equipment. Future minimum lease payments due under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000..................................................... $1,291,750
2001..................................................... 1,355,806
2002..................................................... 733,471
2003..................................................... 151,018
----------
$3,532,045
==========
</TABLE>
F-19
<PAGE> 86
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense under all operating leases amounted to approximately
$442,674, $585,891, and $975,796 in 1997, 1998 and 1999, respectively.
11. INCOME TAXES
A reconciliation of the benefit for income taxes on operations computed by
applying the federal statutory rate of 34% to the loss from operations before
income taxes and the reported benefit for income taxes on operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Income tax benefit computed at statutory federal
income tax rate.................................... $(512,752) $(1,297,591) $(3,402,661)
State income taxes, net of federal tax benefit, if
any................................................ (99,534) (251,885) (660,517)
Other (principally goodwill and meals and
entertainment)..................................... 14,908 57,139 794,208
Federal deferred tax asset valuation allowance
Adjustment......................................... 597,378 1,492,337 3,268,970
--------- ----------- -----------
Total benefit for income taxes....................... $ -- $ -- $ --
========= =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets (liabilities)
Accounts receivable................................ $ 39,000 $ 97,000 $ 125,000
Property and equipment............................. (43,000) (8,000) 16,000
Intangible assets.................................. -- -- (1,423,000)
Deferred revenue................................... 370,000 17,000 --
Loss carryforward.................................. 517,000 2,270,000 8,280,000
--------- ----------- -----------
Total net deferred tax assets........................ 883,000 2,376,000 6,998,000
Valuation allowance.................................. (883,000) (2,376,000) (6,998,000)
--------- ----------- -----------
Net deferred tax asset............................... $ -- $ -- $ --
========= =========== ===========
</TABLE>
Management has recorded a valuation allowance against the deferred tax
assets until such time that the Company demonstrates an ability to consistently
produce taxable income.
The federal net operating loss carryforward completely expires for losses
originating prior to the year ended December 31, 1999 by the year ended 2013.
Federal net operating loss carryforward originating in the year ended December
31, 1999 expires by the year ending 2019. The state net operating loss
carryforward for losses originating prior to the year ended December 31, 1999
expires by the years ending 2000 and 2001. The state net operating loss
carryforward originating in the year ended December 31, 1999 expires by the year
ending 2009.
F-20
<PAGE> 87
SERVICEWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. NET LOSS PER SHARE
Basic and diluted net loss per share has been computed as described above.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Numerator:
Net loss......................................... $(1,508,093) $(3,816,445) $(10,062,347)
Series A and Series B dividends.................. (59,499) (124,050) (94,586)
----------- ----------- ------------
Numerator for basic and diluted net loss per
share -- income available to common
stockholders.................................. $(1,567,592) $(3,940,495) $(10,156,933)
Denominator:
Denominator for basic and diluted earnings per
share -- weighted average shares.............. 4,609,051 4,621,794 5,401,652
=========== =========== ============
Basic and diluted net loss per share............... $ (0.34) $ (0.85) $ (1.88)
=========== =========== ============
</TABLE>
Dilutive securities include options, warrants, and preferred stock as if
converted. Potentially dilutive securities totaling 5,635,853, 5,951,159 and
12,470,435 for the years ended December 31, 1997, 1998 and 1999, respectively,
were excluded from historical basic and diluted loss per share because of their
antidilutive effect.
13. RETIREMENT PLAN
The Company has a 401(k) profit sharing plan (the "Plan") covering all of
its employees subject to certain age and service requirements. Under provisions
of the Plan, participants may contribute up to 15% of their eligible
compensation to the Plan. The Company did not contribute to the Plan in 1997,
1998, or 1999.
14. SUBSEQUENT EVENT (UNAUDITED)
From January 1, 2000 to March 15, 2000, the Company granted 892,440 stock
option to employees, which vest over four years. The Company will record
approximately $2.5 million as deferred compensation for these grants during the
quarter ended March 31, 2000. Additionally, the Company changed the vesting
period for 100,000 stock options originally granted in October 1999 to the
Chairman of the Board of the Company to vest immediately. The Company will
record approximately $300,000 of stock-based compensation during the quarter
ended March 31, 2000 due to the modification of this award.
On March 24, 2000, the Company changed its name from ServiceWare, Inc. to
ServiceWare.com, Inc.
F-21
<PAGE> 88
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Molloy Group, Inc.
We have audited the accompanying balance sheets of Molloy Group, Inc. as of
September 30, 1997 and 1998, and the related statements of operations, changes
in stockholders' equity (capital deficiency) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Molloy Group, Inc. as of
September 30, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Pittsburgh, Pennsylvania
March 30, 2000
F-22
<PAGE> 89
MOLLOY GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 169,249 $ 61,204
Accounts receivable, net of allowance for doubtful
accounts of $23,625 and $9,721......................... 2,002,770 594,898
Prepaid expenses.......................................... 53,029 25,959
Prepaid taxes............................................. 9,200 64,002
----------- -----------
Total current assets........................................ 2,234,248 746,063
----------- -----------
Software development costs, less accumulated amortization of
$67,737 and $292,588...................................... 388,326 1,328,839
Property and equipment:
Computer equipment........................................ 551,118 668,788
Office furniture, equipment and leasehold improvements.... 316,023 425,792
----------- -----------
867,141 1,094,580
Less accumulated depreciation............................. 352,488 579,721
----------- -----------
514,653 514,859
----------- -----------
Deposits.................................................... 131,188 78,123
----------- -----------
Total assets................................................ $ 3,268,415 $ 2,667,883
=========== ===========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current liabilities:
Accounts payable.......................................... $ 667,651 $ 523,122
Accrued expenses.......................................... 377,018 458,775
Current portion of capital lease obligations.............. 80,471 130,171
Line of credit............................................ 375,000 803,336
Current portion of long-term debt......................... 64,868 --
Note payable officer...................................... -- 352,814
Subordinated convertible note............................. 1,500,000 --
Deferred revenue.......................................... 818,054 505,775
----------- -----------
Total current liabilities................................... 3,883,062 2,773,993
----------- -----------
Capital lease obligations, net of current portion........... 156,722 140,179
Long-term debt, net of current portion...................... 94,955 --
----------- -----------
Total long-term liabilities................................. 251,677 140,179
----------- -----------
Stockholders' equity (capital deficiency):
Preferred stock: $1,000,000 shares authorized -- Series A,
par value $.0001, 323,077 shares issued and
outstanding............................................ 32 32
Series B, par value $.0001, 0 and 111,800 shares issued
and outstanding, respectively.......................... -- 12
Common stock, par value $.0001, 7,000,000 shares
authorized, 4,643,715 shares issued and outstanding.... 464 464
Warrants.................................................. 25,175 25,175
Deferred compensation..................................... (329,838) (724,799)
Additional paid-in capital................................ 1,444,306 5,430,514
Accumulated stockholders' deficit......................... (2,006,463) (4,977,687)
----------- -----------
Total stockholders' equity (capital deficiency)............. (866,324) (246,289)
----------- -----------
Total liabilities and stockholders' equity (capital
deficiency)............................................... $ 3,268,415 $ 2,667,883
=========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 90
MOLLOY GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Product revenue..................... $ 2,669,404 $ 1,693,737 $ 1,512,937 $ 1,665,472
Maintenance revenue................. 1,082,320 1,233,904 906,722 690,257
Training and consulting revenue..... 670,796 1,213,536 942,641 635,597
----------- ----------- ----------- -----------
Total revenue......................... 4,422,520 4,141,177 3,362,300 2,991,326
----------- ----------- ----------- -----------
Cost and expenses:
Costs of products and services
sold............................. 1,264,864 1,537,477 994,824 818,504
Selling and marketing expenses...... 2,859,200 2,547,804 2,039,021 1,486,604
Product development expenses........ 985,864 862,413 483,232 1,272,339
General and administrative
expenses......................... 1,908,693 1,780,382 1,465,331 1,544,364
Stock-based compensation............ 53,412 120,288 76,617 134,775
----------- ----------- ----------- -----------
Total costs and expenses.............. 7,072,033 6,848,364 5,059,025 5,256,586
----------- ----------- ----------- -----------
Loss from operations.................. (2,649,513) (2,707,187) (1,696,725) (2,265,260)
Interest expense...................... 141,497 264,037 231,507 252,225
----------- ----------- ----------- -----------
Loss before income tax benefit........ (2,791,010) (2,971,224) (1,928,232) (2,517,485)
Income tax (benefit) expense.......... (240,885) -- -- --
----------- ----------- ----------- -----------
Net loss.............................. $(2,550,125) $(2,971,224) $(1,928,232) $(2,517,485)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 91
MOLLOY GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED PREFERRED COMMON DEFERRED ADDITIONAL
STOCK STOCK STOCK WARRANTS COMPENSATION PAID-IN CAPITAL
--------- --------- ------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1996.......... $32 $-- $461 $25,175 $ -- $ 961,062
Issuance of common stock............ -- -- 3 -- -- 99,994
Stock-based compensation............ -- -- -- -- (383,250) 383,250
Amortization of stock-based
compensation...................... -- -- -- -- 53,412 --
Net loss............................ -- -- --
--- --- ---- ------- --------- ----------
Balance September 30, 1997.......... 32 -- 464 25,175 (329,838) 1,444,306
Issuance of preferred stock......... -- 2 -- -- -- 750,010
Conversion of notes................. -- 10 -- -- -- 2,720,949
Stock-based compensation............ -- -- -- -- (515,249) 515,249
Amortization of stock-based
compensation...................... -- -- -- -- 120,288 --
Net loss............................ -- -- -- -- -- --
--- --- ---- ------- --------- ----------
Balance at September 30, 1998....... 32 12 464 25,175 (724,799) 5,430,514
Amortization of stock-based
compensation (unaudited).......... -- -- -- -- 134,775 --
Net loss (unaudited)................ -- -- -- -- -- --
--- --- ---- ------- --------- ----------
Balance at June 30, 1999
(unaudited)....................... $32 $12 $464 $25,175 $(590,024) $5,430,514
=== === ==== ======= ========= ==========
<CAPTION>
RETAINED
EARNINGS
(DEFICIT) TOTAL
----------- -----------
<S> <C> <C>
Balance September 30, 1996.......... $ 543,662 $ 1,530,392
Issuance of common stock............ -- 99,997
Stock-based compensation............ -- --
Amortization of stock-based
compensation...................... -- 53,412
Net loss............................ (2,550,125) (2,550,125)
----------- -----------
Balance September 30, 1997.......... (2,006,463) (866,324)
Issuance of preferred stock......... -- 750,012
Conversion of notes................. 2,720,959
Stock-based compensation............ -- --
Amortization of stock-based
compensation...................... -- 120,288
Net loss............................ (2,971,224) (2,971,224)
----------- -----------
Balance at September 30, 1998....... (4,977,687) (246,289)
Amortization of stock-based
compensation (unaudited).......... -- 134,775
Net loss (unaudited)................ (2,517,485) (2,517,485)
----------- -----------
Balance at June 30, 1999
(unaudited)....................... $(7,495,172) $(2,628,999)
=========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 92
MOLLOY GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 NINE MONTHS ENDED JUNE 30
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................ $(2,550,125) $(2,971,224) $(1,928,232) $(2,517,485)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation.......................... 188,282 227,233 161,083 143,040
Amortization of software costs........ 67,737 224,851 67,623 352,333
Stock-based compensation.............. 53,412 120,288 76,617 134,775
Deferred income taxes................. (241,085) -- -- --
Accrued interest on convertible
note............................... -- 212,500 -- --
Adjustments to reconcile net loss to net
cash used in operations:
Accounts receivable................... (403,723) 1,407,872 669,229 (481,586)
Other current assets.................. (39,132) (27,732) (56,767) 81,055
Deposits.............................. (104,104) 53,066 -- --
Accounts payable...................... 494,980 (144,529) (450,782) 17,193
Accrued expenses...................... 168,858 81,757 220,783 99,203
Deferred revenue...................... 287,629 (312,279) (78,003) 862,470
----------- ----------- ----------- -----------
Net cash used by operating activities... (2,077,271) (1,128,197) (1,318,449) (1,309,002)
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant, and equipment.......... (173,903) (83,152) (47,268) (109,477)
Capitalized software development
costs................................. (287,138) (1,165,364) (805,469) (826,979)
----------- ----------- ----------- -----------
Net cash used by investing activities... (461,041) (1,248,516) (852,737) (936,456)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from officer loan.............. -- 352,814 -- --
Principal payments on capital lease
obligations........................... (59,856) (111,130) (96,164) (78,344)
Repayments on line of credit and
long-term debt........................ (100,000) (534,823) (254,579) (1,415,794)
Proceeds from long-term debt............ 159,823 -- -- 1,873,062
Proceeds from note payable -- line of
credit................................ -- 803,336 803,336 --
Proceeds from issuance of preferred
stock................................. 99,997 750,012 750,012 --
Proceeds from convertible note.......... 1,500,000 1,008,459 1,008,459 2,385,000
----------- ----------- ----------- -----------
Net cash provided by financing
activities............................ 1,599,964 2,268,668 2,211,064 2,763,924
----------- ----------- ----------- -----------
Net decrease in cash.................... (938,348) (108,045) 39,878 518,466
Cash beginning of year.................. 1,107,597 169,249 169,249 61,204
----------- ----------- ----------- -----------
Cash end of year........................ $ 169,249 $ 61,204 $ 209,127 $ 579,670
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 155,115 $ 273,784 $ 252,759 $ 236,048
Income taxes paid....................... $ -- $ 1,000 $ -- $ --
</TABLE>
See accompanying notes.
F-26
<PAGE> 93
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The primary business activity of Molloy Group, Inc. (Molloy or the Company)
is the design, development, sales and service of advanced software products. The
Company also provides support services for the commercial applications of the
software.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the balance sheet dates and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
For the years ended September 30, 1997 and September 30, 1998, two
customers and one customer represented approximately 10% and 35% of total
revenues, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and interest-bearing money market
deposits with financial institutions having original maturities of ninety days
or less. Cash equivalents are stated at cost, which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the related assets which
range from three to twenty years. The cost of major renewals or betterments that
extend the useful lives of the property and equipment are capitalized as assets.
Amortization of assets recorded under capital leases is included in depreciation
expense. General repairs and maintenance are charged to income when incurred.
INCOME TAXES
Deferred income tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment with the adjustment being recorded through income tax expense in the
year of the change.
REVENUE RECOGNITION
Revenue is recognized on the sale of software products when products have
been delivered and invoiced in accordance with SOP 91-1.
Revenue from the sale of extended support and maintenance service contracts
is recorded as deferred revenue and recognized on a straight-line basis over the
term of the contract. Costs against those contracts are expense as incurred.
F-27
<PAGE> 94
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue from the sale of training and consulting services is billed in
advance of the performance of the services. These billings are classified as
unearned revenue with revenue being recognized when the performance of the
services are complete.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers.
All costs incurred prior to establishing the technological feasibility of
software products to be sold are accounted for as research and development costs
and are expensed in the period incurred. The Company recorded $67,737 and
$224,851 of amortization expense related to software development costs in 1997
and 1998, respectively.
ADVERTISING
The Company expenses advertising as incurred. Advertising expense totaled
$295,839 and $134,541 for the years ended September 30, 1997 and 1998,
respectively.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for stock options and awards. Accordingly, compensation costs for
stock options and awards are measured as the excess, if any, of the fair value
of the Company's stock at the date of grant over the exercise price of the stock
option or award.
STATEMENT OF CASH FLOWS
Noncash transactions for the years ended September 30, 1997 and 1998
include capital lease additions of approximately $199,387 and $144,287,
respectively.
Preferred stock was issued upon the conversion of $2,508,459 of convertible
notes and $212,500 of accrued interest.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1997, the AICPA issued Statement of Position 97-2 (SOP 97-2),
"Software Revenue Recognition," which changes the requirements for revenue
recognition effective for transactions that the Company will enter into
beginning October 1, 1998. Beginning on October 1, 1998 revenue will be
recognized on the sale of software products when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and
collectibility is considered probable. The adoption of this pronouncement is not
expected to materially affect the Company's revenue recognition policies.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." The
adoption of this pronouncement is not expected to materially affect the
Company's revenue recognition policies.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities.
F-28
<PAGE> 95
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Because the Company does not currently hold any derivative instruments and does
not engage in hedging activities, the adoption of SFAS No. 133 is not expected
to have a significant impact on its financial position, results of operations or
cash flows. The Company will be required to adopt SFAS No. 133, as amended, for
the year ending December 31, 2001.
INTERIM FINANCIAL INFORMATION
The accompanying statements of operations and cash flows for the nine
months ended June 30, 1998 and 1999, and the consolidated statement of
shareholders' equity for the nine months ended June 30, 1999 ("interim financial
statements") have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and with
Article 10 of Regulation S-X. Accordingly, they do not included all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The interim financial statements include all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of the results of interim periods. Operating
results for the nine-month period ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ended
September 30, 1999.
2. CAPITAL LEASES
The Company leases certain equipment under capital leases expiring in
various years through the year 2002. The assets are depreciated over the lower
of their related lease terms or their estimated productive lives. Depreciation
of assets under capital leases is included in depreciation expense for the years
ended September 30, 1997 and 1998.
The following is a schedule of the future minimum lease payments under
capital leases by year together with the present value of the net minimum lease
payments:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
------------
<S> <C>
1999.................................................. $155,989
2000.................................................. 124,870
2001.................................................. 18,751
2002.................................................. 1,922
--------
Total minimum lease payments.......................... 301,532
Less amount representing interest..................... 31,182
--------
Present value of net minimum lease payments........... 270,350
Less current portion.................................. 130,171
--------
Total long-term capital lease obligation.............. $140,179
========
Capital leases classified as property and equipment
consist of:
Computer equipment.................................... $282,575
Less accumulated depreciation......................... 136,743
--------
$145,832
========
</TABLE>
Interest rates on capitalized leases vary from 4.03% to 22.10% and are
imputed based on the lower of the Company's incremental borrowing rate at the
inception of each lease or the lessor's implicit rate of return.
Certain capital leases provided for purchase options. Generally, purchase
options are at a price lower than the expected fair value of the property at the
expiration of the lease term.
F-29
<PAGE> 96
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS
The Company leases its office under a noncancelable operating lease.
Minimum future lease obligations under such noncancelable operating lease
as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
------------
<S> <C>
1999.................................................. $ 512,989
2000.................................................. 548,941
2001.................................................. 584,232
2002.................................................. 186,744
----------
$1,832,906
==========
</TABLE>
Total rent expense for the years ended September 30, 1997 and 1998 was
$335,334 and $513,189, respectively.
4. NOTE PAYABLE OFFICER
During 1998, the Company entered into a note payable agreement with one of
its officers which is due March 31, 1999. The note payable bears an interest
rate of 15% with interest and principal due at maturity. The balance due at
September 30, 1998 was $352,814.
5. LINE OF CREDIT
In February 1998, the Company entered into a $2,000,000 line of credit
agreement with a bank which initially expired in February 1999 and contains
provisions for automatic one-year renewals. The line of credit agreement bears
an interest rate of prime plus 2.5% subject to an interest rate flow of 9% with
minimum monthly fees of $7,500. The balance due as of September 30, 1998 was
$803,336.
The line of credit is secured by substantially all of the Company's assets.
All payments on the Company's accounts receivable are remitted to a lock box at
the lending institution and are used to pay the outstanding balance on the line
of credit.
The Company also maintained a line of credit which was secured by
substantially all of the Company's assets and personally guaranteed by the
Company's President. Interest on the line of credit was charged at prime plus
.25%. The balance at September 30, 1997 was $375,000. The line of credit was
repaid in 1998.
6. LONG-TERM DEBT
The Company had a note payable to a bank with an interest rate of 8.25%
payable in 36 monthly installments of $6,288.
The following summarizes the amounts related to the note:
<TABLE>
<CAPTION>
1997 1998
-------- ----
<S> <C> <C>
Balance due at September 30................................ $159,823 $--
Less current portion....................................... 64,868 --
-------- --
Long-term portion of note payable at September 30.......... $ 94,955 $--
======== ===
</TABLE>
7. SUBORDINATED CONVERTIBLE NOTE
The Company entered into a subordinated convertible note agreement with an
investor bearing interest at 10% per annum. This note was convertible into
preferred stock if a sale of any class of stock in
F-30
<PAGE> 97
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
excess of $750,000 occurred. The balance of the convertible note was $1,500,000
at September 30, 1997. Also, during 1998 an additional subordinated convertible
note was issued to an investor for $1,000,000. As more fully described in Note
13, in September 1998, the principal and interest related to the subordinated
convertible notes were converted into 87,606 shares of Series B Noncumulative
Convertible Preferred Stock.
8. INCOME TAXES
The provision for income tax expense (benefit) consists of the following as
of September 30:
<TABLE>
<CAPTION>
1997 1998
--------- ----
<S> <C> <C>
Federal:
Current................................................... $ -- $--
Deferred.................................................. (187,451) --
State
Current................................................... -- --
Deferred.................................................. (53,434) --
--------- --
$(240,885) $--
========= ===
</TABLE>
A reconciliation of the benefit for income taxes on operations, computed by
applying the federal statutory rate of 34% to the loss from operations before
income taxes and the reported benefit for income taxes on operations, is as
follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Income tax benefit computed at statutory federal
income tax rate................................ $ 948,943 $ 1,009,825
State income taxes, net of federal tax benefit,
if any......................................... 165,786 176,422
Non-deductible items............................. (36,056) (69,337)
Federal deferred tax asset valuation allowance
adjustment..................................... (837,788) (1,116,910)
--------- -----------
Total benefit for income taxes................... $ 240,885 $ --
========= ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets (liabilities)................... $ (446,305) $ 103,852
Software development costs........................ (155,098) (530,738)
Deferred revenue.................................. 326,731 202,007
Accrued expenses.................................. 43,166 39,940
Net operating losses.............................. 1,069,294 2,139,637
---------- ----------
Total net deferred tax assets....................... 837,788 1,954,698
---------- ----------
Valuation allowance................................. 837,788 1,954,698
---------- ----------
Net deferred tax asset.............................. $ -- $ --
========== ==========
</TABLE>
Management has recorded a valuation allowance against the deferred tax
assets until such time that the Company demonstrates an ability to consistently
produce taxable income.
F-31
<PAGE> 98
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has net operating loss carryovers to offset future income tax.
If not used, these carryovers will expire as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
2011.................................................. $ 282,126
2012.................................................. 2,395,125
2018.................................................. 2,679,878
----------
Total................................................. $5,357,129
==========
</TABLE>
9. STOCK-BASED COMPENSATION PLANS
In November 1996, the Company approved the 1996 Stock Plan (the Plan). The
Plan was intended to provide the Company the ability to grant incentive stock
options (ISOs) to employees of the Company, to provide an opportunity for
employees and vendors to purchase stock in the Company through the exercise of
Nonqualified Stock Options (NQSOs) and to provide the Company an opportunity to
award shares of stock in the Company at the discretion of the Company's board of
directors. The Plan provides for the Company to issue ISOs, NQSOs and stock
awards such that the aggregate number of shares upon exercise is limited to
881,470 shares. The exercise price and the vesting period of the ISOs and NQSOs
is established by the board of directors.
Pro forma information regarding net loss for options granted is required by
SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined
as if the Company had accounted for its employee stock options under the fair
value method of SFAS No. 123. The fair value for these option grants was
estimated at the dates of grant using a Black-Scholes option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Risk-free interest rate.................................. 6.25% 6.25%
Dividend yield........................................... 0% 0%
Volatility factor........................................ .6 .6
Weighted-average expected life of options................ 3 years 3 years
Options granted.......................................... 388,500 356,500
Weighted-average fair market value of options granted
during the year........................................ 1.71 1.74
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based upon the fair value at the grant date for awards under the plan consistent
with the methodology prescribed by SFAS No. 123, the Company's net loss would
have been increased by approximately $115,000 and $211,000 in 1997 and 1998,
respectively.
F-32
<PAGE> 99
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes option activity for the years ended
September 30, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS OPTION PRICE AVERAGE
OUTSTANDING PER SHARE EXERCISE PRICE
----------- ------------ --------------
<S> <C> <C> <C>
Balance at September 30, 1996.................. -- -- --
Options granted................................ 388,500 $1.50 $1.50
Options forfeited.............................. 14,000 $1.50 $1.50
-------
Balance at September 30, 1997.................. 374,500 $1.50 $1.50
Options granted................................ 356,500 $1.50 $1.50
Options forfeited.............................. 143,000 $1.50 $1.50
-------
Balance at September 30, 1998.................. 588,000 $1.50 $1.50
=======
</TABLE>
10. RETIREMENT PLAN
The Company has a 401(k) profit sharing plan (the Plan) covering all of its
employees subject to certain age and service requirements. Under the provisions
of the Plan, participants may contribute up to 15% of their eligible
compensation to the Plan. No contributions were made to the Plan in 1997 or
1998.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments consisting
principally of cash and cash equivalents, accounts receivable, accounts payable
and debt approximate their fair values at September 30, 1997 and 1998.
12. STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
The Company has two classes of capital stock outstanding consisting of
Common Stock, par value $.0001, and preferred stock. There are two series of
preferred stock: Series A, Noncumulative Preferred Stock, par value $.0001
(Series A Preferred Stock) and Series B, Noncumulative Convertible Preferred
Stock, par value $.001 (Series B Preferred Stock), as discussed below.
COMMON STOCK
The Company has authorized 7,000,000 shares of common stock of which
4,643,715 was issued and outstanding as of September 30, 1997 and 1998. In
December 1996, the Company issued 33,334 shares of common stock for $99,997.
The Company has reserved the following number of shares of common stock:
<TABLE>
<CAPTION>
SHARES PURPOSE OF ISSUANCE
- ------ ------------------------------
<S> <C>
1,118,000............................... Upon conversion of Series B
588,000................................ Upon exercise of stock options
111,538................................ Upon exercise of warrants
</TABLE>
SERIES A PREFERRED STOCK
In September 1996, the Company sold 323,077 shares of Series A Preferred
Stock with 61,538 detachable warrants for approximately $969,000. Each warrant
entitles the holder thereof to one share of common stock of the Company at an
exercise price of $3.00 per share. (See discussion of warrants below.)
F-33
<PAGE> 100
MOLLOY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series A Preferred Stock shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of the Company to the holders of common stock by reason of their
ownership thereof, an amount per share equal to $3.00 (subject to adjustment for
stock splits, combinations, reclassifications or similar events affecting such
shares) for each outstanding share of Series A Preferred Stock plus an amount
equal to all dividends declared but unpaid. If, upon the occurrence of such an
event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
Company legally available for distribution shall be distributed ratably among
the holders of the Series A Preferred Stock in proportion to the preferential
amount each such holder is otherwise entitled to receive in respect to such
shares.
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance into the number of fully-paid
and nonassessable shares of common stock as is convertible on a one-to-one
basis.
SERIES B PREFERRED STOCK
In May 1998, the Company sold 24,194 shares of Series B Preferred Stock at
an offering price of $31.00 per share. Each share is convertible into common
stock at a ratio of $3.10 per share or ten shares of common stock for each share
of Series B Preferred Stock. Proceeds from the sale of the 24,194 shares was
approximately $750,000.
In September 1998, the amounts related to the Company's subordinated
convertible notes were converted into 87,606 shares of Series B Preferred Stock
at a conversion rate of approximately $24.17 per share.
WARRANTS
In addition to the 61,538 detachable warrants related to the Series A
Preferred Stock as described above, the Company also issued 50,000 warrants to
an employee in September 1996, each of which entitles the holder thereof to one
share of common stock of the Company at an exercise price of $4.00 per share.
As of September 30, 1998, the Company has 61,538 warrants outstanding at an
exercise price of $3.00 per share and 50,000 warrants with an exercise price of
$4.00 per share. There were no warrants to purchase shares exercised during the
years ended September 30, 1997 and 1998.
13. SUBSEQUENT EVENTS -- UNAUDITED
On November 13, 1998, the Company raised $500,000 by entering into a
subordinated convertible note agreement with Unterberg Harris Private Equity
Partners, L.P. for this amount.
On December 2, 1998, the Company raised $385,000 by entering into a
subordinated convertible note agreement with Unterberg Harris Private Equity
Partners, L.P. for this amount.
On December 4, 1998, the Company raised $500,000 by entering into a
subordinated convertible note agreement with Unterberg Harris Private Equity
Partners, L.P.
On April 29, 1999, the Company raised $500,000 by entering into a
subordinated convertible bridge note agreement with Unterberg Harris Private
Equity Partners, L.P. with a commitment of an additional $500,000, if needed.
On July 23, 1999 ServiceWare, Inc. (ServiceWare) acquired the outstanding
preferred stock, common stock, warrants and stock options of the Molloy Group,
Inc. (Molloy). The acquisition was executed through the issuance of stock,
warrants and options of ServiceWare to Molloy valued at $14.2 million plus
transaction costs of $445,000.
F-34
<PAGE> 101
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER SERVICEWARE.COM, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SALE IS
NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF OUR STOCK.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Use of Proceeds....................... 18
Dividend Policy....................... 18
Dilution.............................. 19
Capitalization........................ 20
Selected Historical Financial Data.... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 30
Management............................ 41
Certain Transactions.................. 49
Principal Stockholders................ 52
Description of Capital Stock.......... 55
Shares Eligible for Future Sale....... 57
Underwriting.......................... 60
Legal Matters......................... 62
Experts............................... 62
Where You Can Find Additional
Information......................... 62
Index to Financial Statements......... F-1
</TABLE>
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in the common stock offered hereby, whether or
not participating in this distribution, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[ ] SHARES
[SERVICEWARE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BEAR, STEARNS & CO. INC.
SG COWEN
WIT SOUNDVIEW
C.E. UNTERBERG, TOWBIN
, 2000
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by us in connection
with the offering (other than underwriting compensation). All of such amounts
(except the SEC registration fee and the NASD filing fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $
NASD filing fee............................................. *
Nasdaq National Market Listing Fee..........................
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Blue Sky Qualification Fees and Expenses.................... *
Transfer Agent's Fee........................................ *
Miscellaneous............................................... *
----------
Total............................................. $
==========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article VII of the
registrant's Amended and Restated Certificate of Incorporation, to be in effect
upon consummation of the offering of the securities to which this registration
statement relates, provides that the personal liability of directors of the
registrant is eliminated to the fullest extent permitted by Section 102(b)(7) of
the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article VII of the registrant's Amended and Restated Bylaws, to be in effect
upon consummation of the offering of the securities to which this registration
statement relates, provides that the registrant will indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
(or to the extent permitted under Delaware law, has agreed to be) a director,
officer, employee or agent of the registrant, or is or was serving (or, to the
extent permitted under Delaware law, has agreed to serve) at the request of the
registrant as a director, officer, employee or agent of another entity, against
certain liabilities, costs and expenses. Article VII further permits the
registrant to maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the registrant, or is or was serving at
the request of the registrant as a director, officer, employee or agent of
another entity, against any liability asserted against such person and incurred
by such person in any such capacity or arising out of his status as such,
whether or not the
II-1
<PAGE> 103
registrant would have the power to indemnify such person against such liability
under the DGCL. The registrant expects to maintain directors' and officers'
liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
We have sold and issued the following securities since January 1997 (as
adjusted to reflect certain stock splits):
1. We issued and sold [ ] shares of our common stock to
employees for an aggregate purchase price of [ ] pursuant to the
exercise of options under our 1996 stock option plan.
2. In July 1999, we sold an aggregate of (a) 2,400,000 shares of our
Series D preferred stock, and (b) common stock warrants for the purchase of
540,000 shares of our common stock in the aggregate, for an aggregate
purchase price of $9.0 million to a group of 22 investors.
3. In connection with our acquisition of Molloy Group, Inc. in July
1999, we issued 2,707,680 shares of our Series E preferred stock to the
former holders of preferred stock of the Molloy Group, Inc. (b) common
stock warrants for the purchase of 60,710 shares of our common stock in the
aggregate and (c) 2,319,596 shares of our common stock to former holders of
common stock of the Molloy Group, Inc.
4. In April, May and June 1999, PolyVentures II, L.P., Geocapital III,
L.P. and Norwest Equity Partners V loaned us $150,000, $250,000 and
$650,000, respectively, for short term working capital purposes. As partial
consideration for these loans, we issued warrants to purchase 6,000, 10,000
and 26,000 shares of our common stock to each of PolyVentures II, L.P.,
Geocapital III, L.P. and Norwest Equity Partners V, respectively.
5. We issued to PNC Bank warrants to purchase 10,221 shares of our
common stock as part of the consideration for a bridge loan in the amount
of $0.75 million which was repaid with the proceeds from the sale of our
Series D convertible preferred stock.
The issuances described in Item 15(1) were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act or Section 4(2) of the Securities Act. The issuances of the
securities described in item 15(2) and 15(3) were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such Act as
transactions by an issuer not involving any public offering. In addition, the
recipients of securities in each such transactions represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed prior to completion of this
offering.
3.2 Form of Bylaws of the Registrant to be filed prior to
completion of this offering.
4.1 Registration Rights Agreement dated July 23, 1999.
10.1 Loan Agreement, dated December 10, 1999, between the
Registrant and PNC Bank.
10.2 Agreement and Plan of Merger, dated July 13, 1999, between
the Registrant and the parties thereto in connection with
the acquisition of the Molloy Group.
10.3 Commercial Lease Agreement, dated May 31, 1995, as amended,
between the Registrant and Sibro Enterprises, for property
located in Oakmont, Pennsylvania.
</TABLE>
II-2
<PAGE> 104
<TABLE>
<S> <C>
10.4 First Amendment of Lease, dated June 30, 1998, between the Registrant and PW/MS OP SUB I, LLC., for
property located in Piscataway, New Jersey
10.5 2000 Stock Incentive Plan of Registrant.
10.6 Employee Stock Purchase Plan of Registrant.
10.7 ServiceWare, Inc. Amended and Restated Stock Option Plan.
+10.8 Software Remarketing Agreement, dated August 3, 1999, between the Registrant and Tivoli Systems, Inc.
+10.9 Microsoft Corporation Serviceware Knowledge Base License Agreement, dated June 29, 1998, between the
Registrant and Microsoft Corporation.
+10.10 Microsoft Knowledge Base Non-Exclusive License Agreement, dated June 29, 1998, between the Registrant
and Microsoft Corporation, as amended.
+10.11 Microsoft Knowledge Base Non-Exclusive License Agreement for Subscription Services, dated March 3, 1999,
between the Registrant and Microsoft Corporation.
10.12 Loan Agreements between the Registrant and certain of the Registrant's officers during the first quarter
of 2000.
10.13 Employment letter of Mark Tapling, dated July 22, 1999.
10.14 Employment letter of Mark Finkel, dated January 18, 2000.
10.15 Compensation letter of Rajiv Enand, dated January 19, 2000.
10.16 Compensation, Consultation and Severance Agreement, dated July 23, 1999, between the Registrant and
Bruce Molloy.
10.17 License Agreement and Assignment, each dated July 23, 1999, between the Registrant and Bruce Molloy.
23.1 Consent of Ernst & Young LLP (see Page ).
24.1 Power of Attorney (included on signature page of this registration statement).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ We have applied for confidential treatment with respect to certain portions of
these documents.
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X, or
the information that would otherwise be included in such schedules is contained
in our financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
(i) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(ii) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 105
(iii) The undersigned registrant hereby undertakes that:
(1) For the purposes determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, the State of
New York, on the 31st day of March, 2000.
ServiceWare.com, Inc.
By: /s/ MARK TAPLING
------------------------------------
Name: Mark Tapling
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rajiv Enand and Mark Finkel, and each of them,
with full power to act without the other, such persons true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments thereto
(including post-effective amendments), any subsequent Registration Statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments thereto and to file the same, with exhibits and schedules thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARK TAPLING President and Chief Executive March 31, 2000
- --------------------------------------------------- Officer
Mark Tapling
/s/ MARK FINKEL Vice President and Chief March 31, 2000
- --------------------------------------------------- Financial Officer
Mark Finkel
/s/ RAJIV ENAND Director March 31, 2000
- ---------------------------------------------------
Rajiv Enand
/s/ KEVIN HALL Director March 31, 2000
- ---------------------------------------------------
Kevin Hall
/s/ SUSANNE HARRISON Director March 31, 2000
- ---------------------------------------------------
Susanne Harrison
/s/ BRUCE MOLLOY Director March 31, 2000
- ---------------------------------------------------
Bruce Molloy
/s/ TIMOTHY WALLACE Director March 31, 2000
- ---------------------------------------------------
Timothy Wallace
</TABLE>
- ---------------
The signatures above reflect the authorized signatures of this Registration
Statement obtained upon its original filing on March 31, 2000, but inadvertently
omitted from such filing in its electronic version.
II-5
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, the State of
New York, on the 7th day of April, 2000.
ServiceWare.com, Inc.
By: /s/ MARK TAPLING
------------------------------------
Name: Mark Tapling
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARK TAPLING President and Chief Executive April 7, 2000
- --------------------------------------------------- Officer
Mark Tapling
/s/ MARK FINKEL Vice President and Chief Financial April 7, 2000
- --------------------------------------------------- Officer
Mark Finkel
/s/ RAJIV ENAND Director April 7, 2000
- ---------------------------------------------------
Rajiv Enand
/s/ KEVIN HALL* Director April 7, 2000
- ---------------------------------------------------
Kevin Hall
/s/ SUSANNE HARRISON* Director April 7, 2000
- ---------------------------------------------------
Susanne Harrison
/s/ BRUCE MOLLOY* Director April 7, 2000
- ---------------------------------------------------
Bruce Molloy
/s/ TIMOTHY WALLACE* Director April 7, 2000
- ---------------------------------------------------
Timothy Wallace
---------------
*By: /s/ RAJIV ENAND
---------------------------------------------
Rajiv Enand
Attorney-in-fact
</TABLE>
II-6
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed prior to completion of this
offering.
3.2 Form of Bylaws of the Registrant to be filed prior to
completion of this offering.
4.1 Registration Rights Agreement dated July 23, 1999.
10.1 Loan Agreement, dated December 10, 1999, between the
Registrant and PNC Bank.
10.2 Agreement and Plan of Merger, dated July 13, 1999, between
the Registrant and the parties thereto in connection with
the acquisition of the Molloy Group.
10.3 Commercial Lease Agreement, dated May 31, 1995, as amended,
between the Registrant and Sibro Enterprises, for property
located in Oakmont, Pennsylvania.
10.4 First Amendment of Lease, dated June 30, 1998, between the
Registrant and PW/MS OP SUB I, LLC., for property located in
Piscataway, New Jersey
10.5 2000 Stock Incentive Plan of Registrant.
10.6 Employee Stock Purchase Plan of Registrant.
10.7 ServiceWare, Inc. Amended and Restated Stock Option Plan.
+10.8 Software Remarketing Agreement, dated August 3, 1999,
between the Registrant and Tivoli Systems, Inc.
+10.9 Microsoft Corporation Serviceware Knowledge Base License
Agreement, dated June 29, 1998, between the Registrant and
Microsoft Corporation.
+10.10 Microsoft Knowledge Base Non-Exclusive License Agreement,
dated June 29, 1998, between the Registrant and Microsoft
Corporation, as amended.
+10.11 Microsoft Knowledge Base Non-Exclusive License Agreement for
Subscription Services, dated March 3, 1999, between the
Registrant and Microsoft Corporation.
10.12 Loan Agreements between the Registrant and certain of the
Registrant's officers during the first quarter of 2000.
10.13 Employment letter of Mark Tapling, dated July 22, 1999.
10.14 Employment letter of Mark Finkel, dated January 18, 2000.
10.15 Compensation letter of Rajiv Enand, dated January 19, 2000.
10.16 Compensation, Consultation and Severance Agreement, dated
July 23, 1999, between the Registrant and Bruce Molloy.
10.17 License Agreement and Assignment, each dated July 23, 1999,
between the Registrant and Bruce Molloy.
23.1 Consent of Ernst & Young LLP (see Page ).
24.1 Power of Attorney (included on signature page of this
registration statement).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ We have applied for confidential treatment with respect to certain portions of
these documents.
<PAGE> 1
Exhibit 10.7
SERVICEWARE, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the ServiceWare, Inc. Amended and Restated Stock Option Plan
(the "Plan") is to promote the interests of ServiceWare, Inc. (the "Company")
and its shareholders by (i) attracting and retaining employees, officers,
directors, consultants and advisors of outstanding ability, (ii) motivating such
persons, by means of performance-related incentives, to achieve longer-range
performance goals, and (iii) enabling such persons to participate in the
long-term growth and financial success of the Company. The effective date of the
ServiceWare, Inc. Amended and Restated Stock Option Plan is January 1, 1996 (the
"Effective Date").
2. ADMINISTRATION.
Subject to the following paragraph, the Plan shall be administered by the
Board of Directors of the Company (the "Board") or by a Compensation Committee
appointed by the Board. If the Board appoints a Compensation Committee and
delegates to it the authority to administer the Plan, the Compensation Committee
shall be empowered to take all actions reserved to the Board under the Plan. The
Board is authorized to interpret the Plan, to prescribe, amend and rescind rules
and regulations to further the purposes of the Plan, and to make all other
determinations necessary for the administration of the Plan. All such actions by
the Board shall be final and binding.
At any time following the registration by the Company of its Common Stock
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Plan shall be administered by a Compensation Committee,
which shall consist of one or more persons approved by the Board, all of whom
shall be (i) "Non-Employee Directors" as defined under Rule 16b-3 under the
Exchange Act and (ii) "outside directors" as defined under Section 162(m) or any
successor provision of the Internal Revenue Code of 1986, as amended (the
"Code") and applicable Treasury regulations thereunder, if such qualification is
deemed necessary in order for the grant or the exercise of awards made under the
Plan to qualify for any tax or other material benefit to participants or the
Company under applicable law.
3. INCENTIVE STOCK OPTIONS; NONQUALIFIED STOCK OPTIONS.
Awards under the Plan may be in the form of options which qualify as
"incentive stock options" ("Incentive Stock Options") within the meaning of
Section 422 or any successor provision of the Code or options which do not so
qualify ("Nonqualified Options"). Incentive Stock Options may be granted only to
employees of the Company. Each award of an option shall be designated in the
applicable option agreement as an Incentive Stock Option or a Nonqualified
Option, as appropriate.
4. SHARES SUBJECT TO THE PLAN.
<PAGE> 2
Subject to adjustment as provided in Section 13, awards in respect of an
aggregate of up to 1,512,500 shares of the Common Stock of the Company, no par
value per share (the "Common Stock"), may be made under the Plan (such number of
shares includes shares which have been issued under the ServiceWare, Inc. 1994
Stock Option/Stock Issuance Plan, or which may be issued upon the exercise of
options granted under the ServiceWare, Inc. 1994 Stock Option/StockIssuance
Plan, prior to the Effective Date). The Common Stock to be offered under the
Plan shall be authorized and unissued Common Stock, or issued Common Stock which
shall have been reacquired by the Company and held in its treasury. The Common
Stock covered by any unexercised portion of terminated stock options granted
under the Plan may again be subject to new awards under the Plan. In the event
the purchase price of a stock option is paid in whole or in part through the
delivery of Common Stock, only the net number of shares of Common Stock issuable
in connection with the exercise of the option shall be counted against the
number of shares remaining available for the grant of awards under the Plan. At
any time following the registration by the Company of its Common Stock under
Section 12 of the Exchange Act, no participant shall be granted awards in
respect of more than 425,000 shares of Common Stock in any calendar year
(subject to adjustment as provided in Section 13).
5. PARTICIPANTS.
The Board shall determine and designate from time to time those employees,
directors, consultants and advisors of the Company or its subsidiaries who shall
be awarded options under the Plan and the number of shares of Common Stock to be
covered by each such option, provided that any such consultants or advisors
render bona fide services which are not in connection with the offer or sale of
securities in a capital-raising transaction. In making its determinations, the
Board shall take into account the present and potential contributions of the
respective individuals to the success of the Company, and such other factors as
the Board shall deem relevant in connection with accomplishing the purposes of
the Plan. Each option award shall be evidenced by a written stock option
agreement in such form as the Board shall approve from time to time.
6. FAIR MARKET VALUE.
For all purposes under the Plan, the term "Fair Market Value" shall mean, as
of any applicable date, (i) if the principal securities market on which the
Common Stock is traded is a national securities exchange or The Nasdaq National
Market ("NNM"), the closing price of the Common Stock on such exchange or NNM,
as the case may be, or if no sale of the Common Stock shall have occurred on
such date, on the next preceding date on which there was a reported sale; or
(ii) if the Common Stock is not traded on a national securities exchange or NNM,
the closing price on such date as reported by The Nasdaq SmallCap Market, or if
no sale of the Common Stock shall have occurred on such date, on the next
preceding date on which there was a reported sale; or (iii) if the principal
securities market on which the Common Stock is traded is not a national
securities exchange, NNM or The Nasdaq SmallCap Market, the average of the bid
and asked prices reported by the National Quotation Bureau, Inc.; or (iv) if the
price of the Common Stock is not so reported, the Fair Market Value of the
Common Stock as determined in good faith by the Board.
7. EXERCISE PRICE.
Incentive Stock Options shall be granted at an exercise price of not less
than 100% of the Fair Market Value on the date of grant; provided, however, that
Incentive Stock Options granted to a participant who at the time of such grant
owns (within the meaning of Section 424(d) of the Code) more
<PAGE> 3
than ten percent of the voting power of all classes of stock of the Company (a
"10% Holder") shall be granted at an exercise price of not less than 110% of the
Fair Market Value on the date of grant. Nonqualified Options shall be granted at
an exercise price determined in each case by the Board.
<PAGE> 4
8. TERM AND TERMINATION.
(a) The Board shall determine the term within which each option may be
exercised, in whole or in part, provided that (i) such term shall not exceed ten
years from the date of grant; (ii) the term of an Incentive Stock Option granted
to a 10% Holder shall not exceed five years from the date of grant; and (iii)
the aggregate Fair Market Value (determined on the date of grant) of Common
Stock with respect to which Incentive Stock Options granted to a participant
under the Plan or any other plan of the Company and its subsidiaries become
exercisable for the first time in any single calendar year shall not exceed
$100,000.
(b) Unless otherwise determined by the Board, all rights to exercise options
shall terminate on the first to occur of (i) the scheduled expiration date as
set forth in the applicable stock option agreement, or (ii) ninety (90) days
following the date of termination of employment for any reason other than the
death or permanent disability (as defined in the Code) of the participant, or
(iii) one (1) year following the date of termination of employment by reason of
the participant's death or permanent disability; provided, however, that in the
event that an employee ceases to be employed by the Company on account of a
"termination for cause" (as defined in subsection (c)), all rights to exercise
options held by such employee shall terminate immediately as of the date such
employee ceases to be employed by the Company.
(c) As used in this Plan, the term "termination for cause" shall mean a
finding by the Board that the employee has engaged in conduct that is
fraudulent, disloyal, criminal or injurious to the Company, including, without
limitation, embezzlement, theft, commission of a felony or proven dishonesty in
the course of his or her employment or service, or the disclosure of trade
secrets or confidential information of the Company to persons not entitled to
receive such information.
9. RIGHT OF FIRST REFUSAL; RIGHT TO REPURCHASE.
(a) At any time prior to the registration by the Company of its Common Stock
under Section 12 of the Exchange Act, the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by optionees (and
their successors in interest by purchase, gift or other mode of transfer) of any
shares of Common Stock issued upon the exercise of options granted under the
Plan. Such right shall be exercisable by the Company in accordance with the
terms and conditions established by the Board and set forth in the applicable
stock option agreement.
(b) At any time prior to the registration by the Company of its Common Stock
under Section 12 of the Exchange Act, in the event that an employee is
terminated for cause (as defined in Section 8(c)), the Company shall have the
right, exercisable in accordance with the terms and conditions established by
the Board and set forth in the applicable stock option agreement, to repurchase
any shares of Common Stock issued to such terminated employee under the Plan.
10. CHANGE OF CONTROL.
As used herein, a "Change of Control" shall be deemed to have occurred:
(a) If, as a result of any transaction, any "person" (as such term is used
in Section 13(d) and 14(d) of the Exchange Act) other
<PAGE> 5
than an existing shareholder as of the effective date of the Plan (or his
beneficiary or estate) is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of the
Company representing more than 50% of the combined voting power of the then
outstanding securities of the Company;
(b) Upon (i) the merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the
merger or consolidation, will not beneficially own, immediately after the merger
or consolidation, shares entitling such shareholders to 50% or more of the all
votes to which all shareholders of the surviving corporation would be entitled
in the election of directors (without consideration of the rights of any class
of stock to elect directors by a separate class vote), or where the members of
the Board, immediately prior to the merger or consolidation, would not,
immediately after the merger or consolidation, constitute a majority of the
board or directors of the surviving corporation, (ii) the sale, lease, exchange
or other transfer of all or substantially all of the assets of the Company,
(iii) a liquidation, dissolution or statutory exchange of the Company, or (iv)
the sale of more than 50% or more of the outstanding voting securities in one or
a series of transactions other than an initial public offering of voting
securities registered with the Securities and Exchange Commission.
(c) If, on or after the Effective Date, during any period of two consecutive
years, individuals who constitute the Board at the beginning of such period
cease for any reason to constitute at least a majority of the Board, unless the
election, or the nomination for election by the Company's shareholders, of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
11. CONSEQUENCES OF A CHANGE OF CONTROL.
(a) Subject to Section 11(b) and 11(d), upon a Change of Control, all
outstanding options granted under this Plan shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
of the Change of Control, become immediately exercisable and each holder of
outstanding options shall thereupon have the right to exercise in full any or
all of his or her outstanding stock options.
(b) Notwithstanding Section 11(a), an outstanding option shall not
accelerate if and to the extent that such option is, in connection with the
Change of Control, either assumed by the Acquiring Corporation (as defined
below) or parent thereof or replaced with a comparable option to purchase shares
of the capital stock of the Acquiring Corporation or parent thereof (such
assumed and comparable options together, the "Replacement Options"); provided,
however, all Replacement Options held by an employee whose employment with the
Company or the Acquiring Corporation is terminated without cause (as defined in
Section 8(c)) in the period beginning upon the Change of Control and ending 12
months following the Change of Control, shall become immediately exercisable
upon the date of such termination of employment. The term "Acquiring
Corporation" means the surviving, continuing, successor or purchasing
corporation, as the case may be.
(c) Each outstanding option which is to be assumed in connection with the
Change of Control or is otherwise to continue in effect shall be appropriately
adjusted, immediately following such Change of Control, to apply and pertain to
the number and class of securities which would have been issuable, in
consummation of such Change of Control, to an actual holder of the same number
of shares of Common Stock as are subject to such option immediately prior to
such Change of Control. Appropriate
<PAGE> 6
adjustments shall also be made to the option price payable per share, provided
the aggregate option price payable remains the same.
(d) Notwithstanding anything in this Plan to the contrary, in the event of a
Change of Control, no action described in this Plan shall be taken (including
without limitation actions described in subsections (a) and (b) above) that
would make the Change of Control ineligible for pooling of interest accounting
treatment or that would make the Change of Control ineligible for desired tax
treatment if, in the absence of such right, the Change of Control would qualify
for such treatment and the Company intends to use such treatment with respect to
such Change of Control.
12. OTHER TERMS AND CONDITIONS.
The Board shall have the discretion to determine terms and conditions,
consistent with the Plan, that will be applicable to options. Options granted to
the same or different participants, or at the same or different times, need not
contain similar provisions.
13. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
The number and kind of shares subject to outstanding options, the exercise
price applicable thereto, and the number and kind of shares available for
options subsequently granted under the Plan shall be appropriately adjusted to
reflect any stock dividend, stock split, combination or exchange of shares or
other change in capitalization with a similar substantive effect upon the Plan
or the awards granted under the Plan. The Board shall have the power and sole
discretion to determine the nature and amount of the adjustment to be made in
each case. The adjustment so made shall be final and binding on all
participants.
14. PAYMENT FOR STOCK.
Full payment for shares purchased upon exercise of options granted under the
Plan shall be made at the time the award is exercised in whole or in part.
Payment of the purchase price shall be made in cash or in such other form as the
Board may approve, including, without limitation, (i) by the delivery to the
Company by the participant of a promissory note containing such terms as the
Board may determine, or (ii) by the delivery to the Company by the participant
of shares of Common Stock that have been held by the participant for at least
six months prior to exercise of the award, valued at the Fair Market Value of
such shares on the date of exercise or (iii) if the Company's Common Stock is
publicly traded, pursuant to a cashless exercise arrangement with a broker on
such terms as the Board may determine; provided, however, that if payment is
made pursuant to clause (i), the then par value of the purchased shares shall be
paid in cash. No shares of Common Stock shall be issued to the participant until
such payment has been made, and a participant shall have none of the rights of a
shareholder with respect to options held by such participant.
15. TRANSFERABILITY.
Unless otherwise determined by the Board with respect to Nonqualified
Options, options granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution and are exercisable during a
participant's lifetime only by the participant.
16. WITHHOLDING.
<PAGE> 7
The Company shall have the right to deduct from all amounts paid to a
participant in cash as salary, bonus or other compensation any taxes required by
law to be withheld in respect of awards granted under the Plan. In the Board's
discretion, a participant may be permitted to elect to have withheld from the
shares otherwise issuable to the participant, or to tender to the Company, the
number of shares of Common Stock whose Fair Market Value equals the amount
required to be withheld.
<PAGE> 8
17. CONSTRUCTION OF THE PLAN.
The validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely by the Board. Any determination by the Board shall be final
and binding on all participants. The Plan shall be governed in accordance with
the laws of the Commonwealth of Pennsylvania, without regard to the conflict of
law provisions of such laws.
18. NO RIGHT TO AWARD; NO RIGHT TO EMPLOYMENT.
No person shall have any claim of right to be granted an option under the
Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any employee any right to be retained in the employ of the Company or any
of its subsidiaries or as giving any consultant, adviser or director any right
to continue to serve in such capacity.
19. AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES.
Income recognized by a participant pursuant to the provisions of the Plan
shall not be included in the determination of benefits under any employee
pension benefit plan (as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974) or group insurance or other benefit
plans applicable to the participant which are maintained by the Company or any
of its subsidiaries, except as may be provided under the terms of such plans or
determined by resolution of the Board.
20. NO STRICT CONSTRUCTION.
No rule of strict construction shall be implied against the Company, the
Board, or any other person in the interpretation of any of the terms of the
Plan, any award granted under the Plan or any rule or procedure established by
the Board.
21. CAPTIONS.
All Section headings used in the Plan are for convenience only, do not
constitute a part of the Plan, and shall not be deemed to limit, characterize or
affect in any way any provisions of the Plan, and all provisions of the Plan
shall be construed as if no captions have been used in the Plan.
22. SEVERABILITY.
Whenever possible, each provision in the Plan and every award at any time
granted under the Plan shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of the Plan or any award at
any time granted under the Plan shall be held to be prohibited by or invalid
under applicable law, then such provision shall be deemed amended to accomplish
the objectives of the provision as originally written to the fullest extent
permitted by law, and all other provisions of the Plan and every other award at
any time granted under the Plan shall remain in full force and effect.
23. LEGENDS.
All certificates for Common Stock delivered under the Plan shall be subject
to such transfer and other restrictions as the Board may deem advisable under
the rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange or quotation system upon which the
<PAGE> 9
Common Stock is then listed or quoted and any applicable federal or state
securities law, and the Board may cause a legend or legends to be put on any
such certificates to make appropriate references to such restrictions.
24. AMENDMENT.
The Board may, by resolution, amend or revise the Plan, except that such
action shall not be effective without shareholder approval if such shareholder
approval is required to maintain the compliance of the Plan and/or awards
granted to directors, executive officers or other persons with Rule 16b-3
promulgated under the Exchange Act or any successor rule. The Board may not
modify any options previously granted under the Plan in a manner adverse to the
holders thereof without the consent of such holders, except in accordance with
the provisions of Section 11 or Section 13.
25. EFFECTIVE DATE; TERMINATION OF PLAN.
The Plan was initially adopted by the Board and the shareholders of the
Company on February 15, 1994 (the "Initial Effective Date") as the ServiceWare,
Inc. 1994 Stock Option/Stock Issuance Plan and was amended and restated in its
entirety effective as of January 1, 1996. The Plan shall terminate on the tenth
anniversary of the Initial Effective Date unless it is earlier terminated by the
Board. Termination of the Plan shall not affect awards previously granted under
the Plan.
<PAGE> 1
Exhibit 10.8
Confidential portions of this Exhibit have been omitted and are identified by
square brackets ([ ]) and three asterisks (***). Such material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
Solution Developer Marketing Partnerships
- --------------------------------------------------------------------------------
Software Remarketing Agreement
This is a Software Remarketing Agreement ("SRA") among ServiceWare, Inc. ("you")
and Tivoli Systems Inc., a subsidiary of International Business Machines
Corporation ("IBM"), collectively Tivoli and IBM are referred to as
"TIVOLI/IBM". The complete Agreement between the parties consists of this SRA
and the following Attachments and Exhibits:
o Exhibit - Your End User License
o Exhibit - Your Outsourcer License
o Exhibit - Your Trade Mark Guidelines
o Exhibit - Your Commercial Price List
o Attachment - Certificate of Originality
o Attachment - Tivoli Development License Agreement
o Attachment - Public Sector Terms
If there is a conflict among the terms of this SRA and any of its Attachments,
the terms of the SRA prevail unless the Attachment expressly indicates that
particular terms within the Attachment prevail.
The following are related agreements between the parties. Related agreements
require the signatures of the parties, and in some cases third parties.
o Confidential Disclosure Agreement No. CDA9903540
This Agreement replaces all prior oral or written communications between the
parties relating to the subject matter hereof. Both parties accept the terms of
this Agreement and identified Attachments and Exhibits by signing below. Once
signed, any reproduction of this Agreement made by reliable means (for example,
photocopy or facsimile) is considered an original, unless prohibited by local
law. This Agreement may only be modified by a writing signed by both parties.
AGREED TO: AGREED TO:
Tivoli Systems, Inc. ServiceWare, Incorporated
By: /s/ Jodie Slifka By: /s/ Rajiv Enand
Print Name JODIE SLIFKA Print Name RAJIV ENAND
Print Title CONTRACT MANAGER Print Title CEO
Date 8/3/99 Date 8/3/99
Any notice required or permitted under this Agreement will be sent to the
representative named below, and shall be effective upon receipt as demonstrated
by reliable written confirmation (for example, certified mail receipt, courier
receipt, facsimile receipt confirmation sheet.) Each party will notify the other
if their representative changes.
Tivoli's Representative Your Representative
Tivoli/IBM Systems, Inc. ServiceWare, Inc.
9442 Capital of Texas Hwy., North 333 Allegheny Avenue
Austin, Texas 78758 Oakmont, Pennsylvania 16139
Attention: Jodie Slifka Attention: Jeanne Kohser
(512) 438-1276 (412) 826-1158, Ext. 389
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<PAGE> 2
1. Definitions
Capitalized terms in this Agreement have the following meanings:
ASA means Content Subscription(s) for providing maintenance support and all
product updates for content products.
Code is computer programming code including both Object Code and Source Code:
a) Object Code is computer programming code in substantially binary form, and
includes header files of the type necessary for use or interoperation with other
computer programs. It is directly executable by a computer after processing or
linking, but without compilation or assembly.
b) Source Code is computer programming code that may be displayed in a form
readable and understandable by a programmer of ordinary skill. It includes
related source code level system documentation, comments and procedural code and
all "Error" corrections and "Enhancements". Source Code does not include Object
Code.
Content Subscription means the knowledge-based product delivered on CD,
including error corrections and other updates, additions or modifications to the
Product, new knowledge base content, modifications to existing knowledge base
content, deletions of obsolete content and modifications to the structure and/or
format of the knowledge base.
"Derivative Work" means a work that is based on an underlying work and that
would be a copyright infringement if prepared without the authorization of the
copyright owner of the underlying work.
"End-User" means any party who licenses the Product(s) for its internal use and
benefit. End-Users may not redistribute the Product or use it to provide
external support to other entities.
Enhancements are changes or additions to the Products:
a) Basic Enhancements are all Enhancements, other than Major Enhancements,
including those that support new releases of operating systems and devices, and
correct Errors.
b) Major Enhancements provide substantial additional value and are normally
offered to customers for an additional charge (e.g., upgrades).
Error is a) any mistake, problem or defect that causes a Product to malfunction
or fail to meet its specifications; or b) any incorrect or incomplete statement
or diagram in the related documentation that causes a Product to be materially
inaccurate or inadequate.
Equal Units Standard means that when TIVOLIi/IBM distributes a Product(s) or
Content Subscription(s) to new or existing TIVOLIi/IBM customers, the number of
Units of the ServiceWare Product(s) or Content Subscriptions distributed shall
be EQUAL to the number of Units of the TIVOLIi/IBM Product(s) when ServiceWare
Products or Content Subscription is ordered by the End User.
Internationalization shall mean that a Product has the ability to implement
national functions and the facility to be translated to other languages. This
Includes three (3) categories which correspond to characteristics of various
languages: (a) single byte character set (SBCS), left-to-right languages (U.S.
English, German, Greek, etc.); (b) single byte bi-directional languages (Hebrew,
Arabic); and (c) double byte character set (DBCS) or multi-byte character set
(MBCS) languages (Japanese, Korean, simplified and traditional Chinese). The
Products shall avoid hardcoding language dependent codepages and character sets.
Maintenance Support is the Service provided when a customer identifies an Error.
There are three levels:
a) Level 1 is the Service provided in response to the customer's initial contact
identifying an Error.
b) Level 2 is the Service provided to reproduce and attempt to isolate the
Error, or to find that the Service provider cannot reproduce the Error.
c) Level 3 is the Service provided to isolate the Error at the component level
of the Products. The Service provider distributes the Error correction or
circumvention, or gives notice if no correction or circumvention is found.
Marketing Materials are Product brochures, manuals, technical specification
sheets, demonstration presentations, and other marketing sales literature
provided by you to TIVOLI/IBM for TIVOLI/IBM's use in performance of marketing
activities. TIVOLI/IBM's use of Marketing Materials may include transmission of
them through electronic marketing services.
National Language Support (NLS) shall mean that the Products have the ability to
enter, store, process, retrieve, distribute, display and print character data in
the foreign language of choice. NLS includes Internationalization
characteristics.
New Products include a) all Major Enhancements to your Products; or b) any of
your other software products that render your existing Products down level or
obsolete.
Outsourcer means a company that uses the Product to provide help desk services
to a third party for products other than those sold to that third party by the
Outsourcer, in exchange for fees or other compensation.
-2-
<PAGE> 3
Products are your computer programs in Object Code form, including content and
its updates, documentation, related materials, maintenance modifications, Basic
Enhancements and any security devices or "locks" that are listed in this
Agreement, in TIVOLI/IBM format.
Services are activities associated with the Products, such as Maintenance
Support. Services includes all three levels of Maintenance Support unless stated
otherwise.
Subsidiary is an entity that is owned or controlled directly or indirectly (by
more than 50% of its voting stock, or if not voting stock, decision-making
power) by you or TIVOLI/IBM.
TIVOLI/IBM Products shall mean those TIVOLIi/IBM Service Desk products for which
ServiceWare products have been formatted.
TIVOLI/IBM Revenue is the revenue (excluding local taxes) due TIVOLI/IBM for
Products and/or Services from the effective date of this Agreement.
"Tools" means not commercially available software, and their Externals, required
for the development, maintenance or implementation of a software Deliverable.
2. Territory
The Territory for this Agreement shall consist of all the countries in the world
in which TIVOLI/IBM is directly or indirectly conducting business, except in
Japan. TIVOLI/IBM may conduct business in Japan under a direct agreement
through:
Hidekuni Ogasawara
General Manager of Department
Network Services Center
Sumitomo Metal Systems Development CO., LTD.
2-18 Ikenohata 1-Chome Taito-ku Tokyo 110-0008 JAPAN
PHONE: +81-3-5815-7273
FAX: +81-3-5815-7277
3. License Grants
3.1 To enable TIVOLI/IBM to effectively market your Products and Services, as
identified in Section 6.2, to customers, you grant TIVOLI/IBM the non-exclusive
right and license to use, copy, reproduce, display, perform, market and
distribute, in any medium or distribution technology whatsoever, whether known
or unknown, the Products, Services, trademarks and trade names, and associated
Marketing Materials, to customers subject to the terms of this Agreement
including the Equal Units Standard as defined herein. Each time TIVOLI/IBM sells
a Product to a customer, TIVOLI/IBM will pay you a royalty in accordance with
the terms stated in this Agreement.
3.2 The license grant in Subsection 3.1 above allows TIVOLI/IBM to resell and
distribute your Products, Services and Marketing Materials to customers under
the terms of your end user license agreement ("End User License") or
("Outsourcer License") as applicable, demonstrate the Products, allow customers
to evaluate them free of charge (limited to 90 days of trial use subject to
TIVOLI/IBM's Evaluation Agreement), promote the Products, train TIVOLI/IBM
employees on the Products, and in some cases provide Maintenance Support or
additional services for the Products.
3.3 Source Code Release:
a.) in the event that one of the following events ("Trigger Events") occurs
and remains uncured for 30 days following notice from Tivoli/IBM to you,
Tivoli/IBM shall have the rights in the Source Code for the ServiceWare
Products described in Section 3.3(c) below:
i) you or your successors or representatives refuses, fails or is
unable to perform any obligation in the Agreement which requires
Source Code access to complete,
ii) you or your successors or representatives rejects or terminates the
Agreement for reasons other than Tivoli/IBM's breach. This includes
rejection or termination under bankruptcy or similar laws;
iii) you or your successors or representatives fails to accept the
Agreement within 15 days of filing a bankruptcy or similar petition;
iv) you or your successors or representatives liquidates or shuts down
most of its business operations relating to the Agreement; or
v) any sale, assignment or foreclosure of or on you or your successors
or representatives' assets required to perform its obligations under
the Agreement.
-3-
<PAGE> 4
b.) Tivoli/IBM will:
i) use the Source Code only to support the licenses and rights granted
under the Agreement;
ii) own any Derivative Works of the Source Code that it creates;
iii) pay you the royalties specified in the Agreement to maintain its
rights to the Source Code; and
iv) treat Source Code according to the Tivoli/IBM /ServiceWare
confidentiality agreement.
c.) You grant Tivoli/IBM, its successors and assigns:
i) all right and title to the media containing Source Code;
ii) a nonexclusive, worldwide copyright license to use, execute,
reproduce, display, perform, distribute and prepare Derivative Works
of, all Source Code and their Derivative Works. This license also
applies to associated audio and visual works. Tivoli/IBM may
authorize others to do any of the above; and
iii) an Irrevocable, nonexclusive, worldwide, paid-up license under any
patents and patent applications that are 1) owned or licensable by
you now or in the future and 2) required to make, have made, use and
have used Source Code and Tools. This license applies to the Source
Code or their Derivative Works operating alone or in combination
with equipment or software.
If Source Code is released to Tivoli/IBM, Tivoli/IBM retains its rights to the
Source Code as provided in the Agreement. This includes Tivoli/IBM's right to
use your trademarks and product names.
3.4 In certain situations or in certain geographies it may be advantageous to
allow TIVOLI/IBM to provide the Products and Services to customers under an
TIVOLI/IBM end user license agreement. In such situations, TIVOLI/IBM will, on a
case-by-case basis, obtain your authorization to sublicense the Products to
customers under the terms of an TIVOLI/IBM end user license agreement.
TIVOLI/IBM is responsible for all licensing terms offered to its customers when
TIVOLI/IBM sublicenses the Products under its end user license. Hereafter, every
reference in this Agreement regarding TIVOLI/IBM's right to license the Products
shall also include TIVOLI/IBM's right to sublicense the Products.
3.5 You acknowledge that licensees of the Products, whether obtained from
TIVOLI/IBM, you or a third party, may retain TIVOLI/IBM to perform outsourcing
services on their behalf. Notwithstanding any other provision of this Agreement
or of any other license agreement, TIVOLI/IBM, when providing outsourcing
services to licensees of the Products, will not owe you a fee for the
outsourcing a license to such Products. In addition, TIVOLI/IBM will not owe you
a fee to transfer the applicable Products to an TIVOLI/IBM or third party
computer system which is of like configuration as the computer system for which
the Products were licensed for outsourcing purposes. The Products will only be
used on behalf of the licensee. Upon expiration or termination of the agreement
to provide outsourcing services to the licensee, TIVOLI/IBM's right to use the
Products will terminate.
3.6 TIVOLI/IBM customers may include agencies or other units of a government, or
third parties under contract with a government ("Public Sector"). In the event a
Public Sector customer requires modifications to your End User License
Agreement, you agree to negotiate in good faith such requested modifications
with TIVOLI/IBM and the Public Sector customer, including the possibility of
authorizing TIVOLI/IBM to become the licensor of the Products.
3.7 TIVOLI/IBM customers may include agencies or other units of a federal
government, or third parties under contract with a federal government ("Public
Sector"). In the event TIVOLI/IBM desires to market your Products to Public
Sector customers, the terms and conditions in the "Public Sector Attachment"
(attached) shall be considered part of this Agreement.
3.8 You hereby grant TIVOLI/IBM the right and license to use the Products for
internal productive use, excluding internal help desk environments, which
includes the ability to: (a) use, store, transmit, execute, display or merge the
Products with a computer system; (b) use the Products and documentation provided
with the Products in support of the use or the Products; and (c) make a copy of
the Products and documentation for archival purposes. TIVOLI/IBM's internal use
of the Products shall be governed by the terms of this Agreement, the terms of
your end user license agreement are specifically excluded.
3.9 You warrant the accuracy of all statements in the attached completed
Certificate of Originality. You agree to complete a new Certificate of
Originality before adding any New Products to this Agreement.
3.10 Except for the internal use license granted to TIVOLI/IBM in this Section,
TIVOLI/IBM may perform any of its rights, licenses and obligations under this
Agreement through Subsidiaries, subcontractors, and other companies affiliated
with TIVOLI/IBM, such as TIVOLI/IBM Business Partners. The use of such entities
by TIVOLI/IBM does not relieve it of its obligations under this Agreement. This
Agreement does not grant TIVOLI/IBM or any such entitles any ownership to any of
the copyright rights in the Products.
4. Your Responsibilities
4.1 License Agreement: Except in sublicensing situations, TIVOLI/IBM will
license the Products to customers under the terms of your end user license
agreement (your "License"). TIVOLI/IBM will obtain the customer's signature on
your License, if their signature is required. TIVOLI/IBM is not a party to your
License and does not assume any obligation for violations of it. You agree to
modify your License, if necessary, to comply with the terms and conditions of
this Agreement. In the event TIVOLI/IBM.
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<PAGE> 5
reasonably requests that you modify your License to comply with the law of a
country in the Territory, you agree to 1) consider such a request on a timely
basis and 2) not unreasonably withhold your consent to such changes. In
addition, you agree to provide a reasonable number of copies of your License to
TIVOLI/IBM at no additional charge, written in the local language(s) of each
country in the Territory when required by local law or when reasonably requested
by TIVOLI/IBM. The terms of this Agreement, including its Attachments, and your
License provide specific legal rights; however, other rights may apply or may
vary from jurisdiction to jurisdiction.
4.2 Product Source Code: You will deliver to TIVOLI/IBM: (i) one complete copy
of the software source code, each Enhanced version of the Products, all Tools,
and updates to Tools used for the integration of the Products and TIVOLI/IBM
Products described herein, as well as a complete list of all commercially
available software required for the development, maintenance or implementation
of such software, including updates to the list as soon as practicable.
4.3 Product Masters: You agree to provide to TIVOLI/IBM within 15 days of
signing this Agreement, three Gold Master copies of each Product and updates in
TIVOLI/IBM format in a form suitable for reproduction, including all
demonstration, documentation, packaging and promotional materials. TIVOLI/IBM
will provide your branding on the CD packaging in accordance with the guidelines
identified in Attachment hereto.
4.4 New Products: You represent that the Products available to TIVOLI/IBM under
this Agreement are always the most current release or version that is available
to your customers. If you make New Products available to your customers you will
offer such New Products to TIVOLI/IBM under terms and pricing to be agreed to in
writing. You will give TIVOLI/IBM at least four months notice prior to
withdrawing any Product (including any version) from marketing or support.
4.5 Product Returns: In the event a customer returns a Product to TIVOLI/IBM
within a reasonable period of time for any reason whatsoever, and TIVOLI/IBM
refunds the customer for the amount paid for the Product, you agree that (a)
TIVOLI/IBM may deduct the royalty amount paid to you for the returned Product
from the next scheduled royalty payment, or (b) you agree to repay the
applicable royalty amount per TIVOLI/IBM's instructions.
4.6 Marketing Materials: You agree to provide to TIVOLI/IBM at no additional
charge, a reasonable number of copies of the Marketing Materials related to the
Products in the local language of each country in the Territory if such
translations should become available. You authorize TIVOLI/IBM to alter the
Marketing Materials to indicate that TIVOLI/IBM has the authority to market,
price, license and provide services for the Products. You also agree to allow
TIVOLI/IBM to create and distribute a reasonable number of copies of your
Products for demonstration purposes to its sales force and distribution
channels, as provided for in this Agreement.
4.7 Product Support: You agree to offer warranty and Maintenance Support
Services to TIVOLI/IBM customers that are at least as favorable as those you
generally offer to your own customers for the Products. This offer shall be
available to TIVOLI/IBM customers during the term of this Agreement and for at
least one year after delivery of each Product licensed to an TIVOLI/IBM customer
under your License. If a Product does not comply with its warranties, you agree
to correct the problem and/or Error without charge and in a timely manner. If
you are unable after such efforts to correct the problem and/or Error, you agree
to replace or refund the money for the Products not meeting your warranty.
TIVOLI/IBM will either return the defective Products to you, or destroy them, at
your direction.
4.8 Product Support: As TIVOLI/IBM shall provide Level 1 and Level 2 Maintenance
Support to its customers of the Products who have purchased Maintenance Support
from TIVOLI/IBM, you agree to provide assistance to TIVOLI/IBM's end user
support personnel during normal business hours, and accept calls from TIVOLI/IBM
pertaining to Level 3 Maintenance Support matters. TIVOLI/IBM will provide
ServiceWare with the information that has been collected, such as a detailed
description of the problem, customer contact information, TIVOLI/IBM's attempts
at resolution, and TIVOLI/IBM's problem ticket number. It is understood and
agreed that ServiceWare will provide Level 3 Maintenance Support.
4.9 Ongoing Support: When TIVOLI/IBM offers Maintenance Support for the Products
to customers, you agree to provide Maintenance Support for the Products to
TIVOLI/IBM so long as TIVOLI/IBM continues to pay you a royalty for your
Services, even if this Agreement has been terminated.
4.10 Market Support: You agree to provide the following market support services
to TIVOLI/IBM as reasonably requested during the term of this Agreement, at no
additional charge. All of your personnel providing market support will have
sufficient Product knowledge and skills to adequately perform the support
services requested.
- - Marketing Events: You agree to participate in trade shows, executive
conferences, and other marketing events, on dates and at locations
mutually agreed to by the parties.
- - Telephone Support: You agree to provide telephone consulting services
during your normal business hours to address technical questions related
to demonstration, marketing, operation, use and installation of the
Products.
- - Pre-sales Support: You agree to provide pre-sales technical support
services and demonstration assistance for the Products to TIVOLI/IBM on
dates and at locations mutually agreed to by the parties.
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<PAGE> 6
4.11 Training: During each 12-month period during the term of this Agreement,
you shall conduct marketing/technical training classes related to the
demonstration, marketing, installation and use of the Products if requested by
Tivoli as agreed to in the Marketing Plan. You agree to provide the training at
no charge to TIVOLI/IBM. All training shall be conducted on dates and at
locations mutually agreed to by the parties.
5. TIVOLI/IBM's Responsibilities:
5.1 Marketing Activities: Both parties agree they will use reasonable efforts to
develop and implement a market support plan for the Products within 90 days. The
market support plan may include, at TIVOLI/IBM's sole discretion, the following
marketing activities for the Products:
o identify and qualify customers for the Products
o demonstrate the Products to customers;
o develop sales proposals;
o advertise your Products in various trade magazines and other publications;
o include your Products in trade shows, executive conferences, and other
marketing events;
o implement telemarketing or direct mail campaigns;
o electronically publish information about your Products.
5.2 Pre-Requisition means TIVOLI/IBM will provide information to the TIVOLI/IBM
Sales teams about the value added by using the ServiceWare product in
conjunction with TIVOLI/IBM products. TIVOLI/IBM will also recommend that
TIVOLI/IBM sales representatives sell the designated ServiceWare product each
time a new customer or, when appropriate, an existing customer purchases the
identified TIVOLI/IBM Product. ServiceWare Products will be announced via
TIVOLI/IBM's usual announcement processes including an RFA (IBM) and a Sales
Flash (Tivoli) to the Sales force. For the purpose of clarification, there is no
intent on TIVOLI/IBM's part to mandate this requirement to either the customers
or the sales force through forced distribution with the identified TIVOLI/IBM
Product(s).
5.3 Other Activities: TIVOLI/IBM is responsible for licensing, pricing,
ordering, manufacturing and delivering, Level 1 and Level 2 Maintenance Support,
first year mandatory Content Subscription services and billing and accounts
receivable activities rotated to the Products it sells to customers.
5.4 Formatting for TIVOLI/IBM Products: TIVOLI/IBM shall provide ServiceWare
Development team two copies of the Tivoli Service Desk products and updates for
the purpose of creating and maintaining the TIVOLI/IBM format of the Products.
This toolkit license is provided at no cost to ServiceWare under the terms and
conditions of the Development License Agreement attached herein.
6. Royalties
6.1 TIVOLI/IBM will pay you the royalty amount set forth in the following table
("TIVOLI/IBM Rate") for each Product TIVOLI/IBM provides to a customer.
TIVOLI/IBM is not obligated to license any minimum quantities. TIVOLI/IBM
payments to you will be at the TIVOLI/IBM Rate subject to any withholding tax
requirement and/or any applicable transaction based taxes (including, without
limitation, sales and value-add taxes), and shall be net of refunds and
adjustments reasonably granted to customers. TIVOLI/IBM will not pay you any
other payments related to the Products (for example, under any TIVOLI/IBM
business partner Agreement). The royalty payments set forth in this Section
fully compensate you for your performance under, and for the rights and licenses
granted in, this Agreement TIVOLI/IBM shall have full freedom and flexibility in
pricing your Products.
6.2 For the term of April 1, 1999 through and including the announcement of
release of ServiceWare Edition 15, TIVOLI/IBM shall pay you royalties based on
the rates identified in the table below. These rates will terminate upon the
TIVOLI/IBM announcement date of Edition 15, but shall be extended to any
outstanding orders or quotes identified by the product numbers of 5697-KNS,
5697-KR3 and 5697-KDS as of the announcement date.
[***]
6.3 Upon TIVOLI/IBM's announcement of Edition 15, annually, three months
following the end of the prior calendar year, TIVOLI/IBM will calculate the
aggregate amount of all royalties that would have been payable to you in such
prior calendar year if the applicable Minimum TIVOLI/IBM Rate (i.e., floor),
identified in the table below, per license had been used to calculate quarterly
payments, instead of the applicable percent of TIVOLI/IBM revenue specified
herein. If the aggregate amount of
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<PAGE> 7
royalties paid to you for such calendar year was less than the floor amount,
TIVOLI/IBM will pay you the difference, as an annual minimum royalty adjustment,
with the next scheduled payment.
[***]
6.4 In no event will ServiceWare receive less than [***] in cumulative annual
payments for the term of this Agreement.
6.5 In the event the annual commitment level exceeds a cumulative amount of
[***] over the term of this agreement, TIVOLI/IBM will pay you at the rate
equal to an [***] discount from your list price for products as indicated in the
table below:
[***]
6.6 In the event TIVOLI/IBM finds it necessary to offer a customer a special
discount, TIVOLI/IBM may request a lower TIVOLI/IBM Rate for such transaction.
If you agree to such lower TIVOLI/IBM Rate, you will provide to TIVOLI/IBM in
writing (to include either electronic mail or a facsimile transmission) your
approval to adjust the TIVOLI/IBM Rate.
6.7 You agree to give TIVOLI/IBM the benefit of any published list price
decreases you offer for Products not yet purchased by customers from the date a
price decrease becomes effective. In the event TIVOLI/IBM finds it necessary to
reduce its published list price for the Products, TIVOLI/IBM may request a lower
TIVOLI/IBM Rate. If you agree to any such lower TIVOLI/IBM Rate, a letter
amendment specifying such lower TIVOLI/IBM Rate and the effective date will be
signed by the parties.
6.8 You agree to give TIVOLI/IBM 120 days prior written notice of any changes to
your list price for the Products. The parties will sign an amendment to this
Agreement indicating the new TIVOLI/IBM Rate based on the same percentage of
your list price as currently established under this Agreement. The parties agree
that any increases to your list prices will not increase the TIVOLI/IBM Rate
more than once per calendar year; however, any decreases to your list price
during the calendar year will have a subsequent change to the TIVOLI/IBM Rate.
The parties also agree that any proposals submitted by TIVOLI/IBM to customers
before the effective date of any TIVOLI/IBM Rate increase shall be based on the
lower TIVOLI/IBM Rate.
6.9 TIVOLI/IBM has no royalty obligation for Products used for the following
purposes:
o marketing, demonstrations, customer evaluations and trial use;
o Product training and education;
o Product maintenance and support;
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<PAGE> 8
o backup and archival purposes;
o a licensed customer's installation and use of a second copy of the
products at home or on a mobile computer, provided the products are not
active on more than one machine at the same time;
o Basic Enhancements and Error corrections; or
o warranty replacement copies of the Products
6.10 Royalties are paid against revenue recorded by TIVOLI/IBM in a royalty
payment quarter. A royalty payment quarter begins on the first business day of
the calendar quarter and ends on the last business day of the calendar quarter
(e.g., January 1 through March 31). TIVOLI/IBM shall make payments to you 45
days following the close of the royalty payment quarter in which TIVOLI/IBM
records that a customer has acquired a royalty bearing license and recognizes
revenue for the Product and/or Service. All payments to you shall be net of
refunds, adjustments, and if applicable, taxes. Payment will be accompanied by a
summary of the basis for determining its amount and shall identify the relevant
customer by number. TIVOLI/IBM will maintain relevant records to support the
payment amount for a period of two (2) years from the date of the related
payment. Payment will be made by wither electronic funds transfer, or by mail.
Payment is deemed to be made on the date of electronic funds transfer, or on the
date of mailing, as applicable. All payments will be made in U.S. dollars.
Payments based on foreign revenue will be converted to U.S. dollars at the rate
of exchange published by Reuters Financial Service on approximately the same day
each quarter.
7.Warranty
You represent and warrant on an ongoing basis that
o (a) you have sufficient rights to the Products (including associated marks
and names) to grant TIVOLI/IBM the rights specified in this Agreement, and
to grant customers the rights specified in your End User License agreement
o (b) the Products conform to their published specifications and any written
representations made by you to TIVOLI/IBM or customers;
o (c) the Products (including but not limited to Marketing Materials) do not
infringe any patent, copyright, trademark or trade secret or any other
intellectual property rights of any third party, and do not contain any
virus or other harmful code;
o (d) at the time of signing this Agreement, you are not aware of any claims
against you regarding the Products;
o (e) you comply with any and all laws and/or regulations, Including but not
limited to, export laws and/or regulations regarding (i) the
classification of the Products; and (ii) distribution of encrypted code
contained in the Products;
o (f) the Products, when used in accordance with their associated
documentation, are capable of correctly processing, providing and/or
receiving date data within and between the twentieth and twenty-first
centuries, provided that all products (for example, hardware, software and
firmware) used with the Products properly exchange accurate date data with
the Products; and
o (g) when available and where applicable, the Products are euro-ready such
that they will correctly process, send, receive, present, store, and
convert monetary data in the euro denomination, respecting the euro
currency formatting conventions (including the euro symbol).
If any Product does not comply with the warranties set forth in subparagraph
(b), (f) or (g) above during the first year after acceptance by the applicable
customer, you agree to correct the deficiency without charge or replace the
Product in a timely manner. This provision does not limit any other rights and
remedies we may have under this Agreement.
EXCEPT AS PROVIDED IN THIS AGREEMENT, WE UNDERSTAND AND AGREE THAT YOU DO NOT
MAKE ANY WARRANTY OF ANY KIND TO US WITH RESPECT TO THE PRODUCTS, SERVICES AND
MARKETING MATERIALS, EITHER EXPRESS OR IMPLIED. WE UNDERSTAND AND AGREE THAT YOU
EXPRESSLY EXCLUDE ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
8. Indemnification
You will defend and Indemnify TIVOLI/IBM, its customers and its and their end
users, if a third party makes a claim against them, whether actual or alleged,
based on your breach of any of the warranties contained in Section 8, entitled
"Warranty". If an infringement claim of any type appears likely or is made
against TIVOLI/IBM or customers, about a Product, you will obtain the necessary
rights for TIVOLI/IBM, and customers to continue exercising all rights granted
under this Agreement, or you will modify the Product or its name so that it is
non-infringing, or replace it with a Product that is functionally equivalent. In
addition to any remedies specified in this Agreement, TIVOLI/IBM may pursue any
other remedy it may have in law or in equity. You will pay any settlement
amounts you authorize and all costs, damages and attorneys' fees that a court
finally awards if TIVOLI/IBM promptly provides you notice of the claim, and
allows you to control and cooperates with you in the defense of the claim and
settlement negotiations. TIVOLI/IBM may participate in the proceedings at its
option and expense.
9. Limitation of Liability
Except for claims arising under Section 8, entitled "indemnification", for
personal injury, property damage or infringement of intellectual property
rights, neither party shall be liable to the other for any economic
consequential damages (including lost profits or savings) or incidental damages,
even if advised that they may occur. Except for claims arising under Section 8,
entitled "Indemnification", for personal injury, property damage or infringement
of intellectual property rights, each party's
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<PAGE> 9
liability for any claim will be limited to the greater of the amounts paid or
owing to you hereunder for the twelve month period ending on the date the claim
was made or the charges for the Product or Service that is the subject of the
claim. Notwithstanding anything to the contrary in this Agreement, if TIVOLI/IBM
negotiates terms with any customer that extend the limits of liability beyond
those In this Agreement, you agree to extend the limits of your liability to
match those terms. In no event would the extension or the limitation of
liability exceed that which TIVOLI/IBM negotiates for its related software.
10. Term and Termination
10.1 This Agreement shall be effective July 1, 1999 when signed by both parties
and shall remain in effect for one year unless extended by mutual written
agreement or terminated as set forth below.
10.2 TIVOLI/IBM may terminate this Agreement for convenience on 90 days prior
written notice to you. In recognition of the initial costs associated with
TIVOLI/IBM's marketing efforts for your Products, you may not terminate this
Agreement for convenience during the first 12 months after its execution. After
the first 12 months you may terminate this Agreement for convenience with 90
days prior written notice to TIVOLI/IBM. The effective date of termination will
be specified in such prior written notice. If TIVOLI/IBM cancels this agreement
under this section 10.2 TIVOLI/IBM will be liable for the minimum amount set
forth in section 6.4 payable on the effective date of termination.
10.3 Either party may terminate this Agreement if the other materially breaches
its obligations. The termination must be by written notice specifically
identifying the breach upon which it is based and will become effective 90 days
after the notice, unless the breach is corrected during the 90 days.
10.4 At the end of the Agreement TIVOLI/IBM will either return to you, or
destroy, any copies of the Products which TIVOLI/IBM has in its inventory,
provided all orders have been fulfilled. TIVOLI/IBM may continue marketing any
Products in its distribution channels at the time of termination.
10.5 Any terms of this Agreement which by their nature extend beyond the day
this Agreement ends remain in effect until fulfilled, and apply to respective
successors and assignees. Upon termination of this Agreement, all rights and
licenses granted by you to TIVOLI/IBM shall cease, except TIVOLI/IBM shall
continue to have all necessary rights and licenses to perform the following
activities: (a) TIVOLI/IBM may sell, lease, license and distribute any inventory
of Products, (b) TIVOLI/IBM may continue to exercise the rights and licenses
granted under this Agreement for up to four months after termination to fill
customer orders TIVOLI/IBM receives before the termination date, and (c) for as
long as necessary to provide maintenance and support to TIVOLI/IBM customers. If
either party terminates for convenience, each party's payment obligations shall
survive and be due and payable within forty-five days after the end of the
quarter of termination. All rights and licenses granted to TIVOLI/IBM's
customers shall survive and continue and shall in no way to affected by the
termination of this Agreement.
11. Information
All Information exchanged under this Agreement is non-confidential. Neither
party shall disclose the terms of this Agreement to any third party without the
other party's prior written consent, except to the extent necessary to establish
each party's rights hereunder, or, as required by applicable law or regulations.
You agree not to issue press releases or other publicity regarding this
Agreement or the relationship under it without TIVOLI/IBM's prior written
approval.
12. Taxes
Each party is responsible for complying with the collection, payment, and
reporting of all taxes imposed by any governmental authority applicable to its
activities in connection with the sale, lease, delivery or license of the
Products under this Agreement. Neither party is responsible for taxes that may
be imposed on the other party. Situations may arise where governmental
authorities require TIVOLI/IBM to withhold from amounts payable to you. In such
cases, TIVOLI/IBM may withhold the amount of taxes due from payments to be made
to you under this Agreement and remit the taxes withheld to the governmental
authority. Upon request, TIVOLI/IBM will provide you with documentation
justifying the withholding amount. As a reseller of your products, TIVOLI/IBM is
not required to pay you, and you agree not to charge TIVOLI/IBM for, taxes for
the Products which are sold by TIVOLI/IBM in the Territory.
13. Audit
You may, not more than once each calendar year this Agreement is in effect and
only on 90 days prior written notice, request access to relevant TIVOLI/IBM
records to a third party auditor, chosen and compensated by you for purposes of
audit. Such third party auditor will report to both parties only the amounts
overpaid or underpaid during the period examined. The audit will be conducted
during normal business hours at TIVOLI/IBM's office and in such a manner as not
to interfere with TIVOLI/IBM's normal business activities. The auditor will sign
a confidentiality agreement.
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<PAGE> 10
14. General
14.1 Neither party guarantees the success of any marketing effort it engages in
for the Products. Either party may independently develop, acquire, and market
materials, equipment, or programs that may be competitive with (despite any
similarity to) the other party's products or services. Each party is responsible
for its own costs, including all business, travel and living expenses incurred
by the performance of this Agreement.
14.2 Neither party has relied on any promises, inducements or representations by
the other, except those expressly stated in this Agreement. This Agreement is
not to be construed as a commitment or obligation, express or implied, on the
part of TIVOLI/IBM that TIVOLI/IBM will market, sell, purchase, or license any
Products under this Agreement.
14.3 Neither party will assign their rights or delegate or subcontract their
duties under this Agreement to third parties or affiliates without the prior
written consent of the other party, such consent not to be withheld
unreasonably.
14.4 Neither party will bring a legal action against the other more than two
years after the cause of action arose. Each party waives a jury trial in any
dispute. Failure by either party to demand strict performance or to exercise a
right does not prevent either party from doing so later.
14.5 The parties are independent contractors. Personnel you supply are deemed
your employees and are not for any purpose considered employees or agents of
TIVOLI/IBM. Each party assumes full responsibility for the actions of its
personnel while performing its obligations under this Agreement and is solely
responsible for their direction and compensation. This Agreement does not create
any obligations for TIVOLI/IBM in any way limiting or restricting the assignment
of its employees. TIVOLI/IBM and its employees are free to use any information,
processing ideas, concepts or techniques disclosed in the Products for any
purpose whatsoever, subject to your statutory patent and copyright rights.
14.6 The laws of New York govern this Agreement. The United Nations' Convention
on the International Sale of Goods does not apply.
14.7 Force Majeure: Neither party will be in default or liable for any delay or
failure to comply with this Agreement due to any act beyond the control of the
affected party, excluding labor disputes, provided such party immediately
notifies the other.
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Exhibit - End User License
- --------------------------------------------------------------------------------
A sample copy of your End User License Agreement is attached.
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ServiceWare
Inc
- --------------------------------------------------------------------------------
ServiceWare, Inc. End-User License Agreement
Content and Software Product(s)
YOU SHOULD READ THE FOLLOWING TERMS AND CONDITIONS CAREFULLY BEFORE INSTALLING
OR USING THE SERVICEWARE PRODUCT WHICH HAS BEEN DELIVERED TO YOU WITH THIS
LICENSE AGREEMENT. USE OR INSTALLATION OF THE PRODUCT INDICATES YOUR ACCEPTANCE
OF THESE TERMS AND CONDITIONS. IF YOU NEED A TRANSLATION OF THE FOLLOWING TERMS
AND CONDITIONS, PLEASE CONTACT SERVICEWARE IMMEDIATELY WITHOUT INSTALLING OR
USING THE SERVICEWARE PRODUCT. IF YOU DO NOT WISH TO ACCEPT THESE TERMS AND
CONDITIONS, YOU SHOULD RETURN THE SERVICEWARE PRODUCT IMMEDIATELY AND ANY
LICENSE FEES WHICH YOU HAVE PAID FOR THE SERVICEWARE PRODUCT WILL BE REFUNDED TO
YOU. *
1. DEFINITIONS.
"Content Product" means the knowledge-base product delivered on CD,
including the knowledge structures, all accompanying text, graphics and
multimedia, embedded software utilities, and online and hard copy
documentation.
"Outsourcer" means a company that uses the Product to provide help desk
services to third parties for products other than those sold to the third
parties by the Outsourcer, in exchange for fees or other compensation.
"Product(s)" means the "Content Product(s)" and the "Software Product(s)"
licensed hereunder, and any corrections, bug fixes, enhancements, updates
or other modifications thereto which are made generally available and
provided to you as part of Maintenance or Content Subscription Services,
as applicable.
"Seller" means an authorized representative of Serviceware who is selling
the Product license to you.
"Services" means Customer Support Services provided hereunder.
"Software Product" means computer software program(s) in object code only
including online and hardcopy documentation.
"We", "us", "our" and "ServiceWare" means ServiceWare, Inc.
"You", "your", and "Customer" means the party purchasing an end-user
license to use the Product
2. PRODUCT LICENSE GRANT. Subject to the terms and restrictions set forth in
this Agreement, ServiceWare grants to you a non-exclusive, non-transferable,
perpetual license for the Product provided hereunder solely to:
i) permit use of the Content or Software Product by as many authorized
users or on as many servers as you have purchased rights for; and
ii) use the Content or Software Product for your organization's internal
purposes (including use by your third-party consultants who agree to
be bound by the terms conditions of this Agreement); and
iii) copy the Content or Software Product for testing, archival or
disaster recovery purposes; and
iv) use the Software Product to develop custom knowledge bases; and
v) copy, modify, transmit and distribute custom knowledge bases you
create using the Software Product provided, however, that the custom
knowledge bases created by you do not contain (a) the Content
Product, in whole or in part, or (b) the Software Product, in whole
or in part, and
vi) modify the Content Product (exclusive of software utilities
contained therein), by
1) adding content developed by you in order to enhance the usability
of the Content Product ("Modifications"); provided that (a) the
Modifications must be done in a manner that does not alter the
technical accuracy of the information contained in the Content
Product, (b) the use of any such Modifications by you in conjunction
with the Content Product shall be subject to the terms and
conditions for use of the Content Product under this Agreement; and
(iii) nothing in this Agreement shall in any manner limit
ServiceWare from independently developing any content or products
which are similar or identical to the Modifications. You shall be
free to copy, modify, distribute and use such Modifications in any
manner provided that such modifications do not contain the Content
Product, in whole or in part; or
2) modifying ServiceWare content solutions contained in the Content
Product, provided that we retain all right, title and interest in
and to such modified content solutions; such modified content
solutions shall be subject to the same terms and conditions for use
of the Content Product under this Agreement.
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) Page 1 of 4
<PAGE> 13
ServiceWare
Inc
- --------------------------------------------------------------------------------
3. PRODUCT LICENSE RESTRICTIONS. You may not:
i) use the Content Product for the purpose of treating or augmenting a
third party's knowledge base, database, document or software except
as authorized by us; or
ii) copy any portions of the Content or Software Product, except as
described in Section 2.iii of this Agreement; or
iii) distribute or otherwise make the Content or Software Product or any
portion of the Content or Software Product, available to any third
party (except as permitted in 2.ii, above) by way of the World Wide
Web or other means, without the prior written permission of
ServiceWare; or
iv) reverse-engineer, disassemble, decompile, create a derivative work,
or make any attempt to discover the source code of the Software
Product; or
v) assign, re-sell, sub-license, rent, or lease any portion of the
Content or Software Product; or
vi) translate the content into another language, or allow the content to
be translated by other parties; or
vii) use the Product if you are an Outsourcer without entering into a
ServiceWare Outsourcer License Agreement.
4. COPYRIGHT/CONFIDENTIALITY PROTECTION. Subject to your right to make
Modifications as set forth in Section 2.vi, you recognize that ServiceWare
retains all intellectual property rights in the Product and ServiceWare
confidential information, including without limitation, all derivative works
thereto. You hereby assign to ServiceWare all intellectual property rights you
may now or hereafter possess in the Product and ServiceWare confidential
information, and all derivative works thereof, and agree to (a) execute all
documents, and take all actions, that may be necessary to confirm such rights;
and (b) retain all proprietary marks, legends and patent and copyright notices
that appear on the Product and the ServiceWare confidential information
delivered to you by ServiceWare and all partial copies thereof. You may not copy
or otherwise use the Product and any related documentation, in whole or in part,
except as expressly permitted in this Agreement. You recognize that the Product
contains certain confidential information, and you must reasonably protect the
confidential information contained in the Product and provide at least the same
safeguards afforded your own confidential information, but in no event, shall
you apply less than a reasonable standard of care to protect the confidentiality
of our confidential information. Service Ware does not authorize importing or
publishing a third party's intellectual property or any portion thereof, using
the Software Product. Use of any third party's intellectual property or software
product(s) or other information shall be governed by a separate license
agreement between you and such third party(s).
We agree to defend or, at our option, settle any action or claim asserted
against you based upon a third party's claim that the use of the Product as
delivered by ServiceWare, infringes a United States patent, copyright, trade
name or trade secret, provided that we are given prompt notice of the action or
claim, the right to control and direct the investigation, defense and settlement
thereof; and that you shall reasonably cooperate with us regarding the
foregoing. If such a claim arises, we will, at our option, either procure the
right for you to continue using the Product or repair or replace the Product so
that it is non-infringing, or if we determine that neither of the foregoing are
commercially reasonable, terminate the Product license and refund a prorated
portion of the license fees paid for the Product, such proration to be
calculated on the basis of a sixty (60) month useful life, plus any pre-paid
and unused Annual Subscription Services or Maintenance fees.
We will not be liable for a claim of infringement based on (i) use of other than
the latest unmodified release of the Product available or any modifications made
by you or other third party; (ii) use or combination of the Product with
non-ServiceWare programs if infringement would not have occurred without the
combination; or (iii) use of the Product by you after receiving notice they
infringe a third party's proprietary rights.
5. TERM AND TERMINATION. This Agreement becomes effective upon execution of a
ServiceWare Sales Order Form referencing this Agreement or upon your
installation or use of the Product, whichever occurs first, and this Agreement
and any licenses granted hereunder shall remain in effect unless terminated as
provided herein. This Agreement and/or the Licenses granted hereunder, as
applicable, will terminate automatically based on an uncured material breach by
either party, provided that the breaching party is given thirty (30) days prior
written notice of termination as an opportunity to cure such breach. Upon
termination for any reason, you agree that you will destroy or return to us all
copies of the Product and related documentation.
Sections 4, 6, 7, and 11 shall survive termination of this Agreement.
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) Page 2 of 4
<PAGE> 14
ServiceWare
Inc
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6. LIMITED WARRANTY.
i) We warrant that for a period of ninety (90) days from the date the Content
Product is shipped to you; and for twelve (12) months from the date the
Software Product is shipped to you: (1) the media on which the Product is
distributed to you will be free from material defects in materials and
workmanship; and (2) the Product will perform substantially in accordance
with the written, published specifications produced solely by us for the
functionality and operability of the Product. Any written or oral
information or advice given by our resellers, distributors, agents or
employees will in no way increase the scope of this warranty.
ii) ServiceWare warrants that each Product as delivered to you shall, under
normal use and service process calendar dates falling on or after January
1, 2000, in the same manner, and with the same functionality, data
integrity and performance, as each Product processes calendar dates on or
before November 31, 1999. We will not be liable for failure to process
calendar dates caused by any computer hardware or software not supplied by
us, including without limitation the failure to provide or process
compliant date data by such non-ServiceWare hardware or software, use of
prior versions of the Product or any alteration, modification or misuse of
the Product.
iii) We will not be liable for problems in the Product caused by alteration or
modification by you of the Product or the software application it is
intended to run on, or for problems arising out of the malfunction of any
computer hardware or software not supplied by us. If the Product fails to
comply with the warranties set forth above, our entire liability and your
exclusive remedy will be replacement of the media on which the Product was
distributed or, at our option, our reasonable effort to make the Product
meet the warranty set forth above.
iv) This limited warranty applies only if you return all copies of the Product
with a copy of your paid invoice to us at 333 Allegheny Avenue, Oakmont,
PA 15139 or to the Seller within the applicable warranty period for the
applicable Product. If we and the Seller cannot make the Product conform
to the above warranty, we will refund a portion of the license fees paid,
pro-rated over the term of the initial warranty period. Any replacement
Product will be warranted for the remainder of the original warranty
period or for thirty (30) days from the date you received the replacement,
whichever is longer.
v) All Services provided by us hereunder will be performed in professional
manner by qualified personnel.
SERVICE WARE MAKES NO WARRANTIES REGARDING THE USEFULNESS OR ACCURACY OF THE
CONTENT PROVIDED HEREUNDER AS PART OF THE CONTENT PRODUCT. WE DISCLAIM ALL OTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE PRODUCT OR SERVICES. Some jurisdictions do not allow exclusion of implied
warranties, so the above exclusion may not apply to you. This limited warranty
gives you specific legal rights, and you may have others which vary from
jurisdiction to jurisdiction.
7. LIMITATION OF LIABILITY. IN NO EVENT SHALL WE OR THE SELLER BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER (INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF
INFORMATION, OR OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OF OR INABILITY TO
USE, FURNISHING OR PERFORMANCE OF THE PRODUCT, EVEN IF WE OR THE SELLER HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL OUR LIABILITY
EXCEED THE FEES PAID BY CUSTOMER HEREUNDER THE LIMITATIONS SET FORTH IN THIS
SECTION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY. Because some states do not allow the exclusion or limitation of
liability for consequential, incidental or special damages, the above limitation
may not apply to you.
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) Page 3 of 4
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8. MAINTENANCE, SUBSCRIPTION SERVICES AND SUPPORT. This Section 8. applies only
if the Product license was purchased directly from ServiceWare. Otherwise,
Maintenance, Subscription Services and Support shall be provided to you as
indicated to you by the Seller.
i) Maintenance for Software Products. Maintenance for Software Products is
available for the initial annual term and any renewal thereof at
ServiceWare's then-current fees. For such initial maintenance term and any
renewal thereof, maintenance shall include Customer Support Services and
all updates an enhancements which are made generally available at no
additional charge to our customers who are current on Maintenance.
ii) Subscription Services for Content Products. Annual Subscription Services
are available for the initial annual term and any renewal thereof at
ServiceWare's then-current fees. Subscription Services for Content
Products shall include Customer Support Services and updated content which
is made generally available at no additional charge to our customers who
are participating in the Subscription Services.
iii) Customer Support Services. Customer support shall entail telephone and
e-mail assistance and consultation to resolve problems with the Product
and shall be provided to those Customers who have purchased either
Maintenance or Subscription Services, as applicable, according to our
then-current customer support practices. We shall have no obligation to
provide support if a problem is caused by a malfunction of hardware,
software not supplied by us, modification of the Product not made by us,
operator error, or use of the Product in a manner not in accordance with
the operating instructions for the Product.
9. EXPORT. You agree that you will not knowingly export or transmit the Product
directly or indirectly, to any restricted countries or in any manner that would
violate United States laws and regulations as shall from time to time govern the
license and delivery of technology abroad by persons subject to the jurisdiction
of the United States, including the Export Administration Act of 1979, as
amended, and any export administration regulations issued thereafter.
10. U.S. GOVERNMENT RESTRICTED RIGHTS. If you are licensing the Product on
behalf of the U.S. Government (the "Government"), the following provisions apply
to you. If the Product is supplied to the Department of Defense ("DoD"), it is
classified as "Commercial Computer Software" under paragraph 252.227-7014 of the
DoD Supplement to the Federal Acquisition Regulations ("DFARS") (or any
successor regulations) and the Government is acquiring only the license rights
granted herein (the license rights customarily provided to non-Government
users). If the Product is supplied to any unit or agency of the Government other
than the DoD, it is classified as "Restricted Computer Software" and the
Government's rights in the Product are defined in paragraph 52.227-19 of the
Federal Acquisition Regulations ("FAR") (or any successor regulations) or, in
the case of NASA, in paragraph 18.52.227-86 of the NASA Supplement to the FAR
(or successor regulations).
11. GENERAL. The limitations of warranty and liability described in Sections 6.
and 7. of this Agreement shall inure to the benefit of our licensors having an
interest in the Product. This Agreement may not be assigned by you without our
prior written consent. If any provision of this Agreement is held to be invalid
and unenforceable under any circumstances, its application in any other
circumstances and the remaining provisions of this Agreement shall not be
affected. No waiver of any right under this Agreement by either party shall be
effective unless given in writing by that party. No waiver of any right by
either party shall be deemed to be a waiver of any other right arising under
this Agreement.
This Agreement is governed by the laws of the Commonwealth of Pennsylvania. The
sole forums for resolving disputes arising under or relating to this Agreement
shall be the State and Federal Courts of the Commonwealth of Pennsylvania, and
the parties hereby consent to the jurisdiction of such courts and agree that
venue shall be in Allegheny County, Pennsylvania.
12. ENTIRE AGREEMENT, YOU AGREE THAT THIS AGREEMENT AND ANY APPLICABLE
SERVICEWARE SALES ORDER FORM IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN YOU AND US, AND THAT IT SUPERSEDES ANY PROPOSAL OR PRIOR
AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER COMMUNICATION RELATING TO THE SUBJECT
MATTER HEREOF. WE ARE NOT BOUND BY ANY PROVISION OF ANY PURCHASE ORDER, RECEIPT,
ACCEPTANCE, CONFIRMATION, CORRESPONDENCE OR OTHERWISE, UNLESS WE SPECIFICALLY
AGREE TO THE PROVISION IN WRITING. NO VENDOR, DISTRIBUTOR, PROVIDER, RESELLER,
OEM, SALES REPRESENTATIVE OR OTHER PERSON IS AUTHORIZED TO MODIFY THIS LICENSE
AGREEMENT OR TO MAKE ANY WARRANTY, REPRESENTATION OR PROMISE REGARDING THE
PRODUCT WHICH IS DIFFERENT FROM THOSE SET FORTH IN THIS LICENSE AGREEMENT.
* The Knowledge-Pak Viewer(TM) Product contains technology licensed by
Verity, Inc. and use of such technology by End-Users is governed by all
terms and restrictions of this Agreement. Verity, Inc. reserves all rights
in the licensed technology.
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) Page 4 of 4
<PAGE> 16
Exhibt-Outsourcer License
- -------------------------------------------------------------------------------
A sample copy of your Outsourcer License Agreement is attached.
Tivoli SW SDMP
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ServiceWare, Inc. Outsourcer License Agreement
Content and Software Product(s)
YOU SHOULD READ THE FOLLOWING TERMS AND CONDITIONS CAREFULLY BEFORE INSTALLING
OR USING THE SERVICEWARE PRODUCT WHICH HAS BEEN DELIVERED TO YOU WITH THIS
LICENSE AGREEMENT. USE OR INSTALLATION OF THE PRODUCT INDICATES YOUR ACCEPTANCE
OF THESE TERMS AND CONDITIONS. IF YOU NEED A TRANSLATION OF THE FOLLOWING TERMS
AND CONDITIONS, PLEASE CONTACT SERVICEWARE IMMEDIATELY WITHOUT INSTALLING OR
USING THE SERVICEWARE PRODUCT. IF YOU DO NOT WISH TO ACCEPT THESE TERMS AND
CONDITIONS, YOU SHOULD RETURN THE SERVICEWARE PRODUCT IMMEDIATELY AND ANY
LICENSE FEES WHICH YOU HAVE PAID FOR THE SERVICEWARE PRODUCT WILL BE REFUNDED TO
YOU. *
1. DEFINITIONS.
"Authorized Users" means your employees and your third-party consultants
who agree to be bound by the terms and conditions of this Agreement.
"Client(s)" means third parties to whom you provide help desk services in
exchange for fees or other compensation.
"Content Product" means the knowledge-base product delivered on CD,
including the knowledge structures, all accompanying text, graphics and
multimedia, embedded software utilities, and online and hard copy
documentation.
"Outsourcer" means a company that uses the Product to provide help desk
services to third-party Clients for products other than those sold to the
Clients by the Outsourcer, in exchange for fees or other compensation.
"Product(s)" means the "Content Product(s)" and the "Software Product(s)"
licensed hereunder, and any corrections, bug fixes, enhancements, updates
or other modifications thereto which are made generally available and
provided to you as part of Maintenance or Content Subscription Services,
as applicable.
"Seller" means an authorized representative of ServiceWare who is selling
the Product license to you.
"Services" means Customer Support Services provided hereunder.
"Software Product" means computer software program(s) in object code only
including online and hardcopy documentation.
"We", "us", "our" and "ServiceWare" means ServiceWare, Inc.
"You", "your", and "Customer" means the party purchasing an end-user
license to use the Product.
2. PRODUCT LICENSE GRANT. Subject to the terms and restrictions set forth in
this Agreement, ServiceWare grants to you a non-exclusive, non-transferable,
license for the Product provided hereunder solely to:
i) permit use of the Content Product by up to two hundred (200)
Authorized Users per each server licensed hereunder; and
ii) permit use of the Software Product by as many Authorized Users as
you have purchased rights for; and
iii) use the Content or Software Product for your organization's internal
purposes and for the benefit of your Clients; and
iv) copy and transmit solutions contained within the Content Product(s)
for the sole purpose of providing service and assistance to your
Clients; and
v) copy the Content or Software Product for testing, archival or
disaster recovery purposes; and
vi) use the Software Product to develop custom knowledge bases; and
vii) copy, modify, transmit and distribute custom knowledge bases you
create using the Software Product provided, however, that the custom
knowledge bases created by you do not contain (a) the Content
Product, in whole or in part, or (b) the Software Product, in whole
or in part; and
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) 1 of 5
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viii) modify the Content Product (exclusive of software utilities
contained therein), by
1) adding content developed by you in order to enhance the usability
of the Content Product ("Modifications"); provided that (a) the
Modifications must be done in a manner that does not alter the
technical accuracy of the information contained in the Content
Product, (b) the use of any such Modifications by you in conjunction
with the Content Product shall be subject to the terms and
conditions for use of the Content Product under this Agreement; and
(iii) nothing in this Agreement shall in any manner limit
ServiceWare from independently developing any content or products
which are similar or identical to the Modifications. You shall be
free to copy, modify, distribute and use such Modifications in any
manner provided that such Modifications do not contain the Content
Product, in whole or in part, or
2) modifying ServiceWare content solutions contained in the Content
Product, provided that we retain all right, title and interest in
and to such modified content solutions; such modified content
solutions shall be subject to the same terms and conditions for use
of the Content Product under this Agreement.
3. PRODUCT LICENSE RESTRICTIONS. You may not:
i) use the Content Product for the purpose of creating or augmenting a
third party's knowledge base, database, document or software except
as authorized by us; or
ii) copy any portions of the Content or Software Product, except as
described in Sections 2.iv and v of this Agreement; or
iii) distribute or otherwise make the Content or Software Product or any
portion of the Content or Software Product, available to any third
party by way of the World Wide Web or other means, without the prior
written permission of ServiceWare; or
iv) reverse-engineer, disassemble, decompile, create a derivative work,
or make any attempt to discover the source code of the Software
Product; or
v) assign, re-sell, sub-license, rent, or lease any portion of the
Content or Software Product; or
vi) translate the content into another language, or allow the content to
be translated by other parties.
4. COPYRIGHT/CONFIDENTIALITY PROTECTION. Subject to your right to make
Modifications as set forth in Section 2.viii, you recognize that ServiceWare
retains all intellectual property rights in the Product and ServiceWare
confidential information, including without limitation, all derivative works
thereto. You hereby assign to ServiceWare all intellectual property rights you
may now or hereafter possess in the Product and ServiceWare confidential
information, and all derivative works thereof, and agree to (a) execute all
documents, and take all actions, that may be necessary to confirm such rights;
and (b) retain all proprietary marks, legends and patent and copyright notices
that appear on the Product and the ServiceWare confidential information
delivered to you by ServiceWare and all partial copies thereof. You may not copy
or otherwise use the Product and any related documentation, in whole or in part,
except as expressly permitted in this Agreement. You recognize that the Product
contains certain confidential information, and you must reasonably protect the
confidential information contained in the Product and provide at least the same
safeguards afforded your own confidential information, but in no event, shall
you apply less than a reasonable standard of care to protect the confidentiality
of our confidential information. ServiceWare does not authorize importing or
publishing a third party's intellectual property or any portion thereof, using
the Software Product. Use of any third party's intellectual property or software
products or other information shall be governed by a separate license agreement
between you and such third party(s).
We agree to defend or, at our option, settle any action or claim asserted
against you based upon a third party's claim that the use of the Product as
provided by us, infringes a United States patent, copyright, trade name or trade
secret, provided that we are given prompt notice of the action or claim, the
right to control and direct the investigation, defense and settlement thereof;
and that you shall reasonably cooperate with us regarding the foregoing. If such
a claim arises, we will, at our option, either procure the right for you to
continue using the Product or repair or replace the Product so that it is
non-infringing, or if we determine that neither of the foregoing are
commercially reasonable, terminate the Product license and refund either 1) a
prorated portion of the initial license fees paid for the Software Product, such
proration to be calculated on the basis of a sixty (60) month useful life, or 2)
a pro-rated portion annual license fees paid for the Content Product for the
then-current term, as applicable.
We will not be liable for a claim of infringement based on: (i) use of other
than the latest unmodified release of the Product available or any modifications
made by you or other third party; (ii) use or combination of the Product with
non-ServiceWare programs if infringement would not have occurred without the
combination; or (iii) use of the Product after receiving notice it infringes a
third party's proprietary rights.
5. TERM AND TERMINATION. This Agreement becomes effective upon execution of a
ServiceWare Sales Order Form referencing this Agreement or upon your use or
installation of the Product, whichever occurs first, and shall
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) 2 of 5
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remain in effect for the term of any license granted hereunder. This Agreement
and/or the Licenses granted hereunder, as applicable, will terminate
automatically based on an uncured material breach by either party, provided that
the breaching party is given thirty (30) days prior written notice of
termination as an opportunity to cure such breach.
Licenses granted for Software Product(s) shall be perpetual. The initial term of
license granted for Content Product(s) shall be for one year, and this Agreement
and the licenses for Content Product(s) granted hereunder shall be automatically
renewed for subsequent annual terms at the then-current fees unless either party
provides the other party with thirty (30) days' prior written notice of its
intent not to renew.
Upon non-renewal or termination for any reason, you agree that you will destroy
or return to us all copies of the Product and related documentation.
Sections 4, 6, 7, and 11 shall survive termination of this Agreement.
6. LIMITED WARRANTY.
i) We warrant that for a period of ninety (90) days from the date the Content
Product is shipped to you; and for twelve (12) months from the date the
Software Product is shipped to you: (1) the media on which the Product is
distributed to you will be free from material defects in materials and
workmanship; and (2) the Product will perform substantially in accordance
with the written published specifications produced solely by us for the
functionality and operability of the Product. Any written or oral
information or advice given by our resellers, distributors, agents or
employees will in no way increase the scope of this warranty.
ii) ServiceWare warrants that each Product as delivered to you shall, under
normal use and service process calendar dates falling on or after January
1, 2000, in the same manner and with the same functionality, data
integrity and performance, as each Product processes calendar dates on or
before December 31, 1999. We will not be liable for failure to process
calendar dates caused by any computer hardware or software not supplied by
us, including without limitation the failure to provide or process
compliant date data by such non-ServiceWare hardware or software, use of
prior versions of the Product or any alteration, modification or misuse of
the Product.
iii) We will not be liable for problems in the Product caused by alteration or
modification by you of the Product or the software application it is
intended to run on, or for problems arising out of the malfunction of any
computer hardware or software not supplied by us. If the Product fails to
comply with the warranties set forth above, our entire liability and your
exclusive remedy will be replacement of the media on which the Product was
distributed or, at our option, our reasonable effort to make the Product
meet the warranty set forth above.
iv) This limited warranty applies only if you return all copies of the Product
with a copy of your paid invoice to us at 333 Allegheny Avenue, Oakmont,
PA 15139 or to the Seller within the applicable warranty period for the
applicable Product. If we and the Seller cannot make the Product conform
to the above warranty, we will refund a portion of the license fees paid,
pro-rated over the term of the initial warranty period. Any replacement
Product will be warranted for the remainder of the original warranty
period or for thirty (30) days from the date you received the replacement,
whichever is longer.
v) All Services provided by us hereunder will be performed in a professional
manner by qualified personnel.
SERVICEWARE MAKES NO WARRANTIES REGARDING THE USEFULNESS OR ACCURACY OF THE
CONTENT PROVIDED HEREUNDER AS PART OF THE CONTENT PRODUCT. WE DISCLAIM ALL OTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE PRODUCT OR SERVICES. Some jurisdictions do not allow exclusion of implied
warranties, so the above exclusion may not apply to you. This limited warranty
gives you specific legal rights, and you may have others which vary from
jurisdiction to jurisdiction.
7. LIMITATION OF LIABILITY. IN NO EVENT SHALL WE OR THE SELLER BE LIABLE FOR
ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER (INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF
INFORMATION, OR OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OF OR INABILITY TO
USE, FURNISHING OR PERFORMANCE OF THE PRODUCT, EVEN IF WE OR THE SELLER HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL OUR LIABILITY
EXCEED THE FEES PAID BY CUSTOMER HEREUNDER. THE LIMITATIONS SET FORTH IN THIS
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) 3 of 5
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SECTION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY. Because some states do not allow the exclusion or limitation of
liability for consequential, incidental or special damages, the above limitation
may not apply to you.
8. MAINTENANCE, SUBSCRIPTION SERVICES AND SUPPORT. This Section 8. applies only
if the Product license was purchased directly from ServiceWare. Otherwise,
Maintenance, Subscription Services and Support shall be provided to you as
Indicated to you by the Seller.
i) Maintenance for Software Products. Maintenance for Software Products is
available for the initial annual term and any renewal thereof at
ServiceWare's then-current fees. For such initial maintenance term and any
renewal thereof, maintenance shall include Customer Support Services and
all updates an enhancements which are made generally available at no
additional charge to our customers who are current on Maintenance.
ii) Subscription Services for Content Products. Annual Subscription Services
are included for the initial annual license term and any renewal thereof
at ServiceWare's then-current fees. Subscription Services for Content
Products shall include Customer Support Services and updated content which
is made generally available at no additional charge to our customers who
are participating in the Subscription Services.
iii) Customer Support Services. Customer support shall entail telephone and
e-mail assistance and consultation to resolve problems with the Product
and shall be provided to those Customers who have purchased either
Maintenance or Subscription Services, as applicable, according to our
then-current customer support practices. We shall have no obligation to
provide support if a problem is caused by a malfunction of hardware,
software not supplied by us, modification of the Product not made by us,
operator error, or use of the Product in a manner not in accordance with
the operating instructions for the Product.
9. EXPORT. You agree that you will not knowingly export or transmit the Product
directly or indirectly, to any restricted countries or in any manner that would
violate United States laws and regulations as shall from time to time govern the
license and delivery of technology abroad by persons subject to the jurisdiction
of the United States, including the Export Administration Act of 1979, as
amended, and any export administration regulations issued thereafter.
10. U.S. GOVERNMENT RESTRICTED RIGHTS. If you are licensing the Product on
behalf of the U.S. Government (the "Government"), the following provisions apply
to you. If the Product is supplied to the Department of Defense ("DoD"), it is
classified as "Commercial Computer Software" under paragraph 252.227-7014 of the
DoD Supplement to the Federal Acquisition Regulations ("DFARS") (or any
successor regulations) and the Government is acquiring only the license rights
granted herein (the license rights customarily provided to non-Government
users). If the Product is supplied to any unit or agency of the Government other
than the DoD, it is classified as "Restricted Computer Software" and the
Government's rights in the Product are defined in paragraph 52.227-19 of the
Federal Acquisition Regulations ("FAR") (or any successor regulations) or, in
the case of NASA, in paragraph 18.52.227-86 of the NASA Supplement to the FAR
(or any successor regulations).
11. GENERAL. The limitations of warranty and liability described in Sections 6.
and 7. of this Agreement shall inure to the benefit of our licensors having an
interest in the Product. This Agreement may not be assigned by you without our
prior written consent. If any provision of this Agreement is held to be invalid
and unenforceable under any circumstances, its application in any other
circumstances and the remaining provisions of this Agreement shall not be
affected. No waiver of any right under this Agreement by either party shall be
effective unless given in writing by that party. No waiver of any right by
either party shall be deemed to be a waiver of any other right arising under
this Agreement.
This Agreement is governed by the laws of the Commonwealth of Pennsylvania. The
sole forums for resolving disputes arising under or relating to this Agreement
shall be the State and Federal courts of the Commonwealth of Pennsylvania, and
the parties hereby consent to the jurisdiction of such courts and agree that
venue shall be in Allegheny County, Pennsylvania.
12. ENTIRE AGREEMENT, YOU AGREE THAT THIS AGREEMENT AND ANY APPLICABLE
SERVICEWARE SALES ORDER FORM IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN YOU AND US, AND THAT IT SUPERSEDES ANY PROPOSAL OR PRIOR
AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER COMMUNICATION RELATING TO THE SUBJECT
MATTER HEREOF. WE ARE NOT BOUND BY ANY PROVISION OF ANY PURCHASE ORDER, RECEIPT,
ACCEPTANCE, CONFIRMATION, CORRESPONDENCE OR OTHERWISE, UNLESS
ServiceWare, Inc. End-User License Agreement (rev. 3-1-99) 4 of 5
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WE SPECIFICALLY AGREE TO THE PROVISION IN WRITING. NO VENDOR, DISTRIBUTOR,
PROVIDER, RESELLER, OEM, SALES REPRESENTATIVE OF OTHER PERSON IS AUTHORIZED TO
MODIFY THIS LICENSE AGREEMENT OR TO MAKE ANY WARRANTY, REPRESENTATION OR PROMISE
REGARDING THE PRODUCT WHICH IS DIFFERENCE FROM THOSE SET FORTH IN THIS LICENSE
AGREEMENT.
* The Knowledge-Pak Viewer(TM) Product contains technology licensed by
Verity, Inc. and use of such technology by End-Users is governed by all
terms and restrictions of this Agreement. Verity, Inc. reserves all rights
is the licensed technology.
ServiceWare, Inc. End-User License Agreement (rev 3-1-99)
<PAGE> 22
Exhibit-Trade Mark Guidelines
- -------------------------------------------------------------------------------
ServiceWare Guidelines for Use of Trademarks, Service Marks and Copyright
Symbols
NOTE: rightanswers.com, Knowledge Viewer, Knowledge Architech, Knowledge
Channels. KnowledgeNow Knowledge-Paks, Knowledge-Pak Architect, Knowledge-Pak
Viewer, Knowledge-Pak Desktop Suite, Knowledge-Pak Network Suite, Knowledge-Pak
Self-Support Suite, Knowledge-Pak Suite for SAP's R/3, Knowledge-Pak for
Microsoft Office 2000, Knowledge-Pak for Microsoft Internet Explorer 5,
Knowledge-Pak for Y2K, Integration Pak, Success-Pak, Knowledge-Pak University,
and Support at the Speed of Life are registered trademarks, trademarks or
service marks of ServiceWare Inc.
Tivoli has the right to use the following Trademarks, Service Marks and
Copyright Symbols:
Knowledge-Pak(R)
Knowledge-Pak Desktop Suite(TM)
Knowledge-Pak Suite for SAP's R/3(TM)
Knowledge-Pak Complete Suite for SAP's R/3(TM)
Knowledge-Pak for Microsoft Office 2000(TM)
Knowledge-Pak for Microsoft Internet Explorer 5(TM)
Knowledge-Pak for Y2K(TM)
Use of these marks only needs to occur once at first reference.
Tivoli SW SDMP
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Exhibit-Commercial Price List
- --------------------------------------------------------------------------------
A sample copy of your Commercial Price List is attached.
Tivoli SW SDMP
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<PAGE> 24
ServiceWare Inc.
KNOWLEDGE - PAK
Content
- --------------------------------------------------------------------------------
User Licensing
- --------------------------------------------------------------------------------
5 Users Initial Purchase - $5,000
6-20 Users - $1,000 per User
21+ Users - $800 per User
ASA - $180 per User
Service Licensing
- --------------------------------------------------------------------------------
Perpetual License
$20,000 per server
Unlimited Users
ASA - $8,000
Discounts
Multi-year Annual Subscription Agreements
(ASAs)
10% off for 2-year contract
20% off for 3-year contract
Delivery Format Exchange
First 90 days: No charge
After 90 days, if customer has current ASA: 25% of then-current list price
After 90 days, if customer does not have current ASA: Full list price
- --------------------------------------------------------------------------------
Price List
Knowledge-Pak Desktop Suite(TM)
Knowledge-Pak Network Suite(TM)
Pricing Notes
1. Definition of User: A "user" is someone who provides technical support for
others. This includes first and second-level help desk analysts, field
engineers, and network administrators. A "user" can also be someone who
uses the Knowledge-Pak(R) as part of doing a non-support job (e.g.,
accounting and other office staff, programmers, managers, etc.). User
licenses are reviewed annually to ensure ongoing compliance.
2. Service Pricing: Service pricing is unlimited for users; server pricing
applies to a single format.
3. Definition of Site: A "site" is defined as a single building or campus.
Enterprise licenses are available on a negotiated basis.
4. Multi-user Price is measured per site per order.
5. Initial Warranty Period: The standard initial warranty period for the
Knowledge-Pak Desktop Suite and the Knowledge-Pak Network Suite is 90 days
from the end of the month in which the product is shipped. While under
initial warranty, you will receive phone support for installation and
product questions.
6. The Annual Subscription Agreement (ASA) entitles you to:
(a) regular updates which may include:
i) updated knowledge content to existing product titles
ii) new product titles
(b) unlimited telephone support for product installation and usage.
The agreement is annual and takes effect at the time of purchase.
7. Exchanging Platforms: If you are under the initial warranty period, you
may exchange your Knowledge-Pak Desktop Suite or Knowledge-Pak Network
Suite for a new format, that runs on different support software, at no
charge. If your warranty is expired but you are under a current ASA, you
may exchange formats for 25% of the then-current list price. If you
warranty is expired and you are not under a current ASA, you may exchange
formats at full list price.
8. Product Media: The Knowledge-Pak Desktop Suite and the Knowledge-Pak
Network Suite are normally supplied on CD-ROM. A version can be provided
on diskettes for an additional $150 per set.
9. Terms: All pricing is in U.S. Dollars and subject to change without
notice.
333 Allegheny Avenue o Oakmont, PA 15139 USA o Tel: 412.826.1158 o Fax:
412.826.0577 o [email protected] o www.serviceware.com
(C) 1999 ServiceWare Inc. Knowledge-Paks, the Knowledge-Pak Desktop Suite, the
Knowledge-Pak Network Suite, the Knowledge-Pak Suite for SAP's R/3, and Right
Answers Right Now are registered trademarks, trademarks, or service marks of
ServiceWare Inc. All other references are trademarks or registered trademarks of
their respective companies. All rights reserved.
[ILLEGIBLE] 5/4/99
Right Answers Right Now
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Exhibit - Mutual Points of Contact
- --------------------------------------------------------------------------------
Communication Coordinators
ServiceWare Incorporated
Business:
Jeanne Kohser, Partner Manager
333 Allegheny Avenue
Oakmont, PA 15139
412-826-1158, Ext. 389
412-828-0577 (fax)
[email protected]
Legal:
Melinda Schnap, Contracts Manager
333 Allegheny Avenue
Oakmont, PA 15139
412-1158, Ext. 364
412-828-0577 (fax)
[email protected]
Technical:
John Price, Development Manager
333 Allegheny Avenue
Oakmont, PA 15139
412-826-1159, Ext. 392
412-828-0577 (fax)
[email protected]
Customer Support:
Kathy Campbell, Director of Customer Support
333 Allegheny Avenue
Oakmont, PA 15139
412-826-1159, Ext. 228
412-828-0577 (fax)
[email protected]
International Sales:
Markus Wachsmuth, Director of European Sales
A L'Antienne Poste
Rue Du Bugnon 1
CH-1299 Crans
Geneva, Switzerland
+41-22-960-1240
+41-22-960-1241 (fax)
[email protected]
Royalty Reporting:
Mary Barron, Staff Accountant
333 Allegheny Avenue
Oakmont, PA 15139
412-826-1159, Ext. 472
412-828-0577 (fax)
[email protected]
Tivoli/IBM
Christine DeWeese, Product Manager
9025 North River Rd., 2nd Floor
Indianapolis, IN [ILLEGIBLE] 46240
317-554-7500, Ext. 57583
317-554- (fax)
[email protected]
Jodie Slifka, Contracts Manager
9442 Capital of Texas Hwy, North
Austin, TX 78759
512-436-1275
512-436-1666 (fax)
[email protected]
Tim Reynolds, 2nd Line Development Manager
9025 North River Rd., 2nd Floor
Indianapolis, IN 46240
317-554-7500, Ext. 57578
317-554-7977 (fax)
[email protected]
Mark Boxberger, Director of Customer Support
9025 North River Rd., 2nd Floor
Indianapolis, IN 46240
317-554-7500, Ext. 57736
317-554- (fax)
[email protected]
Christine DeWeEse, Product Manager
9025 North River Rd., 2nd Floor
Indianapolis, IN 46240
317-554-7500, Ext. 57583
Scott Griffin
9442 Capital of Texas Hwy. North
Austin, TX 78759
512-436-
512-436-1681 (fax)
[email protected]
Tivoli SW SDMP -15- 7/27/99
<PAGE> 26
Attachment - Certificate of Originality
- --------------------------------------------------------------------------------
You may use this questionnaire to cover on complete Product, even if that
Product includes multiple modules.
Please do not leave any questions blank. Write "not applicable" or "N/A" if a
question is not relevant to the furnished software material. Depending on your
responses, TIVOLI/IBM may require additional information.
1) Please identify the software material including version, release, and
modification numbers for programs and any documentation.
- --------------------------------------------------------------------------------
2) Was any portion of the software material written by anyone other than you or
your employees within the scope of their employment?
Yes |_| No |X|
If YES, provide, as an attachment, the following information:
A) Indicate if the whole software material or only a portion thereof was written
by such party, and identify such portion:
(i) Specify for each involved party the name, address and citizenship:
(ii) If the party is a company, how did it acquire title to the software
material (e.g., software material was written by company's employees within the
scope of their employment);
(iii) If the party is an individual, did he/she create the software material
while employed by or under contractual relationship with another party?
Yes |_| No |_|
If YES, provide name and address of the other party and explain the nature of
the contractual relationship:
- --------------------------------------------------------------------------------
B) How did you acquire title to the software material written by the other
party?
- --------------------------------------------------------------------------------
3) Are any copyright, confidentiality, or proprietary notice(s) present on the
software content material(s)?
Yes |_| No |X|
If YES, please describe such notice(s):
- --------------------------------------------------------------------------------
4) Was any portion of the software material (e.g., Code, associated
documentation, etc.) derived from preexisting works (either yours or a third
party's), including any code from freeware, shareware, electronic bulletin
boards, or the internet?
Yes |X| No |_|
If YES, please identify the material, author, owner and copyright notice, if
any, for each of the preexisting materials:
Full Intellectual Property and distribution rights.
- --------------------------------------------------------------------------------
5) Does any of the software material (e.g., Code, associated documentation)
included recognizable voice, pictures, icons or other licenses?
Yes |_| No |X|
If YES, how did you acquire the rights to use such recognizable voices,
pictures, icons and other licenses?
- --------------------------------------------------------------------------------
6) Provide as an attachment, an explanation of any other circumstance which
might affect TIVOLI/IBM's ability to reproduce, distribute and market this
software material, including whether your software material was prepared from
any preexisting materials which have any: (a) confidentiality oR trade secret
restrictions to others; (b) known or possible royalty obligations to others; (c)
used other preexisting materials developed for another party or customer
(including government) where you may not have retained full rights to such other
preexisting materials.
7) You recognize that, for copyright registration or enforcement of legal rights
relating to the furnished software material, TIVOLI/IBM may need you to produce
additional information related to the software material. You hereby agree to
cooperate with TIVOLI/IBM and provide such information to TIVOLI/IBM at
TIVOLI/IBM's request. As an authorized representative of your company, you
hereby certify the above to be true and accurate.
By: /s/ Rajiv Enand
------------------------------------
(Authorized Signature)
Name: Rajiv Enand
----------------------------------
(Type or Print) (Date)
Title: CEO
---------------------------------
Tivoli SW SDMP -15- 7/27/99
<PAGE> 27
Attachment - Tivoli Development License Agreement
Tivoli
Development License Agreement
Tivoli Systems Inc. ("Tivoli(R)") is committed to working with third-party
vendors to provide customers with the highest quality products that increase
customer satisfaction. ServiceWare, Inc., ("Developer") is a commercial company
whose primary business is the development and marketing of software. Tivoli
recognized the benefit of licensing Tivoli integration toolkits, as described in
Attachment A (referred to as "Licensed Materials"), to Developer to facilitate
its development and marketing of code which enables Developer's software to
operate in conjunction and be compatible with Tivoli Software.
DEFINITIONS
Tivoli Documentation- Tivoli software manuals included in the Tivoli integration
toolkits.
Tivoli Runtime Components - software libraries and event adapters, in binary
executable form or source interpretable form, more specifically described in the
Tivoli Documentation current at the time of delivery of such Runtime Components,
which are delivered under this Agreement and (ii) those copyright scripts which
Tivoli provides to Developer under this agreement and/or which Developer adapts
through Developer's use of the Tivoli integration toolkits.
Tivoli Runtime Documentation- samples which Tivoli provides to Developer under
this agreement, more specifically described in the Tivoli Documentation and
which standardize delivery of Documentation for Developer's Applications.
Module- code developed through the use of the Licensed Materials which enables
the Developer's Application(s) to operate in conjunction and be compatible with
the Tivoli Platform.
First Level Support- collecting problem information from Customers, duplication
of problem symptoms, and supplying corrections, patches, and workarounds where
these exist.
Second Level Support- problem research to determine the nature of problems and
development of workarounds to allow Customers to avoid problems.
Third Level Support- correction of software documentation to resolve the
problem, and the creation of patches to resolve serious problems.
- --------------------------------------------------------------------------------
1. LICENSE GRANT
Tivoli grants Developer a license to use the Licensed Materials as defined by
this agreement and any instruction included with the Licensed Materials.
1.1 The Licensed Materials are copyrighted and licensed to the Developer--not
sold. Tivoli does not transfer title to the Licensed Materials to
Developer. Developer obtains no rights to the Licensed Materials other
than those granted under this license.
1.2 Under this license, Developer:
a. may use the Licensed Materials solely to develop, test, and
demonstrate Module(s) that operate in conjunction, and are
compatible, with Tivoli software; The Developer may not use, copy,
merge, or transfer the Licensed Materials or modify the Software,
except as provided in this Agreement;
b. may use the Licensed Materials on up to four (4) servers and four
(4) clients per server at each licensed location identified in
Attachment B--with a limit of three locations per license;
c. may make copies of the Licensed Materials for backup purposes at
each designated location in Attachment B, provided Developer
reproduces the copyright notice and any other legend of ownership on
each such copy or partial copy;
d. may prepare derivative works (i) of the Runtime Components as
specified in Attachment A only as necessary to produce Module(s) in
accordance with the instructions indicating how to create restricted
run-times in Module(s); and (ii) of the "Runtime Documentation" as
specified in Attachment A;
e. may reproduce and distribute the Runtime Components in binary
executable form, and the Runtime Documentation, but solely as
integrated into one or more Module(s). Distribution is pursuant only
to a license that:
1. prohibits the end user from attempting to decipher, decompile,
or disassemble the Runtime Components, except to the extent
applicable laws specifically prohibit such restriction;
2. includes statements that the Module(s) is copyrighted and
licensed; it is not sold, and Developer does not pass title to
the program;
3. disclaims all implied warranties. This disclaimer will include
the implied warranties of non-infringement, merchantability,
and fitness for a particular purpose; and,
4. states, in comparable words, "The collective liabilities of
the seller/licensor and its third party suppliers are subject
to the limitation of liabilities described in this agreement.
Third
Tivoli SW SDMP -17- 7/27/99
<PAGE> 28
party suppliers disclaim all liability for consequential or
other indirect damages. The third party supplier is an
intended beneficiary of these limitations and disclaimers, and
the limitation of liabilities for seller/licensor and its
suppliers are not cumulative
f. will indemnify, hold harmless, and defend Tivoli and its suppliers
from and against any claims or lawsuits, including damages and
attorneys fees, that arise from the distribution and development of
Module(s);
g. may not reverse assemble, reverse compile, or otherwise translate
the Software except as specifically permitted by law without the
possibility of contractual waiver; or
h. may not make any statements to the effect or which imply that any
Module(s) is "certified" or otherwise endorsed by Tivoli, or that
such Module(s)'s performance is guaranteed by Tivoli unless
certification by Tivoli is achieved. Certification will be governed
under a separate mutually agreeable Certification Agreement;
i. may not sublicense, rent, or lease the Licensed Materials.
2. LICENSE FEES
In consideration for the license rights granted herein, Developer will pay
Tivoli the fees specified in Attachment A. If Developer increases the number of
machines on which the Licensed Materials will be used, or changes or adds
Locations, Developer agrees to notify Tivoli and pay applicable charges.
3. SUPPORT SERVICES FEES
3.1 Tivoli will provide to Developer, for the annual fees specified in
Attachment A, its extended maintenance & support plan. This includes:
a. any updates, upgrades, extensions, modifications, patches, and bug
fixes (collectively referred to as "Updates") to the Licensed
Materials made generally available by Tivoli;
b. First, Second, and Third Level Support via Tivoli Customer Support
for the installation and use of Licensed Materials via telephone,
fax, and e-mail. Service is available 24 hours a day, seven days a
week, except Tivoli Holidays; and,
c. Tivoli's on-line Developers Forum for development assistance with
Module(s) and Licensed Materials.
3.2 In addition, Developer may be eligible to receive beta and/or limited
available products (collectively referred to as "Early Release Products")
as they become available for applicable products that comprise the set of
Licensed Materials. Tivoli licenses such Updates & Early Release Products
to Developer under the terms of Section 1 of this Agreement.
4. DEVELOPER RESPONSIBILITIES
4.1 Developer agrees to remit payment of fees for the Licensed Materials as
specified in Attachment A herein.
4.2 Developer is responsible for the payment of any taxes resulting from this
Agreement.
4.3 Developer will use commercially reasonable efforts to ensure that
Module(s) does not contain "viruses" or other harmful code. Developer will
test Module(s) in a manner consistent with industry standards and will use
commercially reasonable efforts to fix any problems prior to making them
commercially available. Developer agrees that any Module(s) will be equal
to or greater in quality than Developer's applications on other platforms.
4.4 Developer will provide First, Second, and Third Level technical support to
the end users of the Module. Tivoli is not responsible for providing
support for Module(s) to Developer's end users.
4.5 Upon Tivoli's request, Developer will provide Tivoli with a
non-confidential business plan covering Developer's use of Tivoli
technologies.
4.6 Developer grants Tivoli a non-exclusive, worldwide right to use,
reproduce, display, exhibit, publish, and distribute names, logos, and
trademarks, solely for the purpose of publicly stating that the Developer
or a third party develops applications that operate in conjunction with
and are compatible with Tivoli software. Developer hereby releases Tivoli
from any and all claims or liabilities whatsoever relating to the names,
logos, and trademarks, including, without limitation, all claims relating
to: (i) any unintentional blurring, distortion, or alteration that may
occur in the production, processing, publication, or distribution of the
names, logos, and trademarks in any and all media; (ii) the rights of
publicity, rights of privacy, or similar rights, however described; and
(iii) the use, reproduction, display, exhibition, publication,
performance, transformation, and distribution of the names, logos, and
trademarks in any and all media.
4.7 If Developer provides Tivoli with comments on Licensed Materials, updates,
services, or materials (collectively referred to as "Feedback") during the
course of this Agreement, Developer grants Tivoli its permission to use
the Feedback in any manner whatsoever and without accounting to Developer.
4.8 Developer will retain ownership rights in the Module(s).
5. TERM AND TERMINATION
5.1 The term of this Agreement is two (2) years from the execution date by
Tivoli, unless earlier terminated as specified herein:
a. Either party may terminate this Agreement without further obligation
or liability if the other party commits any breach of this Agreement
and fails to remedy such breach within thirty (30) days after
written notice by the other party of such breach.
b. Tivoli may terminate this Agreement immediately if Developer or a
substantial portion of its assets are sold, assigned, or otherwise
transferred to a third party; if Developer is adjudicated a bankrupt
or makes an assignment for the benefit of creditors; or if Developer
undergoes a change of control.
Tivoli SW SDMP 7/27/99
-18-
<PAGE> 29
5.2 If the Agreement is terminated, Developer will destroy all copies of the
Licensed Materials.
5.3 Termination or expiration of this Agreement does not affect previously
granted paid-up rights and licenses to Developer's end users for so long
as they remain in compliance with Developers and user license agreements.
5.4 Any terms of this Agreement that by their nature extend beyond termination
or expiration will survive.
6. NO WARRANTY
SUBJECT TO ANY STATUTORY WARRANTIES WHICH CANNOT BE EXCLUDED, TIVOLI MAKES NO
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES
OF NON-INFRINGEMENT AND THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. CONCERNING THE FUNCTION, PERFORMANCE, OR DOCUMENTATION
FOR THE LICENSED MATERIALS.
Other than as specified in Section 3, Tivoli has no obligation to provide
service, software updates, defect correction, or any maintenance for Licensed
Materials, even if such are or later become available.
7. NO LIABILITY
TIVOLI WILL NOT BE LIABLE FOR DIRECT OR INDIRECT DAMAGES, INCLUDING, WITHOUT
LIMITATION, LOST PROFITS, LOST SAVINGS, OF ANY INCIDENTAL, SPECIAL, OR INDIRECT
DAMAGES OR OTHER ECONOMIC CONSEQUENTIAL DAMAGES, EVEN IF TIVOLI IS INFORMED OF
THEIR POSSIBILITY. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION
OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE EXCLUSION OR LIMITATION MAY
NOT APPLY TO DEVELOPER.
8. CONFIDENTIAL INFORMATION
Tivoli & Developer hereby establish these terms and conditions governing the use
and protection of confidential information ("Confidential Information") one
party ("the Disclosing Party") provides or discloses to the other party ("the
Receiving Party"):
8.1 The Licensed Materials and any technical support provided by Tivoli shall
be considered Confidential Information of Tivoli. Developer agrees not to
disclose such Confidential Information without Tivoli's prior consent.
Developer understands that Confidential Information is subject to change
by Tivoli at any time without notice and agrees that Developer will not
hold Tivoli responsible for any reliance Developer places on Confidential
information
8.2 Subsequent to disclosures by either party, the Receiving Party shall have
a duty to protect only that Confidential Information which is:
a. first disclosed by the Disclosing Party in tangible form and is
conspicuously marked as "Confidential", or the like, at the time of
disclosure; or,
b. disclosed by the Disclosing Party in non-tangible form and orally
identified as confidential at the time of disclosure, and is
summarized in tangible form conspicuously marked as "Confidential",
or the like, and delivered to the Receiving Party's representative
within thirty (30) days of the original disclosure.
8.3 Receiving Party will treat the Confidential Information with the same care
and discretion to avoid disclosure, publication, or dissemination as
Receiving Party uses with its own similar Information. No obligation of
confidentiality will apply to any Information that (I) Receiving Party
already possesses or rightfully receives from a third party, (II)
Receiving Party develops independently, or (iii) becomes publicly
available without breach of this Agreement.
8.4 The Receiving Party shall adhere to the U.S. Export Administration laws
and regulations and shall not export or re-export any Confidential
Information or technical data or products received from the Disclosing
Party or the direct product of such Confidential Information or technical
data to any prescribed country listed in the U.S. Export Administration
Regulations unless properly authorized by the U.S. Government.
8.5 The duty to protect Confidential Information disclosed in performance of
this Agreement expires five (5) years after execution of this Agreement,
which duly shall survive the earlier expiration or termination of this
Agreement. Should Developer participate in the subsequent Certification
Program, Confidential Information disclosed hereunder will convey to the
certification agreement (hereinafter certification Agreement") and
treatment thereof will be in accordance with the Certification Agreement.
8.6 Other than as indicated above, any information disclosed under this
Agreement will be considered non-confidential.
9. GENERAL
9.1 All payments by Developer to Tivoli pursuant to this Agreement shall be
made in U.S. dollars by wire transfer to the bank and account number
specified below, or such other places as Tivoli may from time to time
specify by notice to Developer:
Texas Commerce Bank, Austin, Texas
ABA #114921172
Account of Tivoli Systems #09911802545
9.2 Each party is an independent contractor and will be responsible for the
direction and compensation of its own employees. Each party is free to
have similar agreements with others and offer products competitive to
those covered by this Agreement. Each party will independently set the
prices for its own products.
-19-
<PAGE> 30
9.3 Each party will identify coordinators who will represent such party for
various aspects of this Agreement and will notify the other party if these
coordinators change.
9.4 Tivoli may, on written notice, modify, withdraw, or otherwise change the
prices and terms of services provided under this Agreement, including the
Licensed Materials specified in Attachment A.
9.5 Tivoli encourages Developer to participate in Tivoli's certification
program (available under a separate agreement). This Agreement does not,
however, grant Developer any rights in any of Tivoli's patents,
copyrights, trademarks, trade names, or service marks.
9.6 Developer may not sell, transfer, assign, or subcontract any of its rights
or obligations under this license. Any attempt to do so is void.
9.7 Developer agrees not to download or otherwise export or re-export the
Licensed Materials or any underlying information or technology except in
full compliance with the United States and other applicable laws and
regulations.
9.8 Use, duplication, or disclosure by the Government is subject to the terms
and conditions in the GSA ADP schedule with IBM.
9.9 This Agreement is governed by the laws of the State of New York, without
regard to its conflicts of laws and provisions. Each party waives its
rights to a jury trial in any litigation. Litigation will only be
commenced in the State of New York.
Neither party will bring a claim under this Agreement more than two
(2) years after the claim arose.
9.10 This Agreement represents the entire agreement between the parties and
supersedes all prior agreements on the subject. Except as set forth in
Section 8.2, this Agreement can only be modified by a writing signed by
both parties. Failure by either party to insist on performance does not
prevent such party from doing so at a later time.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
Tivoli Systems, Inc. ("Tivoli") ServiceWare, Inc. ("Developer")
/s/ Jodie Slifka /s/ Rajiv Enand
- ------------------------------------ --------------------------------------
Authorized Signature Authorized Signature
Jodie Slifka Rajiv Enand
- ------------------------------------ --------------------------------------
Name Name
Contract Manager CEO
- ------------------------------------ --------------------------------------
Title Title
9442 Capital of Texas Highway North 333 Allegheny Avenue
Austin, Texas 78759 Oakmont, PA 15199
8/3/99 8/3/99
- ------------------------------------ --------------------------------------
Date Date
-20-
<PAGE> 31
ATTACHMENT A
Check Here |_| Tivoli Service Desk Integration Toolkit Bill og Material and Fees
Part Number Description
- ----------- -----------
Fee
- ---
5697-TSD Tivoli Service Desk SDK
Consisting of current release of the following Licensed
Materials (software and documentation):
Tivoli Asset Management
Tivoli Problem Management
Tivoli Change Management
Tivoli Service Desk Enterprise Interface
Tivoli Service Desk Developer's Toolkit
Two (2) Annual Maintenance (Section 2) Included in fee above,
$500 each year.
- --------------------------------------------------------------------------------
Version 2.0 Page 21 Agreement # TBBXXX-OO
August 2, 1999
<PAGE> 32
Attachment B
Licensed Locations
As allowed in Section 1.2.b herein, the Licensed Materials will be used at
Developer's following location(s):
(To be completed by Developer)
Loocation 1
333 Allegheny Avenue
Oakmont, PA 15139
Version 2.0 Page 22 Agreement # TBBXXX-00
August 2, 1999
<PAGE> 33
Public Sector Attachment
- --------------------------------------------------------------------------------
This Public Sector Attachment is considered part of the Agreement. It
establishes additional terms and conditions under which TIVOLI/IBM may, at its
sole discretion, market and license your Products and Services to Public Sector
customers under your End User License at prices established by TIVOLI/IBM.
Public Sector customers include federal government, federal government owned or
affiliated (or sponsored) corporations or other organizations involved in
federal government procurement activities, including but not limited to
organizations that are authorized to procure using IBM's General Services
Agreement (GSA) Schedule Contract, or equivalent documentation, and prime
contractors and subcontractors who are engaged in federal government procurement
opportunities. Though actual usage of the Products may occur outside the
geographical boundaries of the Public Sector's home country, such as embassies,
the end user will be bound by the end user license agreement agreed to by the
Public Sector's home country. If the terms of this Attachment conflict with any
terms of the SRA, the terms of this Attachment will prevail.
When TIVOLI/IBM markets your Products to Public Sector customers, the following
additional terms apply:
1. Any limited license, limited preview, trial or demonstration use of the
Products may be offered to Public Sector customers under the terms of the
TIVOLI/IBM Agreement for Trial or Loan - Federal, or a similar TIVOLI/IBM
agreement, rather than your End User License or your Trial License Agreement.
2. Once the Public Sector customer has decided to procure your Products,
TIVOLI/IBM will attempt to have the Public Sector customer directly execute your
End User License. In the event the Public Sector customer insists on one
contracting party, you authorize TIVOLI/IBM to offer your End User License to
the Public Sector customer such that TIVOLI/IBM and the customer will be the
parties to the license. In such cases, you agree that the license terms are
inapplicable to TIVOLI/IBM, but rather govern the Public Sector customer's use
of your Products.
3. You agree that your End User License terms may be modified as directed by the
procurement rules and regulations of the Public Sector customer or as otherwise
appropriate.
4. Specifically for Public Sector customers in the United States whose
procurement is governed by the Federal Acquisition Regulation ("FAR"), you
agree:
- - that the Public Sector customer's use of the Products shall be subject to
FAR 12.212. If for any reason 12.212 is inapplicable, you further agree:
o (a) the minimum rights granted to such customers is that specified in the
Restricted Rights Notice 52.227-14(JUN 1987);
o (b) the Products TIVOLI/IBM is authorized to market and license to Public
Sector customers are published copyrighted commercial computer software meeting
the definition of "Restricted computer software" as defined in FAR 52.227-14(JUN
1987). Such Products also meet the definition of Commercial item as defined in
FAR 2.101(AUG 1996).
o (c) you agree to the following clauses which must be contained in all
TIVOLI/IBM subcontracts:
- - (i) FAR 52.226-26, Equal Opportunity
- - (ii) FAR 52.222-38, Affirmative Action for Handicapped Workers;
- - (iii) FAR 52.222-35, Affirmative Action for Special Disabled and Vietnam
Era Veterans; and
- - (iv) FAR 52.247-64, Preference for Privately Owned U.S. Flagged Commercial
Vessels.
o (d) You agree to accurately notify TIVOLI/IBM whether your Products are
domestic end products for purposes of the Buy American Act (BAA), the Trade
Agreements Act (TAA) and related Public Sector statutes and regulations. For
purposes of this subparagraph, a domestic end product which is software consists
of Products as to which the country of media replication, the country of
printing of publications for such Products and the final assembly of such media
and related publications into the Products, completely occurs in the United
States.
5. Insofar as disputes are concerned, you agree that TIVOLI/IBM may resolve
disputes with Public Sector customers in accordance with those customers' own
disputes resolution procedures.
6. In addition to the warranties set forth in the Agreement, you hereby
represent and warrant that you have all the rights to allow TIVOLI/IBM to market
and license your Products to Public Sector customers. You warrant that you are
not suspended or debarred from doing business with any Public Sector customer.
7. To the extent required by regulation or statute, you are to provide
supporting data including that with respect to your Products' pricing, location
of manufacture, and commerciality.
- --------------------------------------------------------------------------------
Version 2.0 Page 23 Agreement # T98XXX-00
August 2, 1999
<PAGE> 34
Attachment - Confidential Disclosure Agreement CDA #9903640
This Agreement will provide protection for information to be exchanged between
us which we do not wish to become public ("Information") while maintaining our
ability to conduct our respective business activities. Each of us agrees that
the following terms will apply when one of us or its Affiliate ("Discloser")
discloses Information to the other or its Affiliate ("Recipient") under this
Agreement. "Affiliates" means entities that control, are controlled by, or are
under common control with a party to this Agreement.
1.0 Disclosure
Each time Discloser wishes to disclose specific Information to Recipient, or
wishes to engage in multiple disclosures relating to a specific subject matter,
Discloser will issue a supplement to this Agreement ("Supplement") before
disclosure. The Supplement will contain initial and final disclosure dates, a
non-confidential description of the Information to be disclosed and any
additional or different terms and conditions. The Supplement must be signed by
the Discloser and the Recipient. Information may be disclosed by: (i)
presentation; (ii) delivery; (iii) authorized access, such as to a data base; or
(iv) any other express means. Information must be identified as confidential at
the time of disclosure, and all materials containing Information must have a
restrictive marking. The Discloser will not disclose any Information not
described in a signed Supplement or which Discloser does not have the right to
disclose to the Recipient. For two (2) years after the date of disclosure, the
Recipient will use the same care and discretion to avoid disclosure of the
Discloser's Information as the Recipient uses with its own similar information
which it does not wish to disclose. Subject to this obligation, the Recipient
may use Discloser's Information for any purpose.
2.0 Exceptions
The Recipient may disclose Discloser's Information to: (i) its employees and
contractors, and employees and contractors of an Affiliate, who have a need to
know; and (ii) any other party with the Discloser's prior written consent. Upon
request of the Recipient, the Discloser may make disclosures directly to such
parties on behalf of the Recipient. Prior to any such disclosure or such request
by Recipient, the Recipient must have an appropriate agreement with any such
party sufficient to require the party to treat Information in accordance with
this Agreement. The Recipient may disclose Information to the extent required by
law, but must give the Discloser reasonable prior notice to allow the Discloser
an opportunity to obtain a protective order. Notwithstanding the foregoing, no
obligation will apply to Information that is: (i) already rightfully in the
Recipient's possession or rightfully received by the Recipient without a
nondisclosure obligation; (ii) developed independently by the Recipient; (iii)
publicly available when received, or thereafter becomes publicly available
through no fault of the Recipient; (iv) disclosed by the Discloser without a
signed Supplement as required by Section 1; (v) disclosed by the Discloser to a
third party without a nondisclosure obligation; or (vi) inherently disclosed by
the Recipient in the use, distribution or marketing of any product or service.
3.0 Disclaimers
THE DISCLOSER PROVIDES INFORMATION SOLELY ON AN "AS IS" BASIS. Neither this
Agreement, nor any disclosure of Information hereunder, in any way: (i) grants
to either of us or our Affiliates any right or license under any copyright,
patent, mask work or trademark now or hereafter owned or controlled by the
other; (ii) obligates either of us or our Affiliates to disclose or receive any
Information, perform any work, enter into any license, business engagement or
other agreement; (iii) limits either of us or our Affiliates from developing,
manufacturing or marketing products or services which may be competitive with
those of the other; (iv) limits either of us or our Affiliates from assigning or
reassigning its employees in any way; (v) creates any joint relationship or
authorizes either of us or our Affiliates to act or speak on behalf of the
other; or (vi) limits either of us or our Related Companies from entering into
any business relationship with any other parties.
4.0 General
Neither of us may assign or otherwise transfer our rights or delegate our duties
or obligations under this Agreement without the prior written consent of the
other. Any attempt to do so will be void. The Recipient must comply with all
applicable United States and foreign export laws and regulations. Only a written
agreement signed by both of us can modify this Agreement. Either of us may
terminate this Agreement by providing one month's written notice to the other.
Any provisions of this Agreement which by their nature extend beyond its
termination remain in effect until fulfilled and apply to our respective
successors and authorized assigns. If there is a conflict between the terms of
this Agreement and a Supplement, those of the Supplement will prevail for that
disclosure. This Agreement is governed by the laws of the country in which the
disclosure occurs, except: (i) in Australia, this Agreement will be
Version 2.0 Page 24 Agreement # T98XXX-00
August 2, 1999
<PAGE> 35
governed by the laws of the State or Territory in which the disclosure occurs:
(ii) in Central Europe and Russia, this Aggreement will be governed by the laws
of Austria; (iii) in Estonia, Latvia, and Lithuania, Finnish law will apply;
(iv) in Canada, the laws of the Province of Ontario govern this Agreement: and
(v) in the United States (including if any part of the disclosure is performed
within the United States or if the Information is of United States origin) and
Puerto Rico, and Peoples Republic of China, the laws of the State of New York
govern this Agreement. Any reproduction of this Agreement by reliable means will
be considered an original of this Agreement This Agreement, including any
Supplements, is the complete and exclusive agreement regarding our disclosures
hereunder.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO
Tivoli Systems, Inc. Service West, Inc.
(a wholly owned subsidiary of IBM)
By: Jodie Slifka By: Rajiv Enand
- -------------------------------------- --------------------------------------
Signature /s/ Jodie Slifka Date 8/3/99 Signature /s/ Rajiv Enand Date 8/3/99
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
Jodie Slifka
- -------------------------------------- --------------------------------------
Printed Name Printed Name Rajiv Enand
- -------------------------------------- --------------------------------------
Contract Manager CEO ServiceWare
- -------------------------------------- --------------------------------------
Title and Organization Title and Organization
TIVOLI SYSTEMS INC
- -------------------------------------- --------------------------------------
Address: Address:
9442 Capital of Texas Highway N. 333 Allegheny Avenue
Austin, TX 78759 Oakmont, PA 15139
Version 2.0 Page 25 Agreement # TBBXXX-OO
August 2, 1999
<PAGE> 36
With respect to the Information identified below, the terms and conditions in
the referenced agreemetn, as modified by any terms and conditions identified
below, will apply to disclosures hereunder:
Disclosure: |X| Tivoli/IBM |X| You
Initial disclosure date: Mutual date of execution
Final disclosure date: 07-22-2001
-----------
Non-confidential description of Information to be disclosed:
Tivoli Systems Inc. and ServiceWare Corporation to hold discussions on
technologies and products for next generation products.
Specific items to be shared: product information, pricing, roadmap,
compatabilities and other financial data as required.
Additional of different terms and conditions (if any):
This supplement and the referenced agreement are the complete and exclusive
agreement regarding disclosures hereunder.
AGREED AND ACCEPTED TO: AGREED AND ACCEPTED TO:
Tivoli Systems, Inc.
(a wholly owned subsidiary of IBM)
By: By:
- ---------------------------------- -----------------------------------
Signature Date Signature Date
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
Printed Name Printed Name
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
Title and Organization Title and Organization
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
Address: Address:
9442 Capital of Texas Highway N. 333 Allegheny Avenue
Austin, TX 78759 Oakmont, PA 15139
Version 2.0 Page 26 Agreement # TBBXXX-OO
August 2, 1999
<PAGE> 1
Confidential portions of this Exhibit have been omitted and are identified by
square brackets ([]) and three asterisks (***). Such material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
Exhibit 10.9
MICROSOFT CORPORATION
SERVICEWARE KNOWLEDGE BASE LICENSE AGREEMENT
This ServiceWare Knowledge Base License Agreement ("Agreement") is entered
into as of the 29th day of June, 1998 (the "Effective Date") by and between
Microsoft Corporation, a Washington corporation, located at One Microsoft Way,
Redmond, Washington 98052 ("Microsoft") and ServiceWare Incorporated, located
at 333 Allegheny Avenue, Oakmont, Pennsylvania 15139, a Pennsylvania
corporation ("Company").
WHEREAS, Company has a product which consists of structured technical
support articles, which relate to Microsoft and other third party products and
which are targeted at end users in the corporate help desk, home use and small
business markets (collectively referred to herein as "Knowledge Pak");
WHEREAS, Company will provide portions of the Knowledge Pak to Microsoft
which consist of (a) articles pertaining primarily to Microsoft products and
(b) articles originally obtained from Microsoft and subsequently modified by
Company (collectively referred to herein as the "ServiceWare Knowledge Base");
WHEREAS, Company will provide the ServiceWare Knowledge Base to Microsoft
via download over an FTP site on the Internet or via CD format; and
WHEREAS, Microsoft wishes to license such ServiceWare Knowledge Base for
use with on-line support in accordance with the terms of this Agreement.
THEREFORE, the parties agree as follows:
1. License Grant.
a. Company grants to Microsoft and its service providers and other
outsourcing vendors (collectively referred to as "Contractors") a
non-exclusive, worldwide, fully-paid, [***] license to make, use, copy, adapt,
display, broadcast, transmit, distribute the ServiceWare Knowledge Base, in
whole or in part, for Microsoft internal use only.
b. Company grants to Microsoft and its Contractors a non-exclusive,
worldwide, [***] license (i) to make, use, copy, adapt, publicly perform or
display, import, broadcast, transmit and/or distribute the ServiceWare Knowledge
Base, in whole or in part, for use solely in combination with other information
in providing support online via Microsoft's designated support website(s),
including but not limited to the website located at http://microsoft.com, and
(ii) to sublicense end users of the designated support website(s) the right to
internally use, copy, display, import, transmit and/or distribute on a perpetual
basis those portions of the ServiceWare Knowledge Base obtained by such end
users from the designated support website(s). Microsoft will not remove or
otherwise change any usual disclaimers, copyright notices, trademarks or other
protective notices or hyperlinks on the ServiceWare Knowledge Base licensed to
Microsoft pursuant to this Section. Microsoft acknowledges that the ServiceWare
Knowledge Base will be presented to end users in conjunction with other third
party support content and that Microsoft will not provide a predefined search to
the end users for accessing the ServiceWare Knowledge Base apart from such third
party content, including without limitation the terms "ServiceWare" and
"Knowledge Pak".
c. Company also grants to Microsoft and its Contractors a license during
the term of this Agreement, in connection with use, distribution or promotion
of the ServiceWare Knowledge Base as indicated in Section 1(a) and 1(b), the
worldwide rights to use the Company's name, trademark(s), trade name(s) and/or
logos and to advertise or promote the same in all such media. Notwithstanding
the foregoing, Microsoft shall have no obligation to promote the ServiceWare
Knowledge Base or Company. If Microsoft uses Company's name, trademark(s),
trade name(s) and/or logos in any medium, other than Microsoft internal use or
providing support online, as indicated in Section 1(b), then all such use will
be subject to Company's approval, which approval shall not be unreasonably
withheld.
d. All rights in the ServiceWare Knowledge Base not expressly granted
herein are reserved by COMPANY.
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<PAGE> 2
2. Delivery and Acceptance. Company shall deliver the ServiceWare Knowledge
Base to Microsoft no later than _________________, 1998 and all Updates thereto
pursuant to section 3 below. Upon the delivery of the ServiceWare Knowledge Base
and the Updates thereto to Microsoft, Company shall deliver a report accurately
identifying the source of the information contained in the deliverable and if
such information was obtained from publicly available sources under license
grant, through fair use or otherwise (each a "Source Report"). Microsoft shall
have the right to review and approve the ServiceWare Knowledge Base and any
Updates thereto as specified in Section 3 below. If for any reason within
forty-five (45) days of Microsoft's receipt of the ServiceWare Knowledge Base or
any Updates thereto as specified in Section 3 below, Microsoft determines the
ServiceWare Knowledge Base does not meet its acceptance criteria, Microsoft will
return the ServiceWare Knowledge Base or any Updates to Company and Company
shall correct the ServiceWare Knowledge Base or Updates in a form that is
acceptable to Microsoft. Microsoft's acceptance criteria shall be comprised of
the ServiceWare Knowledge Base performing in accordance with (i) the supporting
end user documentation, (ii) the representations and warranties set forth
herein, and (iii) the Updates (as defined in Section 3 below) of the ServiceWare
Knowledge Base containing sufficient breath and depth regarding the use and
usability of Microsoft products and related software and hardware to be no less
than that contained in the ServiceWare Knowledge Base as of the Effective Date.
3. ServiceWare Knowledge Base Updates. Company agrees to provide Microsoft with
commercially available updates, including but not limited to updated articles
and new articles to the ServiceWare Knowledge Base (collectively "Updates"), no
less than once every three (3) months after the Effective Date and will be
provided to Microsoft for download via an FTP site on the Internet and/or via CD
or other media.
4. Payment. In consideration of the license rights and delivery of the Updates
provided under the terms of this Agreement, Microsoft shall pay Company the
amount of [***] which shall be paid as follows:
a. [***] will be paid for the initial year of the Agreement upon (a) the
Effective Date of this Agreement or (b) upon delivery and Microsoft's acceptance
of the ServiceWare Knowledge Base, whichever occurs later.
b. [***] will be due upon the one year anniversary following the Effective
Date.
c. For each subsequent extension, as may be agreed upon by the parties as
set forth in Section 8(e) below, Microsoft shall pay Company no more than the
amount of [***]
Company shall supply Microsoft with a written invoice for all amounts due under
this Agreement, the payment terms of which shall be net thirty (30) days from
Microsoft's receipt of such invoice, unless otherwise noted in this Section.
5. Company's Obligations, Representations and Warranties.
a. Company warrants and represents that the ServiceWare Knowledge Base
provided to Microsoft by Company under this Agreement is not regulated for
export purposes under the International Traffic in Arms Regulations (ITAR) and
that such ServiceWare Knowledge Base is subject to a general license under
Export Administration Regulations and as such no license is required. If at any
time during the term of this Agreement the above statements are no longer
accurate, Company will notify Microsoft in writing of such change in
classification within twenty-four (24) hours of its knowledge of that
inaccuracy.
b. Company warrants that (i) it has sufficient authority to enter into
this Agreement, (ii) it possesses full authority to grant all licenses and
rights conveyed herein and to perform all covenants and duties specified herein;
and (iii) the ServiceWare Knowledge Base (A) does not infringe upon any
copyright held by any third party; (B) does not contain any encryption/encrypted
technology; and (C) to the best of Company's knowledge, after conducting
generally acceptable quality control checks and reasonable due diligence of the
ServiceWare Knowledge Base, the ServiceWare Knowledge Base provided to Microsoft
by
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<PAGE> 3
Company will contain no libelous, defamatory or false or misleading statements,
will not infringe any trade secret or right of privacy or publicity held by any
third party and does not violate any state or federal laws or regulations in the
United States; and (iv) at the time of delivery to Microsoft, the ServiceWare
Knowledge Base and Updates thereto provided to Microsoft, will perform
substantially in accordance with the applicable end user documentation.
The representations and warranties contained in this Section 5 are continuous in
nature and shall be deemed to have been given by Company at execution of this
Agreement and at each delivery of the ServiceWare Knowledge Base and any updates
provided under Section 3 thereto. These representations and warranties shall
survive termination or expiration of this Agreement.
c. EXCEPT AS SET FORTH IN THIS SECTION 5, COMPANY HEREBY DISCLAIMS ALL
OTHER WARRANTIES REGARDING THE SERVICEWARE KNOWLEDGE BASE, EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
6. Indemnification.
a. Company agrees to indemnify, defend, and hold Microsoft and its
affiliates, and each of their successors, officers, directors and employees
harmless from any damages, costs, liabilities or claims arising out of or in
connection with any action, claim or suit brought against Microsoft that if
taken to be true would be a result of a breach of Company's representations and
warranties set forth in Section 5(b) above (except for Company's breach of its
obligation under Section 2(iii) above to deliver Updates containing sufficient
breath and depth regarding the use and usability of Microsoft products and
related software and hardware, for which this indemnification obligation shall
not apply), provided that Microsoft gives Company (i) written notice of such
claim or suit, (ii) the sole authority to defend and settle the same, provided
that if such settlement shall have a material adverse effect on Microsoft's
rights under this Agreement, Microsoft shall have the right to consent to the
applicability of such settlement agreement to Microsoft, which consent shall not
be unreasonably withheld, and (iii) at Company's expense, any information or
assistance requested by Company in connection with such defense or settlement].
Microsoft may, at its option and at no expense to Company, participate in and/or
observe the defense of such claim or suit.
b. If the use of the version of the ServiceWare Knowledge Base provided
to Microsoft by Company under this Agreement is enjoined by an order of a court
of competent jurisdiction or, if Company believes that such an order is likely,
then Company, at no expense to Microsoft, may use reasonable commercial efforts
to (i) procure for Microsoft the right to continue using such version in
accordance with this Agreement or (ii) modify such version so that it becomes
non-infringing. If (i) or (ii) above are not available to Company, Company shall
refund to Microsoft all amounts paid to Company by Microsoft hereunder during
the prior twelve (12) month period without limiting any other rights or remedies
available to Microsoft. Company shall have no liability for any damages
resulting from any infringement claim after providing written notice to
Microsoft that it should cease such activity due to such a claim if Microsoft
does not cease such activity.
c. Company shall have no liability under any provision of this Agreement,
including without limitation the indemnification provisions set forth in this
Section 6, with respect to (i) any performance problem or claim of infringement
to the extent directly attributable to the Licensed Materials (as defined in the
Non-Exclusive License Agreement (as defined below)) provided by Microsoft to
Company under the terms of that certain Non-Exclusive License Agreement between
Microsoft and Company of even date herewith (the "Non-Exclusive License
Agreement") or (ii) Microsoft's improper modification to the informational
content contained in the ServiceWare Knowledge Base.
7. Disclaimer of Damages and Limitation of Liability.
a. IN NO EVENT WILL MICROSOFT, ITS AFFILIATES, CONTRACTORS OR SUPPLIERS
BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL
DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR ANY
3
<PAGE> 4
OTHER PECUNIARY LOSS) ARISING OUT OF THIS AGREEMENT, EVEN IF THEY HAVE BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
b. EXCEPT AS SPECIFICALLY PROVIDED IN THE FOLLOWING SENTENCE, IN NO
EVENT WILL COMPANY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNATIVE OR
CONSEQUENTIAL DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION,
OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF THIS AGREEMENT, EVEN IF THEY HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE EXCLUSION OF LIABILITY FOR
CERTAIN TYPES OF DAMAGES PROVIDED IN THE PRECEDING SENTENCE SHALL NOT APPLY TO
INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES ARISING FROM
COMPANY'S BREACH OF ANY OF THE REPRESENTATIONS OR WARRANTIES SET FORTH IN
SECTION 5(b) ABOVE (EXCEPT FOR COMPANY'S BREACH OF ITS OBLIGATION UNDER SECTION
2(iii) ABOVE TO DELIVER UPDATES CONTAINING SUFFICIENT BREATH AND DEPTH
REGARDING THE USE AND USABILITY OF MICROSOFT PRODUCTS AND RELATED SOFTWARE AND
HARDWARE, FOR WHICH THE DISCLAIMER OF DAMAGES AS STATED IN THE PRECEDING
SENTENCE SHALL APPLY).
c. IN NO EVENT SHALL THE TOTAL LIABILITY OF MICROSOFT OR ANY OF ITS
AFFILIATES, CONTRACTORS OR SUPPLIERS UNDER THIS AGREEMENT, WHETHER FOR TORT
(INCLUDING NEGLIGENCE AND GROSS NEGLIGENCE), STRICT LIABILITY, BREACH OF
CONTRACT, BREACH OF WARRANTY OR OTHERWISE, IN THE AGGREGATE, EXCEED THE SUM OF
SEVEN HUNDRED FIFTY THOUSAND DOLLARS (US$750,000.00) UNDER THIS AGREEMENT.
d. IN NO EVENT SHALL THE TOTAL LIABILITY OF COMPANY UNDER THIS
AGREEMENT, WHETHER FOR TORT (INCLUDING NEGLIGENCE AND GROSS NEGLIGENCE), STRICT
LIABILITY, BREACH OF CONTRACT, BREACH OF WARRANTY OR OTHERWISE, IN THE
AGGREGATE, EXCEED THREE MILLION DOLLARS (US$3,000,000), PLUS ANY AMOUNTS
EXPENDED DEFENDING AGAINST SUCH INDEMNIFIED CLAIMS PURSUANT TO SECTION 6 ABOVE.
THE LIMITATION OF LIABILITY OF COMPANY PROVIDED IN THE PRECEDING SENTENCE SHALL
NOT APPLY TO COMPANY'S BREACH OF SECTION 5(b) ABOVE (EXCEPT FOR COMPANY'S
BREACH OF ITS OBLIGATION UNDER SECTION 2(iii) ABOVE TO DELIVER UPDATES
CONTAINING SUFFICIENT BREATH AND DEPTH REGARDING THE USE AND USABILITY OF
MICROSOFT PRODUCTS AND RELATED SOFTWARE AND HARDWARE, FOR WHICH THE THREE
MILLION DOLLAR (US$3,000,000) LIABILITY CAP AS STATED IN THE PRECEDING SENTENCE
SHALL APPLY) OR OBLIGATIONS UNDER SECTION 6(a) ABOVE, IN WHICH CASE IN NO EVENT
SHALL THE TOTAL LIABILITY OF COMPANY UNDER THIS AGREEMENT IN THE AGGREGATE,
EXCEED TWELVE MILLION DOLLARS (US$12,000,000), PLUS ANY AMOUNTS EXPENDED
DEFENDING AGAINST CLAIMS OF INFRINGMENT PURSUANT TO SECTION 6 ABOVE.
8. Term and Termination.
a. This Agreement will commence as of the Effective Date and continue
for a period of two (2) years, unless earlier terminated as provided for
hereunder.
b. Either party may terminate this Agreement with cause upon thirty (30)
days written notice to the other party advising the other party of the nature
of the default, provided that such default is not thereafter cured within such
thirty (30) day period.
c. Beginning one year from the Effective Date, either party may
terminate this Agreement without cause or obligation to the other party at any
time upon giving ninety (90) days' notice to the other party.
d. In the event Microsoft terminates this Agreement at any time with
cause or Company terminates this Agreement without cause after the first year
of the Agreement, then Company shall refund a pro rata portion
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<PAGE> 5
of the monies paid by Microsoft under this Agreement. In the event this
Agreement is terminated with cause, any such refund will be in addition to any
other remedies Microsoft may have in law or equity as a result of Company's
breach. Any refund due to Microsoft under this Section shall be based upon the
number of days remaining in the term of the Agreement at a rate of Two Thousand
Seven Hundred Dollars ($2,740) per day.
e. Following the initial two (2) year term, the term of this Agreement
shall be deemed extended for additional one (1) year periods only upon written
agreement by the parties. In the event of renewal, Microsoft shall pay Company
the yearly fee as set forth in Section 4(c).
f. Upon termination of this Agreement, Microsoft shall promptly remove
any ServiceWare Knowledge Bases it may have posted on web servers under the
terms of this Agreement.
9. Notices. All notices, authorizations and requests in connection with this
Agreement will be deemed given on the day they are: (a) deposited in the U.S.
Mail, postage paid, certified or registered, return receipt requested; or (b)
sent air express courier, charges paid and addressed as follows:
Company: ServiceWare, Inc
333 Allegheny Ave
Oakmont PA 15135
Attention: Paul McDermott, CFO
Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: ___________________
With a copy to: Law and Corporate Affairs
10. Miscellaneous.
a. In the event that any provision of this Agreement is found invalid or
unenforceable pursuant to judicial decree or decision, the remainder of this
Agreement shall remain valid and enforceable according to its terms. The
parties intend that the provisions of this Agreement be enforced to the fullest
extent permitted by applicable law. Accordingly, the parties agree that if any
provisions are deemed not enforceable, they shall be deemed modified to the
extent necessary to make them enforceable.
b. Any waiver, amendment, or modification of any right, remedy or other
term under this Agreement will not be effective unless in writing and signed by
the party against whom enforcement is sought.
c. This Agreement shall be construed and controlled by the laws of the
State of Washington, and Company and Microsoft further consent to jurisdiction
by the state or federal courts sitting in the state where defendant is
incorporated. Process may be served on either party by U.S. Mail, postage
prepaid, certified or registered, return receipt requested, or by such other
method as is authorized by law.
d. If either Microsoft or Company employs attorneys to enforce any
rights arising out of or related to this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs, including expert
witness fees.
e. Company and Microsoft may not assign this Agreement (by operation of
law or otherwise), or any portion thereof, to any third party unless the other
party expressly consents to such assignment in writing, such consent not to be
unreasonably withheld. Any attempted assignment without such consent shall give
the other party the right to terminate this Agreement effective upon written
notice. For purposes of this Agreement, a merger, consolidation, or other
corporate reorganization, or a transfer or sale of any or all of a party's
stock, or of all or substantially all of its assets, shall not be deemed to be
an assignment requiring consent from the other party, provided such transaction
is not with a competitor of the other party.
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<PAGE> 6
f. This Agreement does not establish the relationship of a partnership,
joint venture, franchise, or principal and agent among the parties, and neither
party shall have any authority to incur obligations or take other actions on
behalf of the other party to this Agreement.
g. The parties' exchange of confidential information, if any, during the
term of this Agreement shall be governed by the terms and conditions of the
Microsoft Corporation Standard Non-Disclosure Agreement ("NDA") between the
parties, effective January 7, 1977, attached hereto as Exhibit A. The parties
agree that the terms and conditions of that NDA shall be mutual, and govern
Company's disclosure of confidential information, if any, to Microsoft as well.
h. The parties hereto agree that this Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous communications. It shall not be
modified except by a written agreement dated subsequent hereto and signed on
behalf of Company and Microsoft by their respective duly authorized
representatives. Neither this Agreement nor any written or oral statements
related hereto constitute an offer, and this Agreement shall not be legally
binding until executed by both parties.
i. No waiver of any breach of any provision of this Agreement will
constitute a waiver of any prior, concurrent, or subsequent breach of the same
or any other provisions hereof, and no waiver will be effective unless made in
writing and signed by an authorized representative of the waiving party.
j. Company and Microsoft each acknowledge that the limitations and
exclusions contained in this Agreement have been the subject of active and
complete negotiation between the parties and represent the parties' agreement
based upon the level of risk to Company and Microsoft associated with their
respective obligations under this Agreement and the payments to be made to
Microsoft and credits to be issued to, and services to be provided to, Company
pursuant to this Agreement. The parties agree that the terms and conditions of
this Agreement shall not be construed in favor of or against any party by reason
of the extent to which any party or its professional advisors participated in
the preparation of this Agreement.
k. Sections 1, 5, 6, 7, 8, 9 and 10 shall survive termination or
expiration of this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement by an
authorized representative of each party as of the later of the dates indicated
below.
MICROSOFT CORPORATION SERVICEWARE, INCORPORATED
/s/ Jeff S. Raikes /s/ Jeff Pepper
- ----------------------------- ------------------------------
Name Name
Group Vice President Chairman and CEO
- ----------------------------- ------------------------------
Title Title
6-29-98 17 June 1998
- ----------------------------- ------------------------------
Date Date
6
<PAGE> 1
Confidential portions of this Exhibit have been omitted and are identified by
square brackets ([ ]) and three asterisks (***). Such material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
Exhibit 10.10
MICROSOFT KNOWLEDGE BASE
NON-EXCLUSIVE LICENSE AGREEMENT
This Microsoft Knowledge Base License Agreement ("Agreement") is made and
entered into as of this 29th day of June 1998 ("Effective Date") by and between
MICROSOFT CORPORATION, a Washington corporation having a principal place of
business at One Microsoft Way, Redmond, WA 98052-6399 ("MS"), and ServiceWare
Incorporated, a Pennsylvania corporation, having a principal place of business
located at 333 Allegheny Avenue, Oakmont, Pennsylvania 15139 ("COMPANY").
1. Definitions. The following terms shall have the following meanings in this
Agreement:
a. "Licensed Material" shall mean those portions of the Microsoft
Knowledge Base that are made publicly available in English language only by MS
during the Term.
b. "Microsoft Knowledge Base" shall mean the collection of technical
articles containing product support information on Microsoft products that is
created, maintained, and updated in electronic format by or on behalf of MS's
internal United States product support services ("PSS") group (i.e., does not
include those portions of the Microsoft Knowledge Base that are created,
maintained and updated by MS's non-U.S.-based PSS groups).
c. "COMPANY Product" shall mean the product(s) described in Exhibit A
that contains any of the Licensed Materials.
2. License Grant.
a. MS grants COMPANY, during the Term of this Agreement a non-exclusive,
non-transferable, non-assignable (except as otherwise set forth in Section
13(d) below), perpetual, limited license to:
i) copy and use the Licensed Material, in whole or in part, for the
purpose of incorporating it into the COMPANY Product;
ii) use, copy, modify, adapt, and make modifications to the Licensed
Material for the purpose of developing, creating and distributing the
COMPANY Product, as a derivative work of the Licensed Material. All
such modifications made by COMPANY must be done in a manner that does
not alter the technical accuracy of the information contained in the
Licensed Materials; and
iii) import, broadcast, license, sublicense, publish, distribute,
display and transmit worldwide the Licensed Material as incorporated
into the COMPANY Product, provided that the COMPANY Product shall be
published, distributed, displayed and transmitted with all of the
product use terms as set forth in the attached Exhibit B (or in a
form substantially similar thereto upon approval by Microsoft). The
rights set forth in this subsection 2(a)(iii) shall survive in
accordance with the terms set forth in this Agreement.
b. COMPANY hereby acknowledges and agrees that MS is the owner of all
the Licensed Material. The parties will work together to create and deliver a
favorable press release regarding the functionality and the availability of the
COMPANY Product. Except as expressly provided above, neither party shall use
the other party's name or refer to the other party directly in any media
release, public announcement or public disclosure relating to this Agreement or
the ownership of the Licensed Materials, including in any promotional or
marketing materials, customer lists or business presentations, without the
prior written consent of the other.
c. Except as otherwise provided for the above in Section 2(a)(iii),
COMPANY shall not rent, lease, sell, sublicense, lend or otherwise transfer the
Licensed Material in whole to any third party. Additionally, COMPANY shall not
sublicense the right to use the Licensed Materials, apart from the COMPANY
Product, to any third party for purposes of creating a product.
d. All rights in the Licensed Material not expressly granted herein are
reserved by MS.
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<PAGE> 2
3. Payments.
In consideration of the license rights granted herein, COMPANY shall pay MS
the amount of [***} within forty-five (45) days of the Effective Date of this
Agreement. In the event this Agreement is renewed pursuant to Section 6 below,
COMPANY shall pay MS the amount of [***] for each such yearly renewal period
within thirty (30) days of effective date of any such renewal.
4. Royalties.
a. In consideration of the license rights granted herein and in addition
to the payment outlined in Section 3 above, COMPANY shall have the following
royalty obligations commencing upon the Effective Date and continuing for a
period of six (6) months after the Term as provided in this Section 4;
i) COMPANY shall pay MS on a quarterly basis, a royalty equal to [***] Such
royalty payments shall be paid every three months beginning on the
Effective Date and shall be paid in U.S. dollars to MS. In the event
COMPANY received payment for the distribution of the COMPANY Product in a
currency other than U.S. Dollars, COMPANY's quarterly Net Receipts shall be
converted to U.S. dollars using the highest currency exchange rate quoted
in the Wall Street Journal for currency trading among banks in amounts of
One Million Dollars (US$1,000,000) or more, on the last day of the quarter;
or
ii) During the first and second years of the Agreement, COMPANY shall have
the option to pay MS the amount of [***] beginning within thirty (30) days
of the Effective Date, which shall represent payment in full of all
royalties owing for a one (1) year period ("One Year Royalty Payment"). In
any subsequent renewal periods following the second year of the Agreement,
COMPANY shall pay MS an amount agreed to by the parties in a signed
amendment to this Agreement, but in no event shall such amount be less than
[***]
b. "Net Receipts" shall mean the royalties, fees or other sums received by
COMPANY for the direct or indirect distribution of the COMPANY Product, less
actual returns, credits, reasonable rebates, actual freight charges, and taxes.
c. Within sixty (60) days after the end of each calendar quarter with
respect to which COMPANY owes MS any royalties, COMPANY shall furnish MS with a
statement, together with payment for any amount shown thereby to be due to MS.
The royalty statement shall be based upon Net Receipts for the quarter then
ended, and shall contain information sufficient to how the royalty payment was
computed. Amounts not paid by such date shall be subject to a late charge equal
to the prime rate as announced by Seattle First National Bank (or its
successor) plus three percent 3% until paid. In the event COMPANY makes the One
Year Royalty Payment, COMPANY shall only be required to submit the reporting as
required under this Section 4(c) within sixty (60) days following the one and
two year anniversary of the Effective Date, respectively.
d. The royalty obligations of COMPANY to MS for use of the Licensed
Materials prior to the termination or expiration of this Agreement and with
respect to post-termination use of the Licensed Materials shall survive any
termination or expiration of this Agreement. COMPANY's royalty obligations
after the Term shall extend for a period of six (6) months after termination or
expiration of this Agreement for any reason, upon which, COMPANY shall have the
option of making payment for such additional six (6) months by either making
two additional quarterly payments as stated in Section 4(a)(i) or paying MS
one-half (1/2) of the last yearly amount paid as stated in Section 4(a)(ii).
5. Product Delivery, Notice, and Updates.
a. COMPANY shall obtain the Licensed Material for incorporation into the
COMPANY Product by downloading it from an FTP site on the Internet, via
download through www.microsoft.com, or other mutually agreeable distribution
mechanism.
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b. COMPANY acknowledges that the Licensed Material may be updated as
frequently as daily by or on behalf of MS. COMPANY agrees that, in order to
ensure that the Licensed Material incorporated into the COMPANY Product is kept
as up to date as possible, it shall do the following:
i) if the COMPANY Product is a printed publication or fixed media
product, COMPANY shall use the most current version of the
Licensed Material available pursuant to Section 5(a) above at the
time the Licensed Material is incorporated into each edition or
version of the COMPANY Product for that portion of the Licensed
Material that COMPANY has incorporated into its COMPANY Product;
and
ii) if the COMPANY Product is an online product, COMPANY shall update
the Licensed Material incorporated into the COMPANY Product on a
monthly basis for that portion of the Licensed Material that
COMPANY has incorporated into its COMPANY Product.
c. For the sole purpose of determining compliance with this Agreement,
for a period of forty-five (45) days after receipt of each edition or version
from COMPANY, MS shall have the right to review the contents of each edition or
version of the COMPANY Product into which the Licensed Material or portions
thereof, are incorporated.
6. Term and Termination
a. This Agreement will commence as of the Effective Date and continue
for a period of two (2) years, unless earlier terminated as provided for
hereunder (the "Term").
b. Either party may terminate this Agreement with cause upon thirty (30)
days written notice to the other party advising the other party of the nature of
the default, provided that such default is not thereafter cured within such
thirty (30) day period.
c. Beginning one year from the Effective Date, either party may
terminate this Agreement without cause or obligation to the other party at any
time upon giving ninety (90) days' notice to the other party.
d. In the event COMPANY terminates this Agreement at any time with cause
or MS terminates this Agreement without cause after the first year of the
Agreement, then MS shall refund a pro rata portion of the monies paid by
COMPANY under this Agreement pursuant to Section 3 above. Conversely, without
limiting any other rights available to MS, if MS terminates this Agreement at
any time with cause or COMPANY terminates this Agreement without cause after
the first year of the Agreement, COMPANY shall not be entitled to any refund of
proceeds paid hereunder. Any refund due to COMPANY under this Section shall be
based upon the number of days remaining in the one year term for which payment
was made at a rate of Two Thousand Seven Hundred Dollars ($2,740) per day.
e. Following the initial two (2) year Term, the term of this Agreement
shall be deemed extended for additional one (1) year periods only upon written
agreement by the parties. In the event of renewal, COMPANY shall pay MS the
yearly fee as set forth in Section 3 and the royalties as set forth in Section
4(a).
f. COMPANY's license rights set forth in Section 2(a)(iii) above to use
the Licensed Materials into the COMPANY Product shall survive the termination
of this Agreement for any reason for those Licensed Materials incorporated into
the COMPANY Product prior to the date of termination or expiration.
g. In the event MS terminates this Agreement without cause, COMPANY
shall have three (3) months from the date of termination within which to
incorporate additional Licensed Materials provided prior to the date of
termination into its COMPANY Product for use after the termination of this
Agreement. This survival right may be terminated by MS upon failure of COMPANY
to pay the additional six (6) month post-termination royalty payment
obligation as provided Section 4(d). Nothing contained in this subsection 6(g)
shall obligate MS to deliver any updates to COMPANY after the termination or
expiration of this Agreement.
7. Obligations, Representations and Warranties. Each party warrants that it
has sufficient authority to enter into this Agreement.
8. Disclaimer of Warranties. MS HEREBY DISCLAIMS ALL WARRANTIES AND
CONDITIONS, IMPLIED OR EXPRESS, REGARDING THE LICENSED MATERIALS OR ANY OTHER
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DELIVERBLES DELIVERED TO COMPANY HEREUNDER, INCLUDING WITHOUT LIMITATION
WARRANTIES, TITLE, NON-INFRINGEMENT AND CONDITIONS OF MERCHANTABILITY AND/OR
FITNESS FOR A PARTICULAR PURPOSE. MS DOES NOT WARRANT THAT THE FUNCTIONS
CONTAINED IN THE LICENSED MATERIAL OR ANY OTHER DELIVERBLES DELIVERED TO
COMPANY HEREUNDER WILL MEET COMPANY'S REQUIREMENTS, OR THAT THE OPERATION OF
THE WORK WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS IN THE LICENSED
MATERIAL CAN BE CORRECTED. FURTHERMORE, MS DOES NOT WARRANT OR MAKE ANY
REPRESENTATIONS REGARDING THE USE OR THE RESULTS OF THE USE OF THE LICENSED
MATERIAL OR RELATED DOCUMENTATION IN TERMS OF THEIR CORRECTNESS, ACCURACY,
RELIABILITY, OR OTHERWISE. NO ORAL OR WRITTEN INFORMATION OR ADVISE GIVEN BY MS
OR ITS AUTHORIZED REPRESENTATIVES SHALL CREATE A WARRANTY OR IN ANY WAY
INCREASE THE SCOPE OF THIS WARRANTY. SHOULD THE LICENSED MATERIAL OR ANY OTHER
DELIVERBLES DELIVERED TO COMPANY HEREUNDER PROVE DEFECTIVE AFTER MS HAS
DELIVERED THE SAME, COMPANY, AND COMPANY ALONE, SHALL ASSUME THE ENTIRE COST
ASSOCIATED WITH ALL NECESSARY SERVICING, REPAIR OR CORRECTION.
9. Disclaimer of Damages and Limitation of Liability.
a. IN NO EVENT SHALL MS, ITS SUPPLIERS OR SUBSIDIARIES BE LIABLE FOR ANY
CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR SPECIAL DAMAGES, INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
OR LOSS OF BUSINESS INFORMATION ARISING OUT OF THIS AGREEMENT, EVEN IF MS HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER, IN NO EVENT SHALL MS'
LIABILITY UNDER THIS AGREEMENT EXCEED IN THE AGGREGATE THE LESSER OF THE AMOUNT
ACTUALLY PAID OR CREDITED BY COMPANY TO MS DURING THE TERM OF THE AGREEMENT OR
THE AMOUNT OF ONE MILLION DOLLARS (US $1,000,000) PLUS ANY AMOUNTS EXPENDED
DEFENDING AGAINST CLAIMS OF INFRINGEMENT PURSUANT TO SECTION 10 BELOW.
b. EXCEPT AS SPECIFICALLY PROVIDED IN THE FOLLOWING SENTENCE, IN NO
EVENT SHALL COMPANY, ITS SUPPLIERS OR SUBSIDIARIES BE LIABLE FOR ANY
CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR SPECIAL DAMAGES, INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
OR LOSS OF BUSINESS INFORMATION ARISING OUT OF THIS AGREEMENT, EVEN IF COMPANY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE EXCLUSION OF LIABILITY
FOR CERTAIN TYPES OF DAMAGES PROVIDED IN THE PRECEDING SENTENCE SHALL NOT APPLY
TO INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES ARISING
FROM COMPANY'S OBLIGATIONS UNDER SECTION 10(d) BELOW. FURTHER, EXCEPT FOR
COMPANY'S OBLIGATIONS UNDER SECTION 10(d) BELOW, IN NO EVENT SHALL COMPANY'S
LIABILITY UNDER THIS AGREEMENT EXCEED IN THE AGGREGATE OF SEVEN HUNDRED FIFTY
THOUSAND DOLLARS (US $750,000), PLUS ANY AMOUNTS EXPENDED DEFENDING AGAINST
CLAIMS OF INFRINGEMENT PURSUANT TO SECTION 10 BELOW.
10. Indemnification.
a. MS agrees to defend COMPANY against, and pay the amount of any
adverse final judgment (or settlement to which MS consents) resulting from
third party claim(s) that the Licensed Material as provided by MS infringe any
United States copyright; provided that MS is notified promptly in writing of
the claim has the opportunity to assume sole control over its defense or
settlement, and COMPANY provides reasonable assistance in the defense of the
same.
b. In the event MS or COMPANY receives information concerning a
copyright infringement claim related to the Licensed Material, MS may at its
expense, either (i) procure for COMPANY the right to continue to distribute the
alleged infringing Licensed Material, or (ii) replace or modify the Licensed
Material to make them non-infringing, in which case, COMPANY shall thereupon
cease distribution of the alleged infringing Licensed Material.
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c. MS shall have no liability for any infringement claim to the extent
such claim is based on COMPANY's (i) manufacture, marketing, distribution, or
use of any Licensed Material after written notice that COMPANY should cease
such activity due to such a claim; (ii) combination of any Licensed Material
with a software or hardware product, program, data or other information or
materials; or (iii) adaptation or modification of any Licensed Material.
d. COMPANY agrees to defend MS against, and pay the amount of any
adverse final judgment (or settlement to which COMPANY consents) in connection
with any claims arising under Section 10(c) above or solely from COMPANY's
distribution, marketing or use of the Licensed Materials, in whole or in part;
provided that COMPANY is notified promptly in writing of any such claim, and
has the opportunity to assume sole control over its defense or settlement, and
MS provides reasonable assistance in the defense of the same.
11. Notices.
Any and all notices, consents or other communications among the parties to
this Agreement, in order to be effective, shall be in writing and shall be sent
to the parties via personal delivery or via prepaid certified mail, return
receipt requested, or by overnight courier, or by facsimile, to the following
addresses, or any other addresses designated by the parties by notices
delivered in accordance with this Section 11.
If to COMPANY: ServiceWare, Inc.
Paul McDermott
Chief Financial Officer
333 Allegheny Avenue
Oakmont, PA 15139
If to MS: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: ______________________
With a separately delivered copy to:
Law & Corporate Affairs Dept.
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Such communications shall be deemed duly delivered upon personal delivery, or
three business days after being mailed in accordance with this Section 11.
12. Record Keeping & Audit Requirements.
a. During the Term of this Agreement, COMPANY agrees to keep all usual
and proper records and books of account and all usual and proper entries
relating to COMPANY's performance of this Agreement for a minimum period of two
years from the date they are created. Such records, books of account, and
entries shall be kept in accordance with generally accepted accounting
principles.
b. MS reserves the right to audit COMPANY's books and records to the
extent they relate to such calculation of payments due to MS hereunder during
the Term of this Agreement and for a period of two (2) years thereafter,
provided that such audit(s) shall be conducted not more than twice per year,
during normal business hours, upon three (3) days prior notice, in such a manner
as not to interfere unreasonably with the operations of COMPANY. The books and
records audited pursuant to this Agreement shall not be used by MS or its
accountants or other agents or representatives except as necessary to prove and
collect amounts due and unpaid. Any such audit shall be paid for by MS unless
material discrepancies are disclosed. "Material" shall mean an under-reporting
by four-and-one-half percent (4 1/2%) of the amount that should have been
reported. If material discrepancies are disclosed, COMPANY agrees to pay MS for
the reasonable costs associated with the audit.
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13. Miscellaneous.
a. In the event that any provision of this Agreement is found invalid or
unenforceable pursuant to judicial decree or decision, the remainder of this
Agreement shall remain valid and enforceable according to its terms. The
parties intend that the provisions of this Agreement be enforced to the fullest
extent permitted by applicable law. Accordingly, the parties agree that if any
provisions are deemed not enforceable, they shall be deemed modified to the
extent necessary to make them enforceable.
b. This Agreement shall be construed and controlled by the laws of the
State of Washington, and COMPANY further consents to jurisdiction by the state
or federal courts sitting in the state where the defendant is incorporated.
Process may be served on either party by U.S. Mail, postage prepaid, certified
or registered, return receipt requested, or by such other method as is
authorized by law.
c. If either MS or COMPANY employs attorneys to enforce any rights
arising out of or related to this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs, including expert
witness fees.
d. COMPANY may not assign this Agreement (by operation of law or
otherwise), or any portion thereof, to any third party unless MS expressly
consents to such assignment in writing, such consent not to be unreasonably
withheld. Any attempted assignment without such consent shall give MS the right
to terminate this Agreement effective upon written notice. For purposes of this
Agreement, a merger, consolidation, or other corporate reorganization, or a
transfer or sale of any or all of a party's stock, or of all or substantially
all of its assets shall not be deemed to be an assignment requiring consent
from the other party, provided such transaction is not with a competitor of MS.
e. COMPANY agrees that it will not export or re-export Licensed Material
or any derivative work or compilation based on the Licensed Material as
incorporated into the COMPANY Product to any country, person, entity or end user
subject to U.S.A. export restrictions. Restricted countries currently include,
but are not necessarily limited to, Cuba, the Federal Republic of Yugoslavia
(Serbia and Montenegro, U.N. Protected Areas and areas of the Republic of Bosnia
and Herzegovina under the control of Bosnian Serb forces), Iran, Iraq, Libya,
North Korea and Syria. COMPANY warrants and represents that neither the U.S.A.
Bureau of Export Administration nor any other federal agency has suspended,
revoked or denied COMPANY's export privileges. None of the Licensed Materials,
including technical data, provided to COMPANY by MS under this Agreement is
regulated for export purposes under the International Traffic in Arms
Regulations (ITAR). The Licensed Materials are subject to a general license
under Export Administration Regulations and as such no license is required. If
at any time during the Term of this Agreement the above statements are no longer
accurate, MS will notify COMPANY in writing of such change in classification
within twenty-four (24) hours of its knowledge of that inaccuracy.
f. This Agreement does not establish the relationship of a partnership,
joint venture, franchise, or principal and agent among the parties, and neither
party shall have any authority to incur obligations or take other actions on
behalf of the other party to this Agreement.
g. The parties' exchange of confidential information, if any, during the
Term of this Agreement shall be governed by the terms and conditions of the
Microsoft Corporation Standard Non-Disclosure Agreement ("NDA") between the
parties, effective January 7, 1997, attached hereto as Exhibit C. The parties
agree that the terms and conditions of that NDA shall be mutual, and govern
COMPANY's disclosure of confidential information, if any, to Microsoft as well.
h. The parties hereto agree that this Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous communications. It shall not be
modified except by a written agreement dated subsequent hereto signed on behalf
of COMPANY and MS by their duly authorized representatives. Neither this
Agreement nor any written or oral statements related hereto constitute an
offer, and this Agreement shall not be legally binding until executed by both
parties hereto.
i. No waiver of any breach of any provision of this Agreement will
constitute a waiver of any prior, concurrent, or subsequent breach of the same
or any other provisions hereof, and no waiver will be effective unless made in
writing and signed by an authorized representative of the waiving party.
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j. Subject to the limitations herein before expressed, this Agreement
will inure to the benefit of and be binding upon the parties, their successors,
administrators, heirs, and permitted assigns.
k. COMPANY and MS each acknowledge that the limitations and exclusions
contained in this Agreement have been the subject of active and complete
negotiation between the parties and represent the parties' agreement based upon
the level of risk to COMPANY and MS associated with their respective
obligations under this Agreement and the payments to be made to MS and credits
to be issued to, and services to be provided to, COMPANY pursuant to this
Agreement. The parties agree that the terms and conditions of this Agreement
shall not be construed in favor of or against any party by reason of the extent
to which any party or its professional advisors participated in the preparation
of this Agreement.
l. The parties have requested that this Agreement be drawn up in
English; les parties ont exiges que cette entente soit redigee en anglais.
m. Sections 2, 4, 6, 7, 8, 9, 10, 11, 12 and 13 shall survive
termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the dates indicated below.
MICROSOFT CORPORATION SERVICE WARE
/s/ Jeff S. Raikes /s/ Jeff Pepper
- ----------------------- ------------------
By By
Jeff Raikes Jeff Pepper
- ----------------------- ------------------
Name(Print) Name(Print)
Group Vice President Chairman and CEO
- ----------------------- ------------------
Title Title
6-29-98 17 June 1998
- ----------------------- ------------------
Date Date
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Exhibit A
COMPANY Product
A series of structured technical support articles distributed in CD, online,
print, or diskette form containing content from Microsoft and regarding
Microsoft and other third party products, including but not limited to Windows,
Microsoft networking components, and Microsoft Office components, currently
distributed under the brand name "Knowledge Pak" or a variation thereof.
Articles can include linked hypermedia objects as well as links between various
articles. These articles and related objects may be made available in a variety
of formats including but not limited to HTML, ASCII, Solution Exchange Format,
and embedded formats in various commercial help desk and other support products.
The online product in which Licensed Materials may be incorporated may be
distributed as a component of a CD, print, diskette or online product, under the
brand name "Knowledge Pak", or a variation thereof, and may only be accessible
to subscribers product or other licensed third parties.
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Exhibit B
NOTICES
LIMITED USE
End users of the COMPANY Product contained herein are authorized to copy and use
the COMPANY Product for their own business purposes.
DISCLAIMER
COMPANY, ITS CONTRACTORS AND/OR SUPPLIERS MAKE NO REPRESENTATIONS ABOUT THE
SUITABILITY FOR ANY PURPOSE OF THE MATERIAL CONTAINED HEREIN. ALL SUCH MATERIAL
IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. SOME JURISDICTIONS DO NOT ALLOW
THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO
YOU.
LIMITATION OF LIABILITY
IN NO EVENT SHALL COMPANY, ITS CONTRACTORS AND/OR SUPPLIERS BE LIABLE FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, WHETHER IN AN ACTION OF CONTRACT,
NEGLIGENCE OR OTHER TORTIOUS ACTION, ARISING OUT OF OR IN CONNECTION WITH THE
USE OF OR INABILITY TO USE THE MATERIAL CONTAINED HEREIN. FURTHER, IN NO EVENT
SHALL THE TOTAL LIABILITY OF COMPANY, ITS CONTRACTORS AND/OR SUPPLIERS UNDER
THIS AGREEMENT EXCEED IN THE AGGREGATE THE AMOUNT ACTUALLY PAID BY END USER TO
DURING THE TERM OF THE AGREEMENT.
ERRORS/UPDATES
THE MATERIAL CONTAINED HEREIN MAY INCLUDE TECHNICAL INACCURACIES OR
TYPOGRAPHICAL ERRORS. COMPANY, ITS CONTRACTORS AND/OR SUPPLIERS MAY MAKE
IMPROVEMENTS AND/OR CHANGES TO THE MATERIAL, WHERE PUBLICLY AVAILABLE, AT ANY
TIME, WHICH IMPROVEMENTS AND/OR CHANGES MAY NOT BE REFLECTED HEREIN.
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AMENDMENT NO. 1 TO
MICROSOFT KNOWLEDGE BASE
NON-EXCLUSIVE LICENSE AGREEMENT
This Amendment No. 1 to Microsoft Knowledge Base Non-Exclusive License
Agreement (this "Amendment") amends that certain Microsoft Knowledge Base
Non-Exclusive License Agreement with an effective date of June 29, 1998
("Agreement") between ServiceWare Incorporated ("COMPANY") and Microsoft
Corporation ("Microsoft"). All capitalized terms used but not defined in this
Amendment shall have the respective meanings assigned to such terms in the
Agreement, as amended.
WHEREAS, Microsoft and COMPANY agree to waive their respective rights
to terminate the Agreement without cause;
THEREFORE, the parties agree as follows:
1. Section 6(c) of the Agreement shall be deleted.
Except as specifically amended by this Amendment, all provisions of the
Agreement shall remain unchanged and in full force and effect. This Amendment
is not legally binding until executed by the Microsoft. When this Amendment is
fully executed, Company will receive a confirming copy.
SERVICEWARE, INCORPORATED MICROSOFT CORPORATION
BY /s/ RAJIV ENAND BY /s/ DENISE RUNDLE
----------------------- -----------------------
Rajiv Enand, CEO Denise Rundle, Director
- -------------------------- --------------------------
NAME, TITLE NAME, TITLE
2-25-99 3/3/99
- -------------------------- --------------------------
DATE DATE
Amendment No. 1 to Agreement 1 of 1 02/22/99
<PAGE> 1
Confidential portions of this Exhibit have been omitted and are identified by
square brackets ([ ]) and three asterisks (***). Such material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
Exhibit 10.11
MICROSOFT KNOWLEDGE BASE
NON-EXCLUSIVE LICENSE AGREEMENT
FOR SUBSCRIPTION SERVICES
This Microsoft Knowledge Base License Agreement for Subscription Services
("Agreement") is made and entered into as of this 3rd day of March, 1999
("Effective Date") by and between MICROSOFT CORPORATION, a Washington
corporation having a principal place of business at One Microsoft Way, Redmond,
WA 98052-6399 ("Microsoft"), and ServiceWare Incorporated, a Pennsylvania
corporation, having a principal place of business located at 333 Allegheny
Avenue, Oakmont, Pennsylvania 15139 ("COMPANY").
1. Definitions. The following terms shall have the following meanings in this
Agreement.
a. "Licensed Material" shall mean those portions of the Microsoft
Knowledge Base that are made publicly available in English language only by
Microsoft during the Term.
b. "Microsoft Knowledge Base" shall mean the collection of technical
articles containing product support information on Microsoft products that is
created, maintained, and updated in electronic format by or on behalf of
Microsoft's internal United States product support services ("PSS") group
(i.e., does not include those portions of the Microsoft Knowledge Base that are
created, maintained and updated by Microsoft's non-U.S.-based PSS groups).
c. "Subscription Services" shall mean Company's internet-based online
support services currently entitled, "Support Knowledge Subscription Services."
d. "KB Subscription" shall mean the Subscription Services offered, for
which COMPANY End Users pay a fee to receive access to the Licensed Material,
with the exception of the COMPANY Product as defined in the KB Agreement.
e. "End User" shall mean those customers that subscribe, receive or use
the Subscription Services.
f. "KB Agreement" shall mean that certain Microsoft Knowledge Base
Non-Exclusive Agreement entered into between the parties with an effective date
of June 29, 1998.
2. License Grant.
a. Microsoft grants COMPANY, during the Term of this Agreement a
non-exclusive, non-transferable, non-assignable (except as otherwise set forth
in Section 13(d) below), revocable, limited license to:
i) reproduce, broadcast, publish, distribute, display and transmit
worldwide the Licensed Material (as delivered under Section 5 below), in
whole, to End Users via a secure web site hosted by COMPANY for a
subscription fee;
ii) reformat the Licensed Material (as delivered under Section 5
below), solely for the purpose of (A) converting .xml files provided by
Microsoft to an .html format and (B) enhance searching capabilities by
inserting additional key words, if necessary. All such formatting
changes made by COMPANY must be done in a manner that does not alter the
technical accuracy of the information contained in the Licensed
Materials and COMPANY shall retain all right, title and interest in such
formatting changes to the extent that they are used separately from such
Licensed Materials and are not part of the Licensed Materials; and
iii) sublicense to End Users who purchase a KB Subscription, the right
to reproduce the Licensed Materials (as delivered under Section 5 below)
from COMPANY's secure web site and use the Licensed Materials for
internal business purposes only, pursuant to the product use terms as
set forth in the attached Exhibit A (or in a form substantially similar
thereto upon approval by Microsoft). End User's rights to use the
Licensed Materials (as delivered under Section 5 below) as set forth in
this subsection 2(a)(iii) shall survive in accordance with the terms set
forth in this Agreement and all applicable use terms.
b. With the exception of Company's authorized distributors,
notwithstanding anything to the contrary in this Agreement, COMPANY's rights in
the Licensed Material as described herein shall not include the right to allow
for third parties to resell any rights in or to the Licensed Materials. COMPANY
hereby acknowledges and agrees that Microsoft is the owner of the Licensed
Material. Except as provided in Section 2(a)(ii) above, COMPANY agrees that it
will not modify
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the Licensed Material in any manner and that it will distribute the Licensed
Material to End Users only in its entirety as provided to COMPANY by Microsoft.
COMPANY further agrees that it will not remove any copyright or trademark notice
included in the Licensed Material.
c. Except as otherwise provided for above in Section 2(a), COMPANY shall
not rent, lease, sell, sublicense, lend or otherwise transfer the Licensed
Material to any third party. Additionally, COMPANY shall not sublicense the
right to use the Licensed Materials, apart from the KB Subscription, to any
third party for purposes of creating or offering a product or services.
d. All rights in the Licensed Material not expressly granted herein are
reserved by Microsoft.
3. No Trademark Use. This Agreement does not grant COMPANY any right, title,
interest, or license in or to any of Microsoft's names, word marks, logos,
logotypes, trade dress, designs, or other trademarks. COMPANY is permitted,
however, to make descriptive references to Microsoft's non-stylized word marks
(but may not use Microsoft's logos, logotypes, trade dress, or designs) on
COMPANY's promotional materials for the Subscription Services, including
worldwide web pages, according to Microsoft's standard trademark guidelines.
COMPANY shall correct any specified misuses of Microsoft's trademarks. Nothing
herein shall restrict Microsoft's legal or equitable rights to protect its
trademarks against infringement, dilution, or other misuse.
4. Royalties.
a. In consideration of the license rights granted herein, COMPANY shall
have royalty obligations as set forth herein commencing upon the Effective Date.
COMPANY shall pay Microsoft a royalty equal to [***] Such royalty payments shall
be paid every three months commencing with those payments due to Microsoft by
COMPANY pursuant to the KB Agreement and shall be paid in U.S. dollars to
Microsoft. In the event COMPANY received payment for the distribution of the KB
Subscription in a currency other than U.S. Dollars, COMPANY's quarterly Net
Receipts shall be converted to U.S. dollars using the highest currency exchange
rate quoted in the Wall Street Journal for currency trading among banks in
amounts of One Million Dollars (US$1,000,000) or more, on the last day of the
quarter.
b. "Net Receipts" shall mean the royalties, fees or other sums received by
COMPANY for the direct or indirect distribution of the KB Subscription, less
actual returns, credits, reasonable rebates and taxes.
C. Within sixty (60) days after the end of each calendar quarter with
respect to which COMPANY owes Microsoft any royalties, COMPANY shall furnish
Microsoft with a statement, together with payment for any amount shown thereby
to be due to Microsoft. The royalty statement shall be based upon Net Receipts
for the quarter then ended, and shall contain information sufficient to identify
how the royalty payment was computed. Amounts not paid by such date shall be
subject to a late charge equal to the prime rate as announced by Seattle First
National Bank (or its successor) plus three percent (3%) until paid.
d. The royalty obligations of COMPANY to Microsoft for use of the Licensed
Materials prior to the termination or expiration of this Agreement shall survive
any termination or expiration of this Agreement.
5. Product Delivery, Notice, and Updates.
a. Commencing on the Effective Date and continuing until June 29, 2000,
COMPANY shall have the right to obtain the most current version of the Licensed
Material by downloading it from an FTP site on the Internet, via download
through www.microsoft.com, or other mutually agreeable distribution
mechanisms. After June 29, 2000, COMPANY shall have no rights in any future
releases of the Licensed Materials, including any rights set forth in Section 2
above.
b. COMPANY acknowledges that the Licensed Material may be updated as
frequently as daily by or on behalf of Microsoft. COMPANY agrees that, in order
to ensure that the Licensed Material is kept as up to date as possible, it
shall update the Licensed Material offered in its Subscription Services on a
monthly basis.
6. Term and Termination.
a. This Agreement will commence as of the Effective Date and continue until
June 29, 2001, unless earlier terminated as provided for hereunder (the
"Term").
<PAGE> 3
b. Either party may terminate this Agreement with cause upon sixty (60)
days written notice to the other party advising the other party of the nature
of the default, provided that such default is not thereafter cured within such
sixty (60) day period and provided such breaching party uses best efforts to
cure such breach. Microsoft shall have cause to terminate this Agreement upon
termination of the KB Agreement and notwithstanding the foregoing sentence,
such termination shall be effective immediately without right to cure.
c. Microsoft may, at its option, terminate this Agreement, upon
termination of the KB Agreement.
d. Renewal of this Agreement is conditioned upon, and shall be
concurrent with, any renewal of the KB Agreement. In the event of renewal, the
parties will negotiate in good faith to determine an agreed upon royalty
percentage.
7. Obligations, Representations and Warranties. Each party warrants that it
has sufficient authority to enter into this Agreement.
8. Disclaimer of Warranties. MICROSOFT HEREBY DISCLAIMS ALL WARRANTIES AND
CONDITIONS, IMPLIED OR EXPRESS, REGARDING THE LICENSED MATERIALS OR ANY OTHER
DELIVERABLES DELIVERED TO COMPANY HEREUNDER, INCLUDING WITHOUT LIMITATION
WARRANTIES, TITLE, NON-INFRINGEMENT AND CONDITIONS OF MERCHANTABILITY AND/OR
FITNESS FOR A PARTICULAR PURPOSE. MICROSOFT DOES NOT WARRANT THAT THE FUNCTIONS
CONTAINED IN THE LICENSED MATERIAL OR ANY OTHER DELIVERABLES DELIVERED TO
COMPANY HEREUNDER WILL MEET COMPANY'S REQUIREMENTS, OR THAT THE OPERATION OF
THE WORK WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS IN THE LICENSED
MATERIAL CAN BE CORRECTED. FURTHERMORE, MICROSOFT DOES NOT WARRANT OR MAKE ANY
REPRESENTATIONS REGARDING THE USE OR THE RESULTS OF THE USE OF THE LICENSED
MATERIAL OR RELATED DOCUMENTATION IN TERMS OF THEIR CORRECTNESS, ACCURACY,
RELIABILITY, OR OTHERWISE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY
MICROSOFT OR ITS AUTHORIZED REPRESENTATIVES SHALL CREATE A WARRANTY OR IN ANY
WAY INCREASE THE SCOPE OF THIS WARRANTY. SHOULD THE LICENSED MATERIAL OR ANY
OTHER DELIVERABLES DELIVERED TO COMPANY HEREUNDER PROVE DEFECTIVE AFTER
MICROSOFT HAS DELIVERED THE SAME, COMPANY, AND COMPANY ALONE, SHALL ASSUME THE
ENTIRE COST ASSOCIATED WITH ALL NECESSARY SERVICING, REPAIR OR CORRECTION.
9. Disclaimer of Damages and Limitation of Liability.
a. IN NO EVENT SHALL MICROSOFT, ITS SUPPLIERS OR SUBSIDIARIES BE LIABLE
FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR SPECIAL DAMAGES,
INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, OR LOSS OF BUSINESS INFORMATION ARISING OUT OF THIS AGREEMENT,
EVEN IF MICROSOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER,
IN NO EVENT SHALL MICROSOFT' LIABILITY UNDER THIS AGREEMENT EXCEED IN THE
AGGREGATE THE LESSER OF THE AMOUNT ACTUALLY PAID OR CREDITED BY COMPANY TO
MICROSOFT DURING THE TERM OF THE AGREEMENT OR THE AMOUNT OF ONE MILLION DOLLARS
(US $1,000,000) PLUS ANY AMOUNTS EXPENDED DEFENDING AGAINST CLAIMS OF
INFRINGEMENT PURSUANT TO SECTION 10 BELOW.
b. EXCEPT AS SPECIFICALLY PROVIDED IN THE FOLLOWING SENTENCE, IN NO
EVENT SHALL COMPANY, ITS SUPPLIERS OR SUBSIDIARIES BE LIABLE FOR ANY
CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR SPECIAL DAMAGES, INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
OR LOSS OF BUSINESS INFORMATION ARISING OUT OF THIS AGREEMENT, EVEN IF COMPANY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE EXCLUSION OF LIABILITY
FOR CERTAIN TYPES OF DAMAGES PROVIDED IN THE PRECEDING SENTENCE SHALL NOT APPLY
TO INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES ARISING
FROM COMPANY'S OBLIGATIONS UNDER SECTION 10(d) BELOW. FURTHER, EXCEPT FOR
COMPANY'S OBLIGATION UNDER SECTION 10(d) BELOW, IN NO EVENT SHALL COMPANY'S
LIABILITY UNDER THIS AGREEMENT EXCEED IN THE AGGREGATE THE GREATER OF SEVEN
HUNDRED FIFTY THOUSAND DOLLARS (US $750,000) OR COMPANY'S TOTAL ROYALTY
OBLIGATION HEREUNDER, PLUS ANY AMOUNTS EXPENDED DEFENDING AGAINST CLAIMS OF
INFRINGEMENT PURSUANT TO SECTION 10 BELOW.
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<PAGE> 4
10. Indemnification.
a. Microsoft agrees to defend COMPANY against, and pay the amount of any
adverse final judgment (or settlement to which Microsoft consents) resulting
from third party claim(s) that the Licensed Material as provided by Microsoft
infringe any United States copyright; provided that Microsoft is notified
promptly in writing of the claim has the opportunity to assume sole control
over its defense settlement, and COMPANY provides reasonable assistance in the
defense of the same.
b. In the event Microsoft or COMPANY receives information concerning a
copyright infringement claim related to the Licensed Material, Microsoft may at
its expense, either (i) procure for COMPANY the right to continue to distribute
the alleged infringing Licensed Material, or (ii) replace or modify the Licensed
Material to make them non-infringing, in which case, the COMPANY shall thereupon
cease distribution of the alleged infringing Licensed Material.
c. Microsoft shall have no liability for any infringement claim to the
extent such claim is based on COMPANY's (i) manufacture, marketing,
distribution, or use of any Licensed Material after written notice that COMPANY
should cease such activity due to such a claim; (ii) combination of any
Licensed Material with a software or hardware product, program, data or other
information or materials; or (iii) adaptation or modification of any Licensed
Material.
d. COMPANY agrees to defend Microsoft against, and pay the amount of any
adverse final judgement (or settlement to which COMPANY consents) in connection
with any claims arising under Section 10(c) above or from COMPANY's
distribution, marketing or use of the Licensed Materials, in whole or in part;
provided that COMPANY is notified promptly in writing of any such claim, and has
the opportunity to assume sole control over its defense or settlement, and
Microsoft provides reasonable assistance in the defense of the same.
11. Notices.
Any and all notices, consents or other communications among the parties to
this Agreement, in order to be effective, shall be in writing and shall be sent
to the parties via personal delivery or via prepaid certified mail, return
receipt requested, or by overnight courier, or by facsimile, to the following
addresses, or any other addresses designated by the parties by notices
delivered in accordance with this Section 11.
If to COMPANY: ServiceWare, Inc.
Chief Financial Officer
333 Allegheny Avenue
Oakmont, PA 15139
If to Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: _____________________
With a separately delivered copy to:
Law & Corporate Affairs Dept.
Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
Such communications shall be deemed duly delivered upon personal delivery, or
three business days after being mailed in accordance with this Section 11.
12. Record Keeping & Audit Requirements.
a. During the Term of this Agreement, COMPANY agrees to keep all usual and
proper records and books of account and all usual and proper entries relating
to COMPANY's performance of this Agreement for a minimum period of two
Page 4
<PAGE> 5
years from the date they are created. Such records, books of account, and
entries shall be kept in accordance with generally accepted accounting
principles.
b. Microsoft reserves the right to audit COMPANY's books and records to
the extent they relate to such calculation of payments due to Microsoft
hereunder during the Term of this Agreement and for a period of two (2) years
thereafter, provided that such audit(s) shall be conducted not more than twice
per year, during normal business hours, upon three (3) days prior notice, in
such a manner as not to interfere unreasonably with the operations of COMPANY.
The books and records audited pursuant to this Agreement shall not be used by
Microsoft or its accountants or other agents or representatives except as
necessary to prove and collect amounts due and unpaid. Any such audit shall be
paid for by Microsoft unless material discrepancies are disclosed. "Material"
shall mean an under-reporting by four-and-one-half percent (4 1/2%) of the
amount that should have been reported. If material discrepancies are disclosed,
COMPANY agrees to pay Microsoft for the reasonable costs associated with the
audit.
13. Miscellaneous.
a. In the event that any provision of this Agreement is found invalid or
unenforceable pursuant to judicial decree or decision, the remainder of this
Agreement shall remain valid and enforceable according to its terms. The
parties intend that the provisions of this Agreement be enforced to the fullest
extent permitted by applicable law. Accordingly, the parties agree that if any
provisions are deemed not enforceable, they shall be deemed modified to the
extent necessary to make them enforceable.
b. This Agreement shall be construed and controlled by the laws of the
State of Washington, and COMPANY further consents to jurisdiction by the state
or federal courts sitting in the state where the defendant is incorporated.
Process may be served on either party by U.S. Mail, postage prepaid, certified
or registered, return receipt requested, or by such other method as is
authorized by law.
c. If either Microsoft or COMPANY employs attorneys to enforce any
rights arising out of or related to this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs, including expert
witness fees.
d. COMPANY may not assign this Agreement (by operation of law or
otherwise), or any portion thereof, to any third party unless Microsoft
expressly consents to such assignment in writing, such consent not to be
unreasonably withheld. Any attempted assignment without such consent shall give
Microsoft the right to terminate this Agreement effective upon written notice.
For purposes of this Agreement, a merger, consolidation, or other corporate
reorganization, or a transfer or sale of any or all of a party's stock, or of
all or substantially all of its assets shall not be deemed to be an assignment
requiring consent from the other party, provided such transaction is not with a
competitor of Microsoft.
e. COMPANY agrees that it will not export or re-export Licensed Material
to any country, person, entity or End User subject to U.S.A. export
restrictions. Restricted countries currently include, but are not necessarily
limited to, Cuba, the Federal Republic of Yugoslavia (Serbia and Montenegro,
U.N. Protected Areas and areas of the Republic of Bosnia and Herzegovina under
the control of Bosnian Serb forces), Iran, Iraq, Libya, North Korea and Syria.
COMPANY warrants and represents that neither the U.S.A. Bureau of Export
Administration nor any other federal agency has suspended, revoked or denied
COMPANY'S export privileges. None of the Licensed Materials, including
technical data, provided to COMPANY by Microsoft under this Agreement is
regulated for export purposes under the International Traffic in Arms
Regulations (ITAR). The Licensed Materials are subject to a general license
under Export Administration Regulations and as such no license is required. If
at any time during the Term of this Agreement the above statements are no
longer accurate, Microsoft will notify COMPANY in writing of such change in
classification within twenty-four (24) hours of its knowledge of that
inaccuracy.
f. This Agreement does not establish the relationship of a partnership,
joint venture, franchise, or principal and agent among the parties, and neither
party shall have any authority to incur obligations or take other actions on
behalf of the other party to this Agreement.
g. The parties' exchange of confidential information, if any, during the
Term of this Agreement shall be governed by the terms and conditions of the
Microsoft Corporation Standard Non-Disclosure Agreement ("NDA") between the
parties, effective January 7, 1997, attached hereto as Exhibit C. The parties
agree that the terms and conditions of that NDA shall be mutual, and govern
COMPANY'S disclosure of confidential information, if any, to Microsoft as well.
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<PAGE> 6
h. The parties hereto agree that this Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous communications. It shall not be
modified except by a written agreement dated subsequent hereto signed on behalf
of COMPANY and Microsoft by their duly authorized representatives. Neither this
Agreement nor any written or oral statements related hereto constitute an offer,
and this Agreement shall not be legally binding until executed by both parties
hereto.
i. No waiver of any breach of any provision of this Agreement will
constitute a waiver of any prior, concurrent, or subsequent breach of the same
or any other provisions hereof, and no waiver will be effective unless made in
writing and signed by an authorized representative of the waiving party.
j. Subject to the limitations herein before expressed, this Agreement will
inure to the benefit of and be binding upon the parties, their successors,
administrators, heirs, and permitted assigns.
k. COMPANY and Microsoft each acknowledge that the limitations and
exclusions contained in this Agreement have been the subject of active and
complete negotiation between the parties and represent the parties' agreement
based upon the level of risk to COMPANY and Microsoft associated with their
respective obligations under this Agreement and the payments to be made to
Microsoft and credits to be issued to, and services to be provided to, COMPANY
pursuant to this Agreement. The parties agree that the terms and conditions of
this Agreement shall not be construed in favor of or against any party by
reason of the extent to which any party or its professional advisors
participated in the preparation of this Agreement.
l. Sections 2, 3, 4, 6, 7, 8, 9, 10, 11, 12 and 13 shall survive
termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the dates indicated below.
MICROSOFT CORPORATION SERVICE WARE, INC.
/s/ Denise Rundle /s/ Rajiv Enand
- --------------------- ---------------------
By By
Denise Rundle Rajiv Enand
- --------------------- ---------------------
Name (Print) Name (Print)
PSS Online Director CEO
- --------------------- ---------------------
Title Title
3/3/99 2/25/99
- --------------------- ---------------------
Date Date
Page 6
<PAGE> 7
EXHIBIT A
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MICROSOFT OR ITS AUTHORIZED REPRESENTATIVES SHALL CREATE A WARRANTY OR IN ANY
WAY INCREASE THE SCOPE OF THIS WARRANTY. SHOULD THE INFORMATION OR ANY OTHER
DELIVERABLES DELIVERED HEREUNDER PROVE DEFECTIVE AFTER DELIVERY OF THE SAME, END
USER, AND END USER ALONE, SHALL ASSUME THE ENTIRE COST ASSOCIATED WITH ALL
NECESSARY SERVICING, REPAIR OR CORRECTION.
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SUPPLIERS BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE, DATA OR PROFITS, WHETHER IN AN
ACTION OF CONTRACT, NEGLIGENCE OR OTHER TORTIOUS ACTION, ARISING OUT OF OR IN
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LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO EVENT
SHALL THE TOTAL LIABILITY OF MICROSOFT OR ANY OF ITS AFFILIATES, CONTRACTORS OR
THIRD PARTY SUPPLIERS UNDER THIS AGREEMENT, WHETHER FOR TORT (INCLUDING
NEGLIGENCE AND GROSS NEGLIGENCE), STRICT LIABILITY, BREACH OF CONTRACT, BREACH
OF WARRANTY OR OTHERWISE, IN
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<PAGE> 8
THE AGGREGATE, EXCEED THE SUM OF ONE DOLLAR (US$1.00).
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INCLUDE TECHNICAL INACCURACIES OR TYPOGRAPHICAL ERRORS. CHANGES ARE
PERIODICALLY ADDED TO THE INFORMATION HEREIN. MICROSOFT AND/OR ITS RESPECTIVE
SUPPLIERS MAY MAKE IMPROVEMENTS AND/OR CHANGES IN THE PRODUCT(S) AND/OR THE
PROGRAM(S) DESCRIBED HEREIN AT ANY TIME WITHOUT NOTICE TO END USERS. MICROSOFT
RECOMMENDS END USERS VISIT THIS SITE REGULARLY TO ENSURE THE MOST CURRENT
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NOTICES REGARDING INFORMATION AND SERVICES AVAILABLE ON THIS WEBSITE.
IN NO EVENT SHALL MICROSOFT AND/OR ITS RESPECTIVE SUPPLIERS BE LIABLE FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES WHATSOEVER RESULTING
FROM LOSS OF USE, DATA OR PROFITS, WHETHER IN AN ACTION OF CONTRACT, NEGLIGENCE
OR OTHER TORTIOUS ACTION, ARISING OUT OF OR IN CONNECTION WITH THE USE OF
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OF MICROSOFT AND MICROSOFT IS NOT RESPONSIBLE FOR THE CONTENTS OF ANY LINKED
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TO YOU ONLY AS A CONVENIENCE, AND THE INCLUSION OF ANY LINK DOES NOT IMPLY
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The names of companies, products, people, characters and/or data mentioned
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Any rights not expressly granted herein are reserved.
Contact Microsoft at http://register.microsoft.com/regwiz/regwiz.asp with
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Page 8
<PAGE> 1
Exhibit 10.12
LOAN AGREEMENT
THIS AGREEMENT is made as of this 19 day of January, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and Rajiv Enand, an individual residing at 526 Salem
Heights Drive; Gibsonia, PA 15044 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $250,000 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
----
1.1 The Company hereby loans to the Executive the sum of $250,000 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.80%, which is the "applicable Federal rate" in effect under Section 1274(d)
of the Internal Revenue Code of 1986, as amended, on the date of this Note,
shall be repaid in a single installment on January 19, 2003 (the "Repayment
Date"), subject to the provisions of Section 1.2.
ARTICLE 2
Pledge of Shares
----------------
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank and medallion signature guaranteed. Until such time, if any,
that the Company forecloses on the Pledged Shares, the Executive shall be
entitled to retain cash dividends and cash distributions (if any) in respect of,
and any voting rights incident to, the Pledged Shares.
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and the Interest Amount.
<PAGE> 2
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
-------------
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein. This Agreement may
be modified only by means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final
and binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
/s/ MARK TAPLING By: /s/ RAJIV ENAND
- ------------------------ -----------------------
Mark Tapling, President Rajiv Enand
<PAGE> 3
LOAN AGREEMENT
THIS AGREEMENT is made as of this 29 day of February, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and MARK TAPLING, an individual residing at 1559 MERION
LANE; OAKMONT, PA 15139 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $750,000 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $750,000 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
6.11%, which is the "applicable Federal rate" in effect under Section 1274(d)
of the Internal Revenue Code of 1986, as amended, on the date of this Note,
shall be repaid in a single installment on FEBRUARY 29, 2003 (the "Repayment
Date"), subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank and medallion signature guaranteed. Until such time, if any,
that the Company forecloses on the Pledged Shares, the Executive shall be
entitled to retain cash dividends and cash distributions (if any) in respect of,
and any voting rights incident to, the Pledged Shares.
<PAGE> 4
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final
and binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
By: /s/ Mark S. Tapling
__________________________ ___________________
Rajiv Enand, Chairman Mark Tapling
<PAGE> 5
LOAN AGREEMENT
THIS AGREEMENT is made as of this 31 day of January, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and MARK TAPLING, an individual residing at 1559 MERION
LANE; OAKMONT, PA 15139 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to
the Executive the sum of $137,500 in accordance with the terms and conditions
set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $137,500 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.80%, which is the "applicable Federal rate" in effect under Section 1274(d)
of the Internal Revenue Code of 1986, as amended, on the date of this Note,
shall be repaid in a single installment on JANUARY 31, 2003 (the "Repayment
Date"), subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or his
employment is terminated by the Company, for any reason, then the Repayment Date
shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder)(the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank and medallion signature guaranteed. Until such time, if any,
that the Company forecloses on the Pledged Shares, the Executive shall be
entitled to retain cash dividends and cash distributions (if any) in respect of,
and any voting rights incident to, the Pledged Shares.
<PAGE> 6
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final
and binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
By: /s/ Mark S. Tapling
__________________________ ___________________
RAJIV ENAND, CHAIRMAN MARK TAPLING
<PAGE> 7
LOAN AGREEMENT
THIS AGREEMENT is made as of this 31 day of January, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and LOU VENEZIA, an individual residing at 11 CATTANO
AVENUE, #323; MORRISTOWN, NJ 07960 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $119,790.00 in accordance with the terms and conditions
set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $119,790.00 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.80%, which is the "applicable Federal rate" in effect under Section 1274(d)
of the Internal Revenue Code of 1986, as amended, on the date of this Note,
shall be repaid in a single installment on JANUARY 31, 2003 (the "Repayment
Date"), subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder)(the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with
respect to Restricted Shares which were being held in escrow until the
restrictions lapsed, the Executive shall direct that such Restricted Shares be
delivered to the Company by the escrow agent immediately upon the lapse of the
applicable restrictions). All stock certificates delivered by the Executive (or
by such escrow agent) to the Company hereunder shall be accompanied by stock
powers duly endorsed in blank and medallion signature guaranteed. Until such
time, if any, that the Company forecloses on the Pledged Shares, the Executive
shall be entitled to retain cash dividends and cash distributions (if any) in
respect of, and any voting rights incident to, the Pledged Shares.
<PAGE> 8
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
-------------
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this Loan
Agreement, or any breach thereof, will be settled by arbitration administered
by the American Arbitration Association in accordance with its Commercial
Arbitration Rules then in effect. An arbitral award will be final and binding
on both parties hereto and may be enforced by any court or judicial authority
having competent jurisdiction over either party or its assets against whom the
arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
/s/ Mark Tapling By: /s/ Lou Venezia
- -------------------- -------------------
Mark Tapling, President Lou Venezia
<PAGE> 9
LOAN AGREEMENT
THIS AGREEMENT is made as of this 29 day of February, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and RICHARD KOLOSKI, an individual residing at 17 OLDWOOD
ROAD; MORRIS PLAINS, NJ 07950 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $37,500 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration,receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto agree
as follows:
ARTICLE 1
LOAN
1.1 The Company hereby loans to the Executive the sum of $37,500 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
6.11%, which is the "applicable Federal rate" in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the date of this Note, shall
be repaid in a single installment of FEBRUARY 29, 2003 (the "Repayment Date"),
subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the
Repayment Date shall be thirty days following the date of such termination.
ARTICLE 2
PLEDGE OF SHARES
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with
respect to Restricted Shares which were being held in escrow until the
restrictions lapsed, the Executive shall direct that such Restricted Shares be
delivered to the Company by the escrow agent immediately upon the lapse of the
applicable restrictions). All stock certificates delivered by the Executive (or
by such escrow agent) to the Company hereunder shall be accompanied by stock
powers duly endorsed in blank and medallion signature guaranteed. Until such
time, if any, that the Company forecloses on the Pledged Shares, the Executive
shall be entitled to retain cash dividends and cash distributions (if any) in
respect of, and any voting rights incident to, the Pledged Shares.
<PAGE> 10
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this Loan
Agreement, or any breach thereof, will be settled by arbitration administered
by the American Arbitration Association in accordance with its Commercial
Arbitration Rules then in effect. An arbitral award will be final and binding
on both parties hereto and may be enforced by any court or judicial authority
having competent jurisdiction over either party or its assets against whom the
arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
/s/ Mark S. Tapling By: /s/ Richard Koloski
- ----------------------- ----------------------
Mark Tapling, President Richard Koloski
<PAGE> 11
LOAN AGREEMENT
--------------
THIS AGREEMENT is made as of this 31 day of January, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and RICHARD KOLOSKI, an individual residing at 17
OLDWOOD ROAD; MORRIS PLAINS, NJ 07950 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $13,576.20 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $13,576.20 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.80%, which is the "applicable Federal rate" in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended on the date of this Note, shall
be repaid in a single installment on JANUARY 31, 2003 (the ""Repayment Date"),
subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of
the Company, no par value, which may be acquired on or after the date hereof by
the Executive (whether or not acquired using the proceeds of the loan made
hereunder)(the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect
such security interest, the Executive shall deliver to the Company immediately
upon receipt any stock certificates representing any Pledged Shares (or, with
respect to Restricted Shares which were being held in escrow until the
restrictions lapsed, the Executive shall direct that such Restricted Shares be
delivered to the Company by the escrow agent immediately upon the lapse of the
applicable restrictions). All stock certificates delivered by the Executive (or
by such escrow agent) to the Company hereunder shall be accompanied by stock
powers duly endorsed in blank and medallion signature guaranteed. Until such
time, if any, that the Company forecloses on the Pledged Shares, the Executive
shall be entitled to retain cash dividends and cash distributions (if any) in
respect of, and any voting rights incident to, the Pledged Shares.
<PAGE> 12
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
---------------
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this Loan
Agreement, or any breach thereof, will be settled by arbitration administered
by the American Arbitration Association in accordance with its Commercial
Arbitration Rules then in effect. An arbitral award will be final and binding
on both parties hereto and may be enforced by any court or judicial authority
having competent jurisdiction over either party or its assets against whom the
arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
/s/ Mark S. Tapling /s/ Richard Koloski
- ---------------------------- -------------------------------
Mark Tapling, President Richard Koloski
<PAGE> 13
LOAN AGREEMENT
THIS AGREEMENT is made as of this 29 day of February, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and RICHARD JOSLIN, an individual residing at 3016
HYLAND DRIVE; IRWIN, PA 15642 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $75,000.00 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $75,000.00 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
6.11%, which is the "applicable Federal rate" in effect under Section 1274(d)
of the Internal Revenue Code of 1986, as amended, on the date of this Note,
shall be repaid in a single installment on FEBRUARY 29, 2003 (the "Repayment
Date"), subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with
respect to Restricted Shares which were being held in escrow until the
restrictions lapsed, the Executive shall direct that such Restricted Shares be
delivered to the Company by the escrow agent immediately upon the lapse of the
applicable restrictions). All stock certificates delivered by the Executive (or
by such escrow agent) to the Company hereunder shall be accompanied by stock
powers duly endorsed in blank and medallion signature guaranteed. Until such
time, if any, that the Company forecloses on the Pledged Shares, the Executive
shall be entitled to retain cash dividends and cash distributions (if any) in
respect of, and any voting rights incident to, the Pledged Shares.
<PAGE> 14
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon the inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final
and binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
/s/ Mark Tapling By: /s/ Richard Joslin
- --------------------------- ---------------------------
MARK TAPLING, PRESIDENT RICHARD JOSLIN
<PAGE> 15
LOAN AGREEMENT
THIS AGREEMENT is made as of this 31 day of January, 2000, by and between
SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and RICHARD JOSLIN, an individual residing at 3016 HYLAND
DRIVE; IRWIN, PA 15642 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to the
Executive the sum of $50,395.00 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $50,395.00 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.80%, which is the "applicable Federal rate" in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the date of this Note, shall
be repaid in a single installment on JANUARY 31, 2003 (the "Repayment Date"),
subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before the
Repayment Date, the Executive terminates his employment with the Company, or his
employment is terminated by the Company, for any reason, then the Repayment Date
shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest Amount,
the Executive shall pledge to the Company any shares of the Common Stock of the
Company, no par value, which may be acquired on or after the date hereof by the
Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank and medallion signature guaranteed. Until such time, if any,
that the Company forecloses on the Pledged Shares, the Executive shall be
entitled to retain cash dividends and cash distributions (if any) in respect of,
and any voting rights incident to, the Pledged Shares.
<PAGE> 16
2.2 The Executive acknowledges and agrees that the loan made hereunder is
a full-recourse loan, and if the value of the Pledged Shares is not sufficient
to repay the Principal Sum and the Interest Amount, the Executive shall be
liable to the Company for the repayment in full on the Repayment Date of the
Principal Sum and Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by the
Company until the Principal Sum and the Interest Amount has been paid in full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this
Agreement shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter set forth herein, but in no way
supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
3.4 This Agreement may be executed in several counterparts each of which
shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final
and binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
/s/ Mark Tapling By: /s/ Richard Joslin
- ------------------------- -------------------------
MARK TAPLING, PRESIDENT RICHARD JOSLIN
<PAGE> 17
LOAN AGREEMENT
THIS AGREEMENT is made as of this 31 day of January, 2000, by and
between SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and Mark Finkel, an individual residing at 182 Hillside
Avenue, Englewood NJ, 07631 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to
the Executive the sum of $750,000 in accordance with the terms and conditions
set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $750,000 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.8% which is the "applicable Federal rate" in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the date of this Note, shall
be repaid in a single installment on January 31, 2003(the "Repayment Date"),
subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before
the Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest
Amount, the Executive shall pledge to the Company any shares of the Common Stock
of the Company, no par value, which may be acquired on or after the date hereof
by the Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank
<PAGE> 18
and medallion signature guaranteed. Until such time, if any, that the Company
forecloses on the Pledged Shares, the Executive shall be entitled to retain cash
dividends and cash distributions (if any) in respect of, and any voting rights
incident to, the Pledged Shares.
2.2 The Executive acknowledges and agrees that the loan made hereunder
is a full-recourse loan, and if the value of the Pledged Shares is not
sufficient to repay the Principal Sum and the Interest Amount, the Executive
shall be liable to the Company for the repayment in full on the Repayment Date
of the Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by
the Company until the Principal Sum and the Interest Amount has been paid in
full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of
the heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this Agreement
shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter set forth herein, but in no
way supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
3.4 This Agreement may be executed in several counterparts each of
which shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final and
binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
<PAGE> 19
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
___________________________ By:_____________________________
MARK TAPLING, PRESIDENT MARK FINKEL
<PAGE> 20
LOAN AGREEMENT
THIS AGREEMENT is made as of this 29 day of February, 2000, by and
between SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and SUSIE SEDLACEK, an individual residing at 151 EAST
CREEK DRIVE; MENLO PARK, CA 94025 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to
the Executive the sum of $75,000 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $75,000 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
6.11%, which is the "applicable Federal rate" in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the date of this Note, shall
be repaid in a single installment on FEBRUARY 29, 2003 (the "Repayment Date"),
subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before
the Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest
Amount, the Executive shall pledge to the Company any shares of the Common Stock
of the Company, no par value, which may be acquired on or after the date hereof
by the Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank and medallion signature guaranteed. Until such time, if any,
that the Company forecloses on the Pledged Shares, the Executive shall be
entitled to retain cash dividends and cash distributions (if any) in respect of,
and any voting rights incident to, the Pledged Shares.
<PAGE> 21
2.2 The Executive acknowledges and agrees that the loan made hereunder
is a full-recourse loan, and if the value of the Pledged Shares is not
sufficient to repay the Principal Sum and the Interest Amount, the Executive
shall be liable to the Company for the repayment in full on the Repayment Date
of the Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by
the Company until the Principal Sum and the Interest Amount has been paid in
full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of
the heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this Agreement
shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter set forth herein, but in no
way supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
3.4 This Agreement may be executed in several counterparts each of
which shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final and
binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
___________________________ By:_____________________________
MARK TAPLING, PRESIDENT SUSIE SEDLACEK
<PAGE> 22
LOAN AGREEMENT
THIS AGREEMENT is made as of this 31 day of January, 2000, by and
between SERVICEWARE, INC., a Pennsylvania corporation (the "Company") located in
Oakmont, Pennsylvania, and SUSIE SEDLACEK, an individual residing at 151 EAST
CREEK DRIVE; MENLO PARK, CA 94025 (the "Executive").
WHEREAS, the Company and the Executive desire that the Company loan to
the Executive the sum of $63,750 in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
1.1 The Company hereby loans to the Executive the sum of $63,750 (the
"Principal Sum"). The Principal Sum, together with interest (the "Interest
Amount") compounded semiannually at an interest rate ("Standard Rate") equal to
5.80%, which is the "applicable Federal rate" in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the date of this Note, shall
be repaid in a single installment on JANUARY 31, 2003 (the "Repayment Date"),
subject to the provisions of Section 1.2.
1.2 In the event that, prior to the date which is thirty days before
the Repayment Date, the Executive terminates his employment with the Company, or
his employment is terminated by the Company, for any reason, then the Repayment
Date shall be thirty days following the date of such termination.
ARTICLE 2
Pledge of Shares
2.1 To secure the repayment of the Principal Sum and the Interest
Amount, the Executive shall pledge to the Company any shares of the Common Stock
of the Company, no par value, which may be acquired on or after the date hereof
by the Executive (whether or not acquired using the proceeds of the loan made
hereunder) (the "Pledged Shares"). Shares acquired by the Executive which are
subject to restrictions on transfer ("Restricted Shares") shall be deemed
Pledged Shares immediately upon the lapse of such restrictions. To perfect such
security interest, the Executive shall deliver to the Company immediately upon
receipt any stock certificates representing any Pledged Shares (or, with respect
to Restricted Shares which were being held in escrow until the restrictions
lapsed, the Executive shall direct that such Restricted Shares be delivered to
the Company by the escrow agent immediately upon the lapse of the applicable
restrictions). All stock certificates delivered by the Executive (or by such
escrow agent) to the Company hereunder shall be accompanied by stock powers duly
endorsed in blank and medallion signature guaranteed. Until such time, if any,
that the Company forecloses on the Pledged Shares, the Executive shall be
entitled to retain cash dividends and cash distributions (if any) in respect of,
and any voting rights incident to, the Pledged Shares.
<PAGE> 23
2.2 The Executive acknowledges and agrees that the loan made hereunder
is a full-recourse loan, and if the value of the Pledged Shares is not
sufficient to repay the Principal Sum and the Interest Amount, the Executive
shall be liable to the Company for the repayment in full on the Repayment Date
of the Principal Sum and the Interest Amount.
2.3 Each stock certificate evidencing Pledged Shares shall be held by
the Company until the Principal Sum and the Interest Amount has been paid in
full.
ARTICLE 3
Miscellaneous
3.1 This Agreement shall be binding upon and inure to the benefit of
the heirs and representatives of the Executive and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this Agreement
shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter set forth herein, but in no
way supersedes the Severance Agreement. This Agreement may be modified only by
means of a written agreement signed by both parties.
3.3 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
3.4 This Agreement may be executed in several counterparts each of
which shall be deemed an original.
3.5 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
3.6 All disputes and controversies arising out of or relating to this
Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final and
binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SERVICEWARE, INC. EXECUTIVE
___________________________ By:_____________________________
MARK TAPLING, PRESIDENT SUSIE SEDLACEK
<PAGE> 1
Exhibit 10.13
July 22, 1999
Mark Tapling
1559 Merion Lane
Oakmont, PA 15139
Dear Mark:
This letter is to confirm my offer to you for the position of President of
ServiceWare, Inc. Effective immediately, your compensation will be as outlined
below. Mark, I look forward to working with you closely.
1) CASH COMPENSATION: Effective with your acceptance of this position, your
base salary shall be $200K/year. Your exclusive bonus program shall be
broken into 2 portions, each comprising a target of $25K bonus: one based
on corporate bookings and the other based on attention of MBOs. The first
plan will be based on achievement of the revised 1999 bookings plan which
shall be defined as: $30M in combined 1999 bookings (including 1Q99 & 2Q99
Molloy Group bookings) or the board approved bookings plan for the second
half of FY99, whichever is lower for combined 1999 bookings. If the
combined company achieves 100% or greater of the revised 1999 bookings plan
as defined above, you will be given a $25K bonus. If the company is able to
book between 90% and 100% of that number, you will be given a $12,500
bonus.
The second bonus program shall be based on attention of second half 1999
MBOs, which shall be defined over the next few weeks. If all MBOs are met
fully, a bonus of $25K shall be awarded to you. Both bonuses shall be paid
in February, 2000.
2) SEVERANCE: Effective June 1, 1999, should your employment with ServiceWare
be terminated without cause, either voluntarily or involuntarily by you,
you will be awarded a severance package equivalent to six (6) months of
your base salary on the termination date. It should be noted that this
figure shall explicitly not include any bonuses, commissions, or other
variable types of compensation available to you at that time. In the event
your employment with ServiceWare is terminated due to change of control, as
defined in the ServiceWare Incentive Stock Option plan, that amount shall
be increased to a total of twelve (12) months total of your base salary.
3) VESTING OF INCENTIVE STOCK OPTIONS DURING CHANGE OF CONTROL. Effective
immediately, in the event of a change of control, as defined in the
ServiceWare Incentive Stock Option Plan, 75% of all unvested incentive
stock options awarded to you shall automatically vest and be available for
you to exercise on the effective date of the acquisition. Effective June 1,
2000, in the event of a change of control, as defined in the ServiceWare
Incentive Stock Option Plan, 100% of all unvested incentive stock awarded
to you shall automatically vest and be available for you to exercise on the
effective date of the acquisition.
<PAGE> 2
4) CAR ALLOWANCE: Effective with the acceptance of this position, you shall be
given a $550/month car allowance to compensate for business costs related
to the use of your personal vehicle.
Regards,
Rajiv Enand
Chief Executive Officer
<PAGE> 1
Exhibit 10.14
[ServiceWare Inc. Letterhead]
January 18, 2000
Mark S. Finkel
182 Hillside Avenue
Englewood, New Jersey 07631
Dear Mark:
I am pleased to extend to you an offer of employment with ServiceWare as Chief
Financial Officer reporting to Mark Tapling. The entire team has been impressed
with your abilities, your experience and your personal qualities and feel you
will be a key contributor to our success and growth in the coming years.
You will receive a monthly salary of $12,500 (equivalent to an annualized
salary of $150,000 per year) commencing January 31, 2000. In addition to your
monthly salary, you also qualify for bonuses under the 2000 senior management
incentive compensation plan, which is currently targeted at $50,000. This bonus
will based on performance to the financial plan for the company as well as
your individual MBOs.
You will also be granted options to purchase 300,000 shares of ServiceWare
common stock at a fair market value as of January 18, 2000. This granting of
options is subject to approval by the Company's board of directors who will
also establish the exercise price at the January 19, 2000 board meeting.
Pending approval, they will be immediately exercisable, subject to repurchase
at the exercise price as follows:
- The entire 300,000 shares shall be re-purchasable if you leave your
position for any reason within the first calendar year of your employment,
other than if you are involuntary terminated after the effective date of an
IPO, as identified in the next paragraph.
- 200,000 shares shall be re-purchaseable if either you leave your
position for any reason within 12 months to 18 months of your employment or if
you are involuntarily terminated after the effective date of an initial public
offering of ServiceWare stock.
- 100,000 shares shall be re-purchaseable if you leave your position
for any reason within 18 months to 24 months of your employment.
- 66,666 shares shall be re-purchasable if you leave your position for
any reason within 24 months to 36 months of your employment.
- 33,333 shares shall be re-purchasable if you leave your position for
any reason within 36 months to 48 months of your employment.
- No shares shall be re-purchasable if you maintain your employment for
48 months.
In addition, the shares eligible for re-purchase shall be reduced by 50% of the
amounts listed above on any change of control, as defined in the ServiceWare
Amended and Restated Stock Option Plan, where ServiceWare is not the controlling
entity. Also, if within 12 months of a change of control, your responsibilities
change significantly or your employment is terminated without cause, no shares
shall be eligible for re-purchase. All repurchase rights shall lapse 30 days
after any triggering event described above. In the event that you decide to
exercise your options and obtain restricted shares, you may wish to make an
"83(b) election" under the Internal Revenue Code to recognize the difference (if
any) between the exercise price and the then-current value of the shares as
taxable income, in order to "close" the compensation element of the grant and
secure capital gains treatment for future increases in the value of
<PAGE> 2
the shares. This election would need to be made within 30 days of the date on
which the shares are purchased by you. If you require any assistance in making
this election, please let me know.
In order to help you with exercising the option granted above, ServiceWare
shall grant you upon request a full recourse loan for the entire stock purchase
amount. The loan shall have a term of 3 years or prorated on the sale of the
associated securities, whichever is sooner. The loan will also bear interest at
the "applicable federal rate", as printed in the Wall Street Journal on the
date of execution of the loan agreement. Documents detailing this loan shall be
provided to you as soon as feasible following your request.
Should your employment be involuntarily terminated without cause at any time,
you will receive six months' severance pay and benefits to be paid on the
normal payroll cycles.
Mark, we also acknowledge that you have existing outside interests that will
require a little time for transition. We would expect that all such activity
which would materially interfere with your carrying out your full time duties
as Chief Financial Officer of the Company shall be terminated no later than
March 31, 2000. We acknowledge that you will maintain participation on the
board of directors of non-competitive companies, so long as they do not
materially interfere with your duties, as described above.
You are also eligible for all ServiceWare full-time employees benefits which
currently include medical, dental, and vision coverage. ServiceWare currently
pays 100% of your personal coverage; partial additional costs will be paid to
cover any dependents. Other benefits currently include a highly flexible
personal time policy which will be discussed during your orientation, paid
holidays, life, short, and long-term disability insurance, and others. Because
these benefits are subject to change from time to time, I recommend that you
review our online employee handbook and discuss questions further with Matt
Rodgers in our Human Resource department.
As a condition of employment, you will also be asked to sign ServiceWare's
Employee Handbook and Confidentiality and Non-Compete Agreement, copies of
which will be provided to you shortly.
Mark, I trust this offer is acceptable to you. If it is, please sign this
letter and return it to me.
We're looking forward to you joining the team at ServiceWare!
WELCOME ABOARD!
Sincerely,
/s/ Rajiv Enand
Rajiv Enand
CEO
ServiceWare, Inc.
/s/ Mark Finkel 1/18/00
- ----------------------------------- --------------------
(Mark Finkel) (Date)
<PAGE> 1
Exhibit 10.15
[SERVICEWARE LETTERHEAD] [SERVICEWARE LOGO]
January 19, 2000
Rajiv Enand
526 Salem Heights Drive
Gibsonia, PA 15044
Dear Rajiv:
This letter is to confirm your updated compensation package as Chairman of the
Board for ServiceWare. I have reviewed this and have unanimous consent from the
compensation committee of the board of directors to offer this package to you.
Your base salary shall continue to be $200,000/year. Your exclusive bonus
program for FY2000 shall be based on the company achieving its FY2000
operating plan of $32.5M in revenue. If the company is able to 100% of that
number, you will be given a $50,000 bonus. If the company is able to achieve
between 90% and 100% of that number, you will be given a $25,000 bonus.
Cash compensation and all associated employee benefits available to you shall
be guaranteed through June 30, 2001, at which time they shall cease. For
FY2001, there shall be no bonus program as part of your compensation.
Regards,
/s/ Mark Tapling
Mark Tapling
Chief Executive Officer
<PAGE> 1
Exhibit 10.16
COMPENSATION, CONSULTATION AND SEVERANCE AGREEMENT
AGREEMENT made this 23rd day of July, 1999 ("Agreement"), but
effective as of the Effective Date (as defined below), by and between
SERVICEWARE, INC., a Pennsylvania corporation, with its principal offices
located at 333 Allegheny Avenue, Oakmont, Pennsylvania 15139 (hereinafter
referred to as "ServiceWare"), and Bruce Molloy, an individual residing at 15
Brook Hollow Drive, Gladstone, New Jersey 07934 (hereinafter referred to as
"Consultant").
W I T N E S S E T H:
WHEREAS, in connection with that certain Agreement and Plan of
Merger, dated as of July 13, 1999, by and among ServiceWare, Molloy Acquisition
Corporation, a Delaware corporation ("Sub"), and Molloy Group, Inc., a Delaware
corporation ("Molloy") (the "Merger Agreement"), pursuant to which Sub will
merge with and into Molloy, Molloy will become a wholly owned subsidiary of
ServiceWare and the stockholders of Molloy will become shareholders of
ServiceWare (the "Merger"), Consultant has agreed to retire from his position as
an officer of Molloy upon consummation of the Merger;
WHEREAS, in recognition of the value of Consultant to Molloy and
Consultant's value to ServiceWare upon consummation of and following the Merger
with respect to the business of Molloy and ServiceWare, ServiceWare desires (i)
to make suitable severance compensation arrangements with Consultant and (ii) to
retain Consultant in an advisory capacity as a consultant, in each case upon the
terms and conditions hereinafter set forth; and
WHEREAS, Consultant is willing (i) to accept such severance
compensation arrangements and (ii) to render consulting and advisory services to
ServiceWare, in each case upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties hereto agree as follows:
1. Services. ServiceWare agrees to retain Consultant, and Consultant
agrees to render consulting and advisory services to ServiceWare, as an
independent contractor and not as an employee, upon the terms and conditions
hereinafter set forth.
2. Term of Agreement. The term of Consultant's services under this
Agreement shall be from the Effective Date (as hereinafter defined) through the
date which is eighteen (18) months after the Effective Date (the "Term"). This
Agreement shall become effective upon the Closing Date (as such term is defined
in the Merger Agreement) (the "Effective Date").
3. Extent of Services. (a) During the first three months of the Term
(the "Initial
<PAGE> 2
Period"), the Chief Executive Officer of ServiceWare may request, either
verbally or in writing, Consultant to render the Consulting Services (as
hereinafter defined) on a full-time basis during such Initial Period, and
Consultant shall, if and when so requested, and at the times, dates and
locations which are mutually agreed upon by Consultant and such requesting
officer consistent with the full-time nature of the Consultant's duties during
the Initial Period and with subsection (c) below, render such services.
"Consulting Services" shall mean consulting with and advising ServiceWare
management and officers in respect of (i) transition matters, including
personnel matters, arising in connection with the Merger; and (ii) matters
related to technology, strategy and strategic planning of ServiceWare, in each
case consistent with the duties and responsibilities of the Consultant at Molloy
prior to consummation of the Merger; provided that Consultant shall not be
required to assist ServiceWare or its employees in the development, invention or
creation of any new process, technology, know-how or other proprietary or
protectable intellectual property. Consultant shall be required to report only
to the Chief Executive Officer of ServiceWare in the execution of Consulting
Services.
(b) During the period from the end of the Initial Period to the end of the
Term, the Consultant agrees to be reasonably available from time to time to
render Consulting Services by telephone upon request of the Chief Executive
Officer of ServiceWare; provided, that the Consultant will not be required to
travel to perform the Consulting Services without his consent, and provided
further that the provision of such Consulting Services shall be subject to full
or part-time employment and other commitments, including those which may
obligate him to perform services prior to the performance of his services
hereunder, and also subject to vacation and other activities.
(c) During the Term, Consultant shall perform the Consulting Services
faithfully, diligently and to the best of his ability. During the Initial
Period, Consultant shall render said services at the principal office of Molloy
in Parsippany, and, upon request of the Chief Executive Officer of ServiceWare,
shall travel to the Oakmont, Pennsylvania offices of ServiceWare when reasonably
necessary, to render said services, subject to reimbursement of expenses as
provided below with respect to such travel to locations other than the principal
office of Molloy in Parsippany. Consultant shall have the right, (i) following
the Initial Period, to become employed by, and (ii) during the Term, to engage
or participate in, or render advisory or other services in connection with, any
and all other business activities, subject only to the terms of the
Noncompetition Agreement, dated contemporaneously herewith, by and among
ServiceWare, Molloy and Consultant (the "Noncompetition Agreement").
4. Compensation and Benefits. (a) As full compensation for the
Consulting Services to be rendered by Consultant hereunder during the Initial
Term and as severance compensation, ServiceWare agrees to pay Consultant, during
the Term, a fee of $5,000 per week (the "Consulting/Severance Fee"). Payment
shall be made to Consultant every two weeks by direct deposit to an account
designated to ServiceWare from time to time in writing by Consultant, or, if no
account is designated, by check mailed to Consultant at his address set forth
above.
<PAGE> 3
(b) During the Term, Consultant and his family shall be entitled to
participate, at ServiceWare's sole cost, in any and all medical and health
insurance plans in effect for senior executives of ServiceWare. Such
participation shall be subject to the terms of the applicable medical insurance
plan documents.
(c) During the Term, ServiceWare shall at its sole cost continue to
provide Consultant with the automobile currently leased by Molloy and Consultant
or provide the Consultant with the use of a substantially comparable automobile
that shall be selected by the Consultant with the approval of ServiceWare, which
shall not be unreasonably withheld; provided that if ServiceWare chooses not to
maintain the current lease, it shall pay any and all costs, expenses, interests
charges, penalties and any other charges which may arise upon termination of
such lease. Such lease shall include a provision granting to ServiceWare, and
upon termination of the lease or this Agreement, whichever shall first occur,
ServiceWare shall provide Consultant, at no additional expense to Consultant,
the option to purchase such leased automobile. The purchase price payable by
Consultant for such automobile shall be equal to the amount payable by
ServiceWare under the lease for such automobile. ServiceWare shall also pay for
insurance and ordinary scheduled maintenance costs for such leased automobile
during the Term.
(d) During the Term, Consultant shall be entitled to (i) all
national holidays and such other holidays as may be observed by ServiceWare and
(ii) four weeks of vacation per year (an aggregate of six weeks for the entire
Term), to be taken after the Initial Period at such times and intervals as shall
be reasonably determined by Consultant.
5. Independent Contractor; No Deductions and Withholding. Consultant
shall, at all times, be an independent contractor and ServiceWare shall have no
liability whatsoever for withholding, collection or payment of income taxes or
for taxes of any other nature on behalf of Consultant; provided that Consultant
shall indemnify and hold harmless ServiceWare for any withholding, collection or
income or other tax payments on behalf of Consultant required to be made by any
government authority, net of any tax benefit thereby obtained by ServiceWare.
Under no circumstances shall Consultant have or claim to have power of decision
in any activity on behalf of ServiceWare nor supervise, hire or fire employees
of ServiceWare. It is specifically understood that ServiceWare shall not, with
respect to the Consulting Services to be rendered by Consultant, exercise such
control over Consultant as is contrary to its relationship with Consultant as an
independent contractor.
6. Termination. (a) ServiceWare's engagement of Consultant under
this Agreement and Consultant's right to receive the compensation and benefits
contemplated by Section 4 above shall terminate upon the earliest to occur of
the following events: (i) the expiration of the Term; (ii) an Early Termination
Event (as defined below); or (iii) the death of Consultant.
<PAGE> 4
(b) "Early Termination Event" means the consummation during the Term
of the sale by Consultant of shares of common stock of ServiceWare in a
Qualified Public Offering with proceeds to Consultant (prior to underwriter's
commissions and expenses) of $500,000 or more.
(c) For purposes of this Agreement, a Qualified Public Offering
shall mean an initial public offering of ServiceWare's common stock underwritten
on a firm commitment basis by a "nationally recognized" (as determined below)
underwriter pursuant to an effective registration statement under the Securities
Act of 1933, as amended, (i) which raises gross proceeds to ServiceWare of at
least $15,000,000 and (ii) in which such common stock is sold at a price per
share (prior to underwriters commissions and expenses) of $9.375 (adjusted for
stock splits, stock dividends, combinations and the like).
7. Reimbursement of Expenses. During the period of this Agreement,
Consultant may incur reasonable out-of-pocket expenses in connection with the
performance of the Consulting Services hereunder for entertainment, travel
(exclusive of commutation from the home of the Consultant to the principal
office of Molloy in Parsippany), meals and hotel accommodations. ServiceWare
shall reimburse Consultant for all such reasonable out-of-pocket expenses which
Consultant may incur in connection with the performance of the Consulting
Services upon submission by Consultant to ServiceWare of vouchers or expense
statements reasonably evidencing such expenses and consistent with ServiceWare's
then-effective reimbursement policies respecting senior management. During the
Term of this Agreement, if Consultant shall require secretarial and clerical
assistance in connection with the performance of the Consulting Services,
Consultant may request such secretarial and clerical assistance from
ServiceWare, which assistance and any necessary equipment shall be provided at
the expense of ServiceWare.
8. General. Following the Initial Period, Consultant may accept
employment with others, and at any time during the Term, Consultant may render
advice and consultation to others, may travel freely, on the business of others,
or for pleasure, in the continental United States or elsewhere, and except
during the Initial Period to the extent set forth in Section 3(a), Consultant
shall not be obligated to keep ServiceWare advised of his current location,
availability or unavailability and, shall not be expected to subordinate his
other activities, whether business or personal, to those of ServiceWare, subject
to the Noncompetition Agreement.
9. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provisions of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
<PAGE> 5
10. Assignability and Binding Effect. This Agreement shall inure to
the benefit of and be binding upon the parties, their heirs, administrators,
legal representatives, successors and permitted assigns. The obligations of
Consultant may not be delegated and, Consultant may not assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement, or any of
his rights hereunder, and any attempted delegation or disposition shall be null
and void and without effect. This Agreement shall be binding upon ServiceWare
and any successor organization which shall succeed to substantially all of the
business and assets of ServiceWare, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of ServiceWare, or
otherwise, including by operation of law. ServiceWare will require any successor
organization which is a purchaser of all or substantially of the business or
assets of ServiceWare, by written agreement addressed to Consultant, to assume
and agree to perform this Agreement unless such successor shall assume such
obligations as a matter of law.
11. Complete Understanding. This Agreement constitutes the complete
understanding of the parties with respect to the subject matter hereof and may
not be altered, modified, amended or rescinded except in writing signed by the
parties hereto. This Agreement shall supersede all prior agreements and
understandings between the parties hereto respecting the services of Consultant
to ServiceWare or the subject matter hereof.
12. Waiver of Set-Off. ServiceWare hereby waives all statutory or
equitable rights of set-off against Consultant in connection any rights it may
have as of the date of this agreement or in the future arising under the Merger
Agreement or any other instrument or agreement contemplated therein, including
but not limited to the License Agreement, the Shareholders' Agreement, the
Registration Rights Agreement, the Assignment of Patent and the Noncompetition
Agreement (each as defined in the Merger Agreement).
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New Jersey
from time to time obtaining.
14. Headings. The headings set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement in any
respect nor shall they in any way affect the substance of the provisions
contained in this Agreement.
15. Notices. All notices and other communications which are required
or which may be given under the provisions of this Agreement shall be delivered
personally or sent by certified mail, postage prepaid, return receipt requested
to each of the parties hereto at the respective addresses set forth above, or to
such other address as either party may hereinafter designate in writing as his
or its address for this purpose in the manner herein provided for giving notice
unless otherwise provided in the Agreement.
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
SERVICEWARE, INC.
______________________________ By:_________________________________
Bruce Molloy
<PAGE> 1
Exhibit 10.17
LICENSE AGREEMENT
AGREEMENT made as of this 23rd day of July, 1999 by and between
MOLLOY GROUP, INC., a corporation organized and existing under the laws of the
State of Delaware, ("Licensor") and BRUCE MOLLOY, an individual residing at 15
Brook Hollow Drive, Gladstone, New Jersey 07934 ("Licensee").
W I T N E S S E T H:
WHEREAS, in connection with the merger of Molloy Acquisition
Corporation and Licensor, contemporaneously herewith, Licensee has assigned his
rights in the Patent (as hereinafter defined) to Licensor; and
WHEREAS, Licensor has agreed to permit Licensee to use and practice
the invention described in the Patent (the "Invention") in certain fields, and
the parties now desire to formalize such relationship; and
WHEREAS, Licensee wishes to confirm the grant to him of a license to
the Invention and any patents resulting therefrom, and Licensor is willing to
confirm the grant of such a license to Licensee, subject to the terms and
conditions hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
SECTION 1
DEFINITIONS
As used in this Agreement, the following terms shall be defined as
set forth below:
1.1 "Affiliate" shall mean any corporation, partnership, limited
liability company or other entity, present or future, which owns or controls, is
owned or controlled by, or is under common control with, a party. For purposes
of this definition, ownership or control shall mean ownership or control of at
least fifty percent (50%) of the voting stock or other voting interests in any
such entity.
1.2 "Doing Business" shall mean that a party, and/or an affiliate or
one or more sublicensees, are diligently pursuing the commercialization of a
product or service in a
<PAGE> 2
Non-exclusive Field. Such "diligent pursuit" shall be deemed to have been
demonstrated if such entity/person has an ongoing and active research,
development, manufacturing, marketing or licensing program, as appropriate,
directed toward developing a Licensed Product in such Nonexclusive Field, or is
actively in the process of raising funds to finance the same.
1.3 The "Invention" shall mean the invention described in the patent
entitled "System and Method for Representing and Retrieving Knowledge in an
Adaptive Cognitive Network", U.S. Patent Serial No. 5,787,234.
1.4 "Licensed Patents" shall mean (i) the Patent together with the
Invention described therein; (ii) any United States or foreign patent
application(s) and patent(s) owned, in whole or in part, by or licensed to
Licensor during the term of this Agreement and based upon the Invention,
together with the Invention described therein; and (iii) any continuations,
continuations-in-part, division or substitutes, reissues, renewals,
re-examinations, and any extensions thereof.
1.5 "Licensed Product" shall mean any process or product or part of
a process or product which results from the manufacture, production or use of a
claim of a Licensed Patent, wherever sold, which, if not licensed, would
infringe in the country in which the process or product is made, used or sold,
upon rights in or to Licensed Patents then covered by the license to Licensee
from Licensor hereunder.
1.6 "Licensed Technology" shall mean all designs, drawings,
technical information and materials, know-how, knowledge and other intellectual
property, data, specifications, test results, laboratory notebooks and other
information (exclusive of the software programs and any of the foregoing items,
except for know-how and knowledge, related to the software programs) (i)
relating to the Licensed Patents, composition, process or method the use of
which, if not licensed, would infringe in the country in which the process or
product is made, used or sold upon rights in or to Licensed Patents then covered
by the license to Licensee from Licensor hereunder, and (ii) owned or controlled
by Licensor on the date of this Agreement, exclusive of software. Licensed
Technology also includes all copyrights and registrations thereof, if any, in
any copyrightable materials relating to Licensed Technology which are owned or
controlled by Licensor on the date of this Agreement, exclusive of software.
Licensed Technology does not include the Licensed Patents themselves or any
trademarks, trade names or service marks used by Licensor in connection with the
Licensed Products.
1.7 "Licensee Fields" shall mean the applications, uses and markets
identified as "Licensee Fields" on Schedule 1.7 attached hereto.
1.8 "Licensor Fields" shall mean the applications, uses and markets
identified as "Licensor Fields" on Schedule 1.7 attached hereto.
1.9 "Non-exclusive Field" shall mean any application, use or market
that is
<PAGE> 3
neither a Licensor Field nor a Licensee Field.
1.10 "Patent" shall mean United States Patent Serial No. 5,787,234,
a true and correct copy of which has previously been furnished by Licensor to
Licensee.
1.11 "Trademark" shall mean the trademark, "COGNITIVE PROCESSOR,"
registered with the United States Patent & Trademark Office, Registration Number
1,919,047.
SECTION 2
GRANT OF LICENSE
2.1 Licensor hereby grants to Licensee, subject to all the terms and
conditions of this Agreement, the following rights and licenses, all of which
are worldwide, perpetual (subject to Section 9), irrevocable (subject to Section
9) and fully paid:
(a) the sole and exclusive right and license to make, have
made, use, sell, practice, commercialize and exploit the Invention and the
Licensed Patents in the Licensee Fields, including, without limitation, the sole
and exclusive right and license to make, have made, use, license and sell
software programs (exclusive of those software programs owned by Licensor) based
on or derived from the Invention in the Licensee Fields and all versions and
enhancements thereof in the Licensee Fields and other Licensed Products in the
Licensee Fields; and
(b) a non-exclusive right and license to make, have made, use,
sell, practice, commercialize and exploit the Invention and the Licensed Patents
in the Non-exclusive Fields, including, without limitation, the non-exclusive
right and license to make, have made, use, sell, practice, commercialize and
exploit software programs (exclusive of those software programs owned by
Licensor) based on or derived from the Invention in the Non-exclusive Fields and
all versions and enhancements thereof in the Non-exclusive Fields and other
Licensed Products (exclusive of those software programs owned by Licensor) in
the Non-exclusive Fields; and
(c) a non-exclusive right and license to make, have made, use,
sell, practice, commercialize and exploit Licensed Technology in the Licensee
Fields and Nonexclusive Fields, including, without limitation, the right to
further develop, enhance, modify and improve Licensed Technology in the Licensee
Fields and Non-exclusive Fields and to practice unpatented processes and use
unpatented information and know-how included within the Licensed Technology in
the Licensee Fields and Non-exclusive Fields; and
(d) to the extent Licensor has the right to do so, a
non-exclusive right and license in the Licensee Fields and Non-exclusive Fields
under any other patents in the Licensee Fields and Non-exclusive Fields
("background patents") which are now or within five
<PAGE> 4
(5) years after the date hereof owned or controlled by Licensor, but only if and
to the extent that without such a license Licensee cannot practice the Licensed
Patents in the Licensee Fields or Non-exclusive Fields or make, have made, use,
sell, practice, commercialize and exploit Licensed Products in the Licensee
Fields or Non-exclusive Fields without infringing such background patents.
(e) the exclusive right and license to use the Trademark in
connection with goods and services in the Licensee Field and the non-exclusive
right to use the Trademark in connection with goods and services in the
Non-exclusive Fields.
2.2 Licensee shall have the right to sublicense the rights granted
hereunder, except for the rights related to the Trademark under Section 2.1(e)
to any Affiliate or third party without the consent of Licensor. Licensee shall
have the right to sublicense its rights related to the Trademark under Section
2.1(e) to allow for the use of the Trademark solely in conjunction with the
licenses granted under Sections 2.1(a) through (d). All sublicenses granted by
Licensee shall provide that the obligations to Licensor of Licensee under
Sections 6 and 8 (and in the case of the Trademark, Section 8.2) of this
Agreement shall be binding upon sublicensee as if it were a party to this
Agreement, and that in the absence of diligent enforcement of such Sections by
Licensee, such Sections shall be enforceable by Licensor as a third-party
beneficiary of such Sections, and a copy of such paragraphs of this Agreement
and a statement regarding Licensor's third party beneficiary rights (or
comparable paragraphs no more favorable to the sublicensee) shall be attached to
or included within all sublicense agreements. Provided that Licensee has
complied with the preceding sentence, Licensee shall not be responsible for or
in default hereunder due to the acts of its sublicensees. Licensee shall provide
to Licensor a copy of all sublicense agreements other than with end-users
promptly after execution, the confidential portions of which may be reasonably
redacted by Licensee.
2.3 Licensor shall retain title to the Licensed Patents, Licensed
Technologies and related intellectual property rights. The licenses and rights
granted in this Agreement shall not be construed to confer any rights upon
Licensee by implication, estoppel or otherwise as to any technology outside of
the Licensee Fields or Non-exclusive Fields or not specifically identified in
this Agreement as or included within Licensed Patents or Licensed Technology,
and no other assignments or licenses are made or granted by implication,
estoppel or otherwise, by this Agreement. Except as specifically set forth in
this Agreement, each party retains under this Agreement all rights to and
interests in its technology, including improvements developed by it. Except for
the grant set forth in Section 2.1(e), the rights licensed to Licensee in
Section 2.1 shall not include the trademarks, trade names or service marks,
whether registered or existing at common law, or any applications therefor.
SECTION 3
TERM OF LICENSE
<PAGE> 5
The term of the patent licenses granted hereunder shall commence
upon the signing hereof and shall continue for the life of the applicable
patent, and shall expire on a country-by-country basis when the last to expire
patent in such country expires, unless terminated earlier pursuant to Section 9.
The term for the know-how licenses granted herein shall be perpetual, unless
this Agreement is terminated by Licensor for Licensee's default. Licensee shall
have the right to continue to use know-how and other unpatented and/or
unpatentable information licensed hereunder after expiration or termination of
this Agreement, unless this Agreement is terminated by Licensor for Licensee's
default.
SECTION 4
NO ROYALTIES
4.1 Licensee shall be entitled to the rights granted to it hereunder
without the payment of any royalties in respect of the sale of Licensed Products
or otherwise.
4.2 In the event that a Licensed Patent lapses or if all of its
material claims are finally declared invalid by a nonappealable decision of a
court of competent jurisdiction through no fault or cause of Licensee, this
Agreement shall remain in effect as to the remaining Licensed Patents or claims
thereunder.
SECTION 5
PATENT MAINTENANCE
5.1 Licensor shall take all reasonable actions within its control to
maintain rights to the Licensed Patents and Licensed Technology, and, where
necessary and if requested by Licensee, shall take such actions as Licensor
reasonably deems necessary to enable Licensor to maintain such rights, subject
to the performance by Licensee of its obligations and responsibilities under
this Agreement.
5.2 Licensee shall apply, and shall require sublicensees to apply,
the patent marking notices required by the law of any country where Licensed
Products are made, sold or used, to the extent feasible and practical, and in
accordance with the applicable patent laws of that country.
5.3 Licensee may request Licensor to file a patent application with
respect to the Licensed Patents in any jurisdiction other than the United
States. If, within forty-five (45) days after the date of such request, Licensor
files a patent application in the jurisdiction so requested, Licensee agrees to
reimburse Licensor for its fractional share of the patent costs incurred by
Licensor, provided that Licensor has given Licensee thirty (30) days written
notice of the filing of the foreign application (which notice shall offer a
reasonable estimate of anticipated prosecution and maintenance expenses in that
jurisdiction) and during the period of fifteen (15)
<PAGE> 6
days following the giving of such written notice, Licensee does not notify
Licensor that it agrees to exclude from this Agreement and the license granted
hereunder the territory of that foreign jurisdiction. If Licensor shall not, for
any reason, file a patent application in any foreign jurisdiction so requested
by Licensee within such forty-five day period, Licensee may, at its own option
and expense and in the name of Licensor, file, prosecute and maintain in such
jurisdiction foreign patent applications with respect to all Licensed Patents.
In such event, Licensee will consult with Licensor's designated patent counsel
and use reasonable efforts to consider and protect Licensor's commercial
interests. Copies of such foreign applications shall be promptly furnished to
Licensee and Licensor prior to filing. Licensee's fractional shares of such
Patent costs shall be equal to a fraction with the numerator being one and the
denominator being the number of parties who have licensed the Licensed Patents
(including Licensee), and who have not elected to exclude from their respective
license the territory of that foreign jurisdiction. Licensee shall pay its share
of such patent costs within thirty (30) days of receipt of an invoice from
Licensor for same. A party who has elected to exclude from its respective
license the territory of that foreign jurisdiction and not to pay a pro rata
share of such patent costs, may later elect to include in its respective license
the territory of that foreign jurisdiction by paying to Licensor an amount equal
to the share of the patent costs previously paid by the parties who then paid
such patent costs.
SECTION 6
CONFIDENTIALITY
6.1 Licensee agrees to treat (and cause its Affiliates to treat) as
confidential all Licensed Patents which have not issued and Licensed Technology
and proprietary information made available by Licensor to Licensee provided that
the party disclosing such information (other than with respect to a patent
application or claim thereunder) marks or otherwise identifies such information
as "confidential" or "Proprietary" (if such information is disclosed orally, it
shall be summarized in writing within thirty (30) days and such summary shall be
identified as "confidential" or "proprietary"). Licensor acknowledges that
Licensee may find it beneficial to disclose such information provided by
Licensor during the conduct of Licensee's business. Under such circumstances,
Licensee may make such information available to third parties, provided that
Licensee shall first obtain from the recipients a fully-executed confidentiality
agreement which is at least as restrictive as the confidentiality agreement
Licensee employs to protect its own most valuable trade secrets, provided that
in no event shall such confidentiality agreement set forth care restrictions
which are less than commercially reasonable.
6.2 Licensee shall not be bound by the provisions of Section 6.1
with respect to information in a Licensee Field or any Non-exclusive Field which
(i) is known to the recipient at the time of disclosure through no fault of
Licensee after the date hereof; (ii) is in the public domain at the time of
disclosure through no fault of Licensee after the date hereof; (iii) becomes a
part of the public domain after the time of disclosure, other than through
disclosure by
<PAGE> 7
Licensee; (iv) is independently developed by the recipient of the other party's
confidential information as shown by the records of the recipient. Licensee may
disclose the Confidential Information as necessary in connection with (i) the
granting of sublicenses permitted under and complying with Section 2.2 and (ii)
the marketing and distribution of Licensed Products (provided that Licensee
follows procedures customary in the industry to maintain the confidentiality of
Confidential Information disclosed pursuant to this clause (ii)). Licensee may
also disclose the Confidential Information pursuant to, and to the extent
required by, governmental or accounting regulations, law or judicial process
(collectively "Government Process"), provided Licensee promptly informs Licensor
of the requirement to disclose such information and allows Licensor the
opportunity to contest such disclosure. In the event that Licensee complies with
its obligations under the preceding sentence and Licensee determines to contest
such disclosure, Licensee may, nevertheless, disclose such confidential
information pursuant to, and to the extent required by such Government Process,
upon the earlier of (i) receipt of Licensor's written notice that it no longer
contests such disclosure, or (ii) the day before Licensee would be in violation
of such Government Process.
6.3 [reserved]
6.4 Licensee and Licensor shall each take such actions as the other
party may reasonably request from time to time to safeguard the confidentiality
of any information subject to the terms of Section 6.
6.5 To the extent that United States Export Control Regulations are
applicable, Licensee shall not, without having first fully complied with such
regulations, (a) transfer any unpublished technical data obtained or to be
obtained from the other party hereto to a destination outside of the United
States, or (b) knowingly ship, directly or indirectly, any product produced
using such unpublished technical data to any destination outside the United
States.
6.6 Notwithstanding any contract provision of this Agreement, the
obligations of Licensee under this Section 6 shall survive the expiration or
earlier termination of all or any other part of this Agreement.
SECTION 7
INFRINGEMENT AND LITIGATION
7.1 Licensee shall notify Licensor, and Licensor shall notify
Licensee, promptly in writing of (i) any facts which may affect the validity,
scope or enforceability of a Licensed Patent or (ii) any infringement of a
Licensed Patent which becomes known to it. The parties shall cooperate with each
other in attempting to eliminate the infringement identified by Licensee or
Licensor. In the event of infringement by a third party of any Licensed Patents
<PAGE> 8
within a Licensee Field or any Non-exclusive Field which Licensee wishes to
prosecute, Licensee shall first make a written request to Licensor to resolve
such matter.
7.2 If within ninety (90) days after any such notice of any alleged
infringement or interference, Licensor has been unsuccessful in persuading the
alleged infringer to desist, Licensor shall have the primary right, but shall
not be obligated, to defend the Licensed Patents against infringement or
interference by other parties in any country in which a Licensed Patent is in
effect hereunder, including by bringing any legal action for infringement or
defending any counterclaim of invalidity or action of a third party for
declaratory judgment of non-infringement or interference. Licensor may, in such
suit, use the names of Licensor and Licensee as party plaintiffs. Licensor shall
be responsible for all costs and expenses of any enforcement activities,
including legal proceedings, against infringers which Licensor initiates.
Licensee agrees to join in and cooperate with any enforcement proceedings at
Licensor's request, and at Licensor's expense, provided that Licensee may be
represented by Licensee's counsel in any such legal proceedings, at Licensee's
own expense (subject to reimbursement under Section 7.5), acting in an advisory
but not controlling capacity. No settlement, consent judgment, or other final,
voluntary disposition of any suit brought by Licensor which waives any rights of
the Licensed Patents within a Licensee Field, or any Non-exclusive Field in
which the Licensee is Doing Business, may be entered into without the prior
written consent of Licensee, which consent shall not be unreasonably withheld.
Any recoveries in any action brought by Licensee under this Section 7.2 shall be
allocated as provided in Paragraph 7.5 hereof. Licensor shall have no legal or
contractual obligation to Licensee for its failure to initiate or participate in
any such legal action. In the event that a declaratory judgment action alleging
the invalidity or non-infringement of the Licensed Patents shall be brought or
raised against Licensee, Licensor shall have the right, but not the obligation,
to intervene and take over the sole defense of such action.
7.3 If within one hundred twenty (120) days of receipt by Licensor
of notification from Licensee of substantial infringement in the Licensee Field
or Non-exclusive Field, Licensor has not notified Licensee of its intent to
promptly commence an action to terminate the alleged infringement, then Licensee
may institute, in its own name, at its own expense, such litigation or other
appropriate action as it may deem necessary to terminate such infringement,
provided that Licensee has first given to Licensor thirty (30) days advance
notice of its intention to take such action and, provided further, that Licensor
has not itself taken appropriate action during such 30-day period, and provided
further that if Licensor reasonably believes that such litigation or action
would adversely affect Licensor's use of the Licensed Patent in a Non-exclusive
Field in which it is then Doing Business, or affects a Licensor Field, and
Licensor provides Licensee with its reasonable reason for such belief, then
Licensee shall not commence such litigation without Licensor's written consent.
Licensor shall be deemed to have consented to such action in the event that
Licensor fails to notify Licensee of whether it consents or not within such one
hundred twenty (120) days, specifying the reasons therefor. In addition,
Licensee may name Licensor as a party plaintiff as required by law.
<PAGE> 9
7.4 In the event that Licensee shall be prosecuting any alleged
infringer pursuant to Section 7.3, it shall employ counsel reasonably
satisfactory to Licensor and shall keep Licensor fully informed of all material
developments of such proceedings. Licensee shall be responsible for all costs
and expenses incurred by Licensee in any enforcement activities, including legal
proceedings, against infringers which Licensee initiates. Licensor agrees to
join in and cooperate with any enforcement proceedings at Licensee's request,
and at Licensee's expense, provided that Licensor may be represented by
Licensor's counsel in any such legal proceedings, at Licensor's own expense
(subject to reimbursement under Paragraph 7.5), acting in an advisory but not
controlling capacity. No settlement, consent judgment, or other final, voluntary
disposition of any suit brought by Licensee which waives any rights within the
Licensed Patents or outside of the Licensee Field may be entered into without
the prior written consent of Licensor. In the event that a declaratory judgment
action alleging the invalidity or non-infringement of the Licensed Patents shall
be brought or raised against Licensee, Licensor shall have the right, but not
the obligation, to intervene and take over the sole defense of such action as it
relates to the Licensed Patent. Any recoveries in any action brought by Licensee
under this Section 7.4 shall be allocated as provided in Paragraph 7.5 hereof.
7.5 All recoveries by way of royalties, damages and claims with
respect to infringement actions instituted in claims made (including penalties
and interest) (i) prosecuted by Licensor pursuant to Section 7.2, or (ii)
prosecuted by Licensee pursuant to Sections 7.3 and 7.4, shall be applied first
in satisfaction of any unreimbursed expenses (including attorneys' fees) of the
party controlling the litigation (which shall be Licensor under Section 7.2 and
Licensee under Section 7.3) and next to the other party to the extent of its
unreimbursed expenses incurred in its participation and/or cooperation. Any
remaining balance of damages shall be distributed (i) in the case of damages
respecting the Licensee Fields, ninety percent (90%) to Licensee and ten percent
(10%) to Licensor, (ii) in the case of damages respecting any Non-exclusive
Field in which neither Licensor nor Licensee is Doing Business, then fifty
percent (50%) to Licensor and fifty percent (50%) to Licensee, (iii) in the case
of damages respecting any Non-exclusive Field in which both Licensor and
Licensee are Doing Business, then in proportion to their respective net revenue
for the 12 month period preceding such payment from the Non-exclusive Field in
which they are doing business which is related to the damages, and (iv) in the
case of damages respecting any Non-exclusive Field in which only one (1) of
Licensor or Licensee is doing business, then ninety percent (90%) to the party
Doing Business in such Non-exclusive Field and ten percent (10%) to the other
party. Licensee shall have no interest in any recovery with respect to
infringement actions instituted, commenced and prosecuted by Licensor outside
the Licensee Fields or the Non-exclusive Fields.
SECTION 8
USE OF NAMES AND TRADEMARK
8.1 Names. Licensee shall not use the name of Licensor for any
purpose without prior written consent obtained from Licensor in each instance,
except for disclosures
<PAGE> 10
required by applicable securities and other laws and accounting requirements.
Licensee shall furnish Licensor copies of all such parts of private placement
and other offering material and documents which make reference to Licensor, in
order to provide Licensor a reasonable opportunity to review such parts for
accuracy of the information with respect to Licensor. Licensor will not use the
name of Licensee in any publicity, advertising or news release without the prior
written consent obtained from Licensee in each instance.
8.2 Trademarks.
(a) In order to comply with Licensor's quality control
standards, Licensee shall: (i) use its best efforts to maintain the quality of
the goods and/or services offered in connection with the Trademark; (ii) use the
Trademark only in a manner consistent with past uses of the Trademark by
Licensor; (iii) adhere to such other specific reasonable quality control
standards that Licensor may from time to time promulgate and communicate to
Licensee with respect to the Trademark; (iv) comply materially with all federal,
state and local laws and regulations, and, where applicable, foreign laws and
regulations, governing the use of the Trademark and the provision of the goods
and/or services; and (v) not alter or modify the Trademark in any way. At no
time during or after the term of this Agreement shall Licensee challenge or
assist others to challenge Licensor's rights in the Trademark or the
registration thereof or attempt to register or use any trademarks, service
marks, trade names, symbols logos and/or brand names which are confusingly
similar to the Trademark.
(b) In order to confirm that Licensee's use of the Trademark
complies with this Section, Licensor shall have the right to require that
Licensee submit to Licensor representative samples of any goods and/or services
or related materials bearing the Trademark; provided that if Licensor does not
object in writing within 30 days following delivery of such samples, Licensor
shall be deemed to have no objection to the use of the Trademark in such goods
and/or services or related materials in their then-existing form.
SECTION 9
TERMINATION
9.1 Licensor may terminate this Agreement following sixty (60) days
written notice to Licensee in the event Licensee breaches any of its essential
obligations hereunder by causes and reasons within its control and
responsibility which is not cured (if capable of being cured) within sixty (60)
days after receipt of a registered letter from Licensor, postage prepaid, return
receipt requested, requesting the correction of such breach; provided, however,
that, delay of up to sixty (60) days occasioned by any circumstances beyond the
control of Licensee, such as acts of God, acts or omissions of any government or
any agency thereof, compliance with requests, rules, regulations or order of any
governmental authority, fire, storm, floods, earthquake, acts of enemy, war,
rebellion, insurrection, riot, sabotage, invasion, strike, lockout,
<PAGE> 11
and transportation embargoes or failure or delays in transportation, shall be
excluded in determining the applicable time period, but due diligence shall be
used by Licensee in curing any such breach; and, provided further that any
breach resulting from any act caused in whole or in meaningful part by Licensor
shall not be considered a breach hereunder.
9.2 Licensee shall be entitled to terminate this Agreement upon
sixty (60) days advance written notice to Licensor, in the event of Licensor's
material breach of any of the provisions of this Agreement, which breach is not
cured (if capable of being cured) within the sixty (60) day period set by the
notice.
9.3 Upon termination of this Agreement and except as otherwise
expressly provided herein, all licenses granted to Licensee under the terms of
this Agreement and any sublicenses granted by Licensee to Affiliates shall
terminate and Licensee must return to Licensor or destroy all materials
containing the Invention; provided, however, that if the Agreement is terminated
for other than Licensee's breach, Licensee shall have the right for one year
thereafter to dispose of all Licensed Products then in its inventory in object
code form. Notwithstanding anything herein contained to the contrary, in the
event of termination of this Agreement, each sublicensee may continue its
license directly from Licensor if it is not in breach of its sublicense and
thereafter all royalties and other amounts payable thereunder, to the extent
based on or measured by sales, income or profit from Licensed Products, shall be
paid directly to Licensor, which shall have no obligation to Licensee with
respect thereto.
9.4 The rights provided in this Section 9 shall be in addition and
without prejudice to any other rights which the parties may have with respect to
any breach or violations of the provisions of this Agreement.
9.5 Waiver by either party of a single default or breach or of a
succession of defaults or breaches shall not deprive such party of any right to
terminate this Agreement pursuant to the terms hereof upon the occasion of any
subsequent default or breach.
9.6 In the event that any further lawful performance of this
Agreement or any part hereof (other than the payment of money) by any party
shall be rendered impossible or impractical by or as a consequence of any law,
regulation, order, rule, direction, priority, seizure, allocation, requisition
or any other official action by any department, bureau, board, administration,
instrumentality, agency of any government or political subdivision thereof
having jurisdiction over such party, such party shall not be considered in
default hereunder by reason of any failure to perform occasioned thereby, unless
the party caused either directly or indirectly such action.
SECTION 10
WARRANTIES
10.1 Licensor makes no representations or warranties that any
Licensed Patent
<PAGE> 12
or the Trademark is valid or that the manufacture, use, sale or other disposal
of the Licensed Products or use of the Trademark do not infringe upon any
patent, trademark or other rights not vested in Licensor. However, Licensor does
hereby represent and warrant that it is not a party to or bound by any oral or
written contract or understanding relating to or which might interfere with the
full exploitation of any rights or property being granted to Licensee under this
Agreement or which restricts its right to enter into this Agreement or to
perform in accordance therewith.
10.2 Licensor disclaims all warranties whatsoever, with respect to
the Licensed Patents, the Invention, the Trademark and the Licensed Products,
either express or implied, including warranties as to the merchantability or
fitness of the Licensed Products for a particular purpose and Licensee shall
make no statements, representations or warranties whatsoever to any third
parties which are inconsistent with such disclaimer by Licensor.
SECTION 11
NOTICES
Except as otherwise specified herein, any notice required by this
Agreement shall be delivered in person or sent by Registered or Certified U.S.
Mail, return receipt requested and shall be deemed delivered if sent to the
following addresses of the respective parties or such other address as is
furnished by proper notice to the other party:
Licensor: Licensee:
Molloy Group, Inc., Bruce Molloy
c/o ServiceWare, Inc. 15 Brook Hollow Drive
333 Allegheny Avenue Gladstone, NJ 07934
Oakmont, PA 15139
SECTION 12
LAWS AND REGULATIONS
Licensee shall comply with all foreign and United States federal,
state, and local laws, regulations, rules and orders applicable to the testing,
production, transportation, packaging, labeling, export, sale and use of the
Licensed Products. In particular, Licensee shall be responsible for assuring
compliance with all U.S. export laws and regulations applicable to this license
and Licensee's activities hereunder.
SECTION 13
<PAGE> 13
MISCELLANEOUS
13.1 Any delays in or failure by either party in performance of any
obligations hereunder shall be excused if an to the extent caused by such
occurrences beyond such party's reasonable control, including but not limited to
such occurrences as acts of God, strikes or other labor disturbances, war,
actions or inaction of any federal or state agency whose approval is required,
and other causes which cannot reasonably be controlled by the party who failed
to perform.
13.2 This Agreement may not be amended except by written agreement
signed by both of the parties, and shall not be assigned by Licensee except upon
the advance written consent of Licensor (which consent shall be granted or
withheld in Licensor's sole discretion). Notwithstanding the foregoing, Licensee
may, without the consent of Licensor, assign its rights, but not its duties or
obligations hereunder, to an Affiliate of Licensee, successor in interest or any
company or group of companies in which Licensee shall have an equity interest.
This Agreement constitutes the entire agreement of the parties relating to the
subject matter hereof, and all prior representations and understandings are
merged into and superseded hereby. A successor in interest shall include any
person, firm or other entity that purchases all or substantially all of the
operating assets of the company in question or into which such company merges or
consolidates.
13.3 This Agreement shall be governed by and in accordance with the
laws of the Commonwealth of Pennsylvania except where the federal laws of the
United States are applicable and have precedence. The parties hereto agree that
they shall use their best efforts to settle amicably any disputes, differences
or controversies arising between them out of or in connection with this
Agreement or the breach thereof. However, any such disputes, differences or
controversies, if not settled within ninety (90) days after occurrence thereof,
shall be finally settled by arbitration, conducted in accordance with the rules
of the American Arbitration Association. Unless the parties otherwise agree,
arbitration initiated by Licensee shall be held in the Commonwealth of
Pennsylvania, and arbitration initiated by Licensor shall be held in the State
of New Jersey or New York. Judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be. Notwithstanding anything to the contrary in this Section 13.3, either party
may seek injunctive relief from a court of competent jurisdiction to protect its
intellectual property rights or for a breach of the other party's obligations of
confidentiality set forth in Section 6.
13.4 The provisions of this Agreement shall be deemed separable. If
any part of this Agreement is rendered void, invalid, or unenforceable, such
shall not affect the validity or enforceability of the remainder of this
Agreement unless the part or parts which are void, invalid or unenforceable
shall substantially impair the value of the entire Agreement as to either party.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate originals by their duly authorized representatives.
MOLLOY GROUP, INC.
By:____________________________ ____________________________
Name:__________________________ Bruce Molloy
Title:_________________________
Acknowledged and Agreed,
SERVICEWARE, INC.
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 15
Schedule 1.7
Fields
<PAGE> 16
ASSIGNMENT
This Assignment is made as of July 23 1999, by and between BRUCE MOLLOY, an
individual residing at 15 Brook Hollow Drive, Gladstone, New Jersey 07934
("Assignor"), and MOLLOY GROUP, INC., a corporation duly organized and existing
under the laws of the State of New Jersey, ("Assignee").
WHEREAS, Assignor is the sole owner of the issued patent listed in Exhibit A
("Patent") attached hereto, the Trademarks set forth in Exhibit B (and the
goodwill associated therewith), and the Technology (as such term is defined in
Section 5) (collectively, the "Intellectual Property"); and
WHEREAS, Assignor owns a substantial portion of the capital stock of Assignee;
and
WHEREAS, Assignor presently licenses the Intellectual Property to Assignee
pursuant to an Exclusive License Agreement dated as of September 24, 1996
("License Agreement"); and
WHEREAS, Assignee is merging with a third party, contemporaneously herewith,
which merger shall be of benefit to Assignor; and
WHEREAS, it is a condition to the third party closing such transaction that the
Assignee owns all right, title and interest to the Intellectual Property; and
WHEREAS, Assignor desires to assign to Assignee, and Assignee desires to
receive, the entire right, title and interest in and to the Intellectual
Property.
NOW THEREFORE, in consideration of good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, and intending to be legally
bound, the parties agree as follows:
1. Assignor does hereby sell, assign, and transfer to Assignee, its lawful
successors and assigns, the entire right, title and interest in and to, subject
to the rights previously granted by the Assignee, (i) the United States patent
described in the attached Exhibit A (hereby incorporated by reference as if
fully set forth herein), together with the inventions described therein, and any
extensions, reissues, substitutes, divisions, renewals, continuations, and
continuations-in-part thereof, the same to be held by Assignee for its own use
and enjoyment, and for the use and enjoyment of its successors, assigns or other
legal representatives, to the end of the term of such patents, and (ii) the
Trademarks (and goodwill associated therewith), and the Technology, as fully and
entirely as the same would have been held and enjoyed by Assignor, if this
assignment had not been made; together with the right to apply for foreign
patents or other forms of protection, and all claims for damages by reason of
past infringement or misappropriation of any
<PAGE> 17
Intellectual Property and the right to sue for, and collect the same for, its
own use and benefit and for the use and benefit of its successors, assigns or
other legal representatives.
2. Assignor hereby authorizes the Commissioner of Patents and Trademarks of the
United States of America and the empowered officials of all other governments to
issue any and all patents on such inventions or resulting from such
applications, or any divisions thereof, to Assignee as assignee thereof.
3. Assignor hereby covenants that he has full right to convey the entire
interest herein assigned, that he has not executed any agreements in
contravention of this Assignment or which grants any other party with any rights
in any of the Intellectual Property, except pursuant to the License Agreement,
and that he will execute all documents, and take all actions, that may be
necessary to confirm this Assignment.
4. The parties hereby agree that the License Agreement shall be terminated as of
the date first written above.
5. "Technology" shall mean all designs, drawings, technical information and
materials, know-how, knowledge and other intellectual property, data,
specifications, test results, laboratory notebooks, marketing material and other
information (i) relating to the Patent or to any software, composition, process
or method the use of which, if not licensed, would infringe in the country in
which the process or product is made, used or sold upon rights in or to the
Patent, including, without limitation, the software products known and/or
marketed as set forth in Exhibit C hereto, in object and source code form, and
in all versions and releases thereof, developed, licensed or otherwise marketed
by Assignor, and (ii) developed or acquired by the Assignor on or before the
date of this Agreement, and (iii) owned or controlled by Assignor on the date of
this Agreement. Technology also includes all copyrights and registrations
thereof, if any, in any copyrightable materials relating to Technology which are
created by Assignor and owned or controlled by Assignor.
6. The Assignment granted herein shall be contingent upon the contemporaneous
execution of a new license agreement whereby Assignee shall grant a limited
license to Assignor for the use, sale, practice, commercialization and
exploitation of the Patent.
IN WITNESS WHEREOF, Assignor has caused this instrument to be executed as of the
date first set forth above.
__________________________________
Bruce Molloy
<PAGE> 18
State of )
) ss
County of )
On this ____ day of July, 1999, before me personally appeared
__________________, to me known and known to me to be the same person described
in and who executed the foregoing instrument and duly acknowledged to me that he
is Bruce Molloy, the individual described in, and who executed the foregoing
instrument, and that he executed such instrument for the purpose expressed.
________________________________
Notary Public
My Commission Expires: _____________________
<PAGE> 19
EXHIBIT A
<TABLE>
<CAPTION>
Patent No./Patent Application No. Country Issue Date/Filing Date
- --------------------------------- ------- ----------------------
<S> <C> <C>
5,787,234 United States July 28, 1998
</TABLE>
<PAGE> 20
EXHIBIT B
Trademark Trademark Number
- --------- ----------------
1. COGNITIVE PROCESSOR 1,919,047
2. TOP OF MIND 1,671,620
<PAGE> 21
EXHIBIT C
Top of Mind
Knowledge Bridge
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