<PAGE>
As filed with the Securities and Exchange Commission on February 25, 1999
Registration No. 333-62985
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
To
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
PCORDER.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
----------------
Delaware 5734 74-2720849
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)
----------------
5000 Plaza on the Lake
Austin, TX 78746
(512) 684-1100
(Address and telephone number of principal executive offices and principal
place of business)
----------------
James J. Luttenbacher
Chief Financial Officer
5000 Plaza on the Lake
Austin, TX 78746
(512) 684-1100
(Name, Address, and Telephone Number of Agent for Service)
----------------
Copies to:
WILLIAM D. SHERMAN DONALD M. KELLER, JR.
DAVID C. WILSON GLEN R. VAN LIGTEN
JUSTIN L. BASTIAN MITCHELL S. ZUKLIE
ROCHELLE A. KRAUSE VIVIAN P. MORRIS
Morrison & Foerster LLP Venture Law Group
755 Page Mill Road A Professional Corporation
Palo Alto, CA 94304 2800 Sand Hill Road
Menlo Park, CA 94025
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this 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, please 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,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $.01 par value..... $53,130,000 $15,674
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Of this amount, $10,325 was paid with the initial filing of this
Registration Statement.
----------------
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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1999.
2,200,000 Shares
pcOrder.com, Inc.
[pcOrder.com, Inc. LOGO]
Class A Common Stock
(par value $0.01 per share)
-----------
All of the 2,200,000 shares of Class A Common Stock offered hereby are being
sold by pcOrder.com, Inc. ("pcOrder" or the "Company"). Prior to this offering,
there has been no public market for the Class A Common Stock of the Company. It
is currently estimated that the initial public offering price per share will be
between $19.00 and $21.00. For factors to be considered in determining the
initial public offering price, see "Underwriting".
The underwriters intend to make available up to 200,000 shares of Class A
Common Stock for sale at the initial public offering price to employees of the
Company and certain other purchasers.
See "Risk Factors" beginning on page 8 for certain considerations relevant to
an investment in the Class A Common Stock.
Application has been made for quotation of the Class A Common Stock on the
Nasdaq National Market under the symbol "PCOR".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price Discount(1) Company(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total(3)................................ $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $1,200,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 330,000 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments, if
any. If such option is exercised in full, the total initial public offering
price, underwriting discount and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1999, against payment therefor in immediately available
funds.
Goldman, Sachs & Co.
Credit Suisse First Boston
SG Cowen
-----------
The date of this Prospectus is , 1999.
<PAGE>
Inside Front Cover
Heading: Company logo
Subheading:"Moving the Computer Industry to the Web".
Graphic: Graphic illustrating computers connecting manufacturers,
distributors, corporate buyers and resellers/retailers.
Centered heading of Graphic: "powered by pcOrder.Com"
Graphic subheading: "pcOrder Is a Leading Provider of Internet-Based E-
Commerce Solutions that Enable the Computer Industry's Suppliers, Resellers
and End-Users to Buy and Sell Computer Products Online".
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
Gatefold
Heading: "pcOrder.com Moving the Computer Industry to the Web"
Subheadings: "Software-Content-Community"
Software Graphic: Computer Screen illustrating product searches
Software Graphic Subheading: "Comprehensive E-Commerce
Software Solutions"
Software Graphic Text: "pcOrder's applications are designed
to allow computer industry participants to automate product
searches, comparisons, configurations, pricing, financing
and ordering. The Company believes that the flexibility of
pcOrder's applications enables computer industry companies
to build innovative e-commerce strategies."
Content Graphic: Computer screen illustrating utilization of pcOrder's content
database
Content Graphic Subheading: "Extensive Database of Computer
Product Information"
Content Graphic Text: "pcOrder's content database aggregates
product pricing and availability data for more than 600,000
product SKUs from over 1,000 manufacturers, including
compatibility and technical information. This standardized
data makes it easy to buy and sell customized computer
products online.
Community Graphic: Illustration of computers moving on a conveyor belt from
manufacturer to retail outlet. Includes Company logo
Community Graphic Subheading: "E-Commerce Community"
Community Graphic Text: "pcOrder's e-commerce solutions are
designed to connect the entire computer industry supply
chain, increasing efficiency and enabling new business
models. The Company believes that the value of the e-
commerce network grows with each computer industry member
linked to pcOrder's solution."
Graphic: Graphic illustrating computers connecting manufacturers,
distributors, corporate buyers and resellers/retailers.
Centered heading of Graphic: "powered by pcOrder.com."
Text: "pcOrder's E-commerce Solutions are Designed to Enable:
* Online Ordering and Sales
* Build to Order and Channel Assembly Strategies
* Efficient Inventory Management
* Industry Data Standardization
Heading: "Adoption by Market Leaders"
Logos of the following customers: CompUSA Inc., Hewlett-
Packard Company, Kingston Technology Corporation, CompuCom
Systems, Inc., Pinacor, Inc., GE Capital Corp., Nortel
Networks Inc., Tech Data Corporation, MicroAge Integration
Company, CMP Publications Inc., Comark Inc., PC Wholesale
and Ingram Micro Inc.
Text: "Other customers include Compaq Computer Corporation, IBM
Corporation, MCI Systemhouse Corporation and General
Electric Capital Information Technology Services."
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and the Financial Statements and
Notes thereto appearing elsewhere in this Prospectus, including information
under "Risk Factors". Except as otherwise noted, all information in this
Prospectus, including share and per share information, assumes no exercise of
the Underwriters' over-allotment option and assumes the reclassification of all
outstanding shares of Common Stock held by Trilogy into Class B Common Stock
and all other shares of Common Stock issued and outstanding or issuable
pursuant to previously granted options into Class A Common Stock, which became
effective on February 2, 1999. See "Description of Capital Stock" and
"Underwriting". As used herein, "Trilogy" refers to Trilogy Software, Inc. and
its predecessor entities, including Trilogy Development Group, Inc.
The Company
pcOrder is a leading provider of Internet-based electronic commerce solutions
that enable the computer industry's suppliers, resellers and end users to buy
and sell computer products online. The Company's solutions are designed to
increase the efficiency and effectiveness of the sales, marketing and
distribution of computer products and to enable members of the industry to take
advantage of the increasing adoption of e-commerce. Forrester Research
estimates that the business-to-business e-commerce market will grow from $43
billion in 1998 to $1.3 trillion by 2003. In addition, Forrester believes that
computer products (including wholesale and retail equipment, software,
semiconductors and manufacturing) is the largest and fastest growing segment,
by revenue, in business-to-business e-commerce.
The Company's comprehensive offering consists of software applications and
content databases which enable industry participants to buy and sell computer
products online by increasing the automation of product search, comparison,
configuration, pricing, financing, ordering and reseller selection. The Company
believes that it is uniquely positioned to deliver these solutions through its:
(i) ability to offer a broad set of advanced front-office and e-commerce
software applications, including configuration and pricing; (ii) position as a
leading content provider of computer product and compatibility information; and
(iii) experience in delivering industry-specific functionality and integrations
into business systems of computer industry participants.
The Company's solutions have been adopted by market leaders including Compaq
Computer Corporation, CompuCom Systems, Inc., CompUSA Inc., CMP Publications
Inc., GE Capital Corp., Hewlett-Packard Company, Ingram Micro Inc.,
International Business Machines Corporation, Kingston Technology Corporation,
Nortel Networks Inc., MCI Systemhouse Corp., MicroAge Integration Company, PC
Wholesale, Pinacor, Inc. and Tech Data Corporation. In 1998, over $3 billion of
quotes for computer products had been generated using the Company's solutions,
representing use by more than 3,500 sales representatives from over 500
resellers. Since 1996, the Company's revenues have grown from $5.9 million to
$21.7 million in 1998.
The Internet and Internet-related technologies are revolutionizing the way
businesses and consumers communicate, share information and conduct business.
Businesses are increasingly replacing paper-based transactions and
communications with e-commere solutions in an effort to reduce costs, decrease
inventories and shorten time-to-market. The Company believes that the computer
industry is particularly well-suited to the use of Internet-enabled e-commerce
solutions due to the large size and fragmented nature of the industry, its high
costs of sales and distribution, and its propensity to embrace technology for
automating processes. In addition, rapid technological change
3
<PAGE>
has resulted in the continuing decline of component prices and shorter life
cycles of computer products. Such pressures have heightened the importance for
industry participants to employ build-to-order and configure-to-order models in
order to reduce inventories, improve the ability to gauge and meet changing
customer demands, and shorten time-to-market by enabling just-in-time component
acquisition. The Company believes that a key capability required to address
these needs is real-time access to information, providing seamless
configuration and pricing at the point-of-sale.
The Company believes that there is a significant need for an independent,
industry-wide solution to enable the buying and selling of computer products
online. The Company leverages Internet technologies to provide comprehensive e-
commerce solutions designed to increase sales and marketing productivity, meet
end-user demand for online ordering, reduce costs and shorten order fulfillment
cycles for industry participants. The Company's solutions include software
applications that are designed to increase the automation of product search,
comparison, configuration, pricing, financing and ordering, combined with what
the Company believes is the industry's largest content database consisting of
detailed product, categorization, compatibility, pricing and availability
information on more than 600,000 active product SKUs from over 1,000
manufacturers.
The Company is a party to a technology license agreement with its parent
company, Trilogy, which provides pcOrder with the ability to leverage Trilogy's
front-office and e-commerce software applications, including one of the
industry's leading configuration and pricing engines. The Company has extended
these applications to support the specific configuration and pricing rules of
the computer industry in order to help industry sales representatives and end
users quickly and accurately build custom-configured systems across multiple
vendors.
In addition to its development of software applications and content
databases, the Company has integrated its software with the systems of leading
industry suppliers for such functions as order placement, pricing, inventory
and order status queries, financing and credit approval. Through these
integrations, pcOrder's customers can establish or enhance electronic links
with their business partners. Furthermore, the Company provides software
integration, customization, training and Web hosting services designed to
ensure the successful deployment of its solutions.
The Company believes that its position as an independent third-party
provider, combined with its industry focus and experience, has enabled it to
build product functionality, content and supplier integrations that address the
diverse requirements of manufacturers, distributors, resellers, retailers,
other industry participants and end users, including corporate buyers and
consumers. Accordingly, the Company believes that it is able to offer more
cost-effective and rapid time-to-market solutions for e-commerce than the
proprietary development efforts of industry participants. To the extent that
the Company continues to develop and enhance its software applications, content
databases and supplier integrations, pcOrder believes that the incentive for
companies to outsource these e-commerce services to the Company will increase.
Strategy
The Company's objective is to be the leading e-commerce technology and
content provider to the computer industry. The key elements of the Company's
strategy are as follows:
. Leverage Internet technologies to provide communication capability and
support complex transactions across a range of computer industry
participants;
. Broaden adoption of the Company's e-commerce solutions through
relationships with computer industry market leaders;
. Extend the Company's position as an industry-leading source of product
information;
4
<PAGE>
. Leverage the Company's position as an independent third-party solutions
provider to achieve broad market adoption; and
. Expand software applications functionality to increase automation of the
sales, marketing, and channel management functions of the industry.
Relationship with Trilogy
The Company was established as a separate business unit within Trilogy, its
parent corporation, on July 1, 1993, and was incorporated under the laws of
Delaware on July 18, 1994. The Company believes Trilogy is a leading provider
of sales, marketing and business-to-business e-commerce applications. Trilogy's
software solutions are designed to integrate each function in a company's sales
and marketing operation, including pricing management, product management,
sales, commissions, promotions, contract management and channel management. In
addition, Trilogy's software solutions are designed to enable companies to
engage in e-commerce as well as improve channel management processes. The
Company has customized the technology it licenses from Trilogy to create
solutions targeted at the computer industry. In addition, pcOrder's solutions
provide customers with configuration logic that is used to configure systems,
and provide customers with pricing and availability information on over 600,000
product SKUs from over 1,000 manufacturers.
The Company has a non-exclusive, worldwide, royalty-bearing license to
certain of Trilogy's front office automation software. The Company and Trilogy
have entered into a Technology, Services and License Agreement, a Management
Services Agreement and a Tax Allocation Agreement (the "Inter-Company
Agreements") which define the ongoing relationship between the two companies.
The Company believes that Trilogy does not currently compete directly with the
Company. However, Trilogy may in the future compete directly or indirectly with
the Company. For a description of the terms of the Inter-Company Agreements,
see "Relationship with Trilogy".
Following this offering, Trilogy will own 12,757,000 shares of Class B Common
Stock of the Company, representing approximately 84.0% of the outstanding
Common Stock of the Company (approximately 82.3% if the Underwriters' over-
allotment option is exercised in full) and approximately 97.7% of the total
voting power of the Common Stock. Trilogy has informed the Company that it does
not intend to sell any of its shares in the near future. However, other than an
agreement not to sell any shares for 180 days after the date of this Prospectus
without the prior consent of Goldman, Sachs & Co., Trilogy is not contractually
restricted from selling such shares.
The Company's principal executive offices are located at 5000 Plaza on the
Lake, Austin, Texas 78746. Its telephone number at that location is (512) 684-
1100.
pcOrder(R), pcOrder.com(R), pcOrder Labs(TM), CommerceStation(TM), VIPER(TM),
Channel Assembly Module(TM), Web Storefront(TM), Sales Desktop(TM), Customer
Desktop(TM), TechBuyer(TM), TechBuyer Customer Desktop(TM) and "Moving the
Computer Industry to the Web"(TM) are registered and unregistered trademarks,
service marks and trade names of the Company. This Prospectus also contains
trademarks, service marks and trade names other than those identified in this
paragraph, all of which are the property of their respective holders.
Information contained in the Company's Web site does not constitute a part of
this Prospectus.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A Common Stock offered
by the Company.............. 2,200,000 shares
Common Stock to be
outstanding after this
offering:
Class A Common Stock........ 2,391,602 shares(1)
Class B Common Stock........ 12,757,000 shares
Total Common Stock.......... 15,148,602 shares(1)
Relative rights of Class A
Common Stock and Class B The Class A Common Stock and Class B Common
Common Stock................ Stock have substantially identical rights other
than with respect to voting, conversion and
transfer. Except as otherwise required by the
Company's Certificate of Incorporation or
applicable law, the Class B Common Stock
entitles its holders to eight votes per share
while the Class A Common Stock entitles its
holders to one vote per share on all matters
submitted to a vote or for the consent of
stockholders. Except as otherwise required by
the Company's Certificate of Incorporation or
applicable law, the Class A Common Stock and
Class B Common Stock will vote together as a
single class on all matters submitted to a vote
or for the consent of stockholders. As of the
date of this Prospectus, Trilogy holds all of
the Company's outstanding shares of Class B
Common Stock. Prior to a distribution described
in Section 355 of the Internal Revenue Code by
Trilogy of its shares of Class B Common Stock (a
"tax free spin-off"), the shares of Class B
Common Stock are convertible at any time at the
option of the holder into shares of Class A
Common Stock on a one-for-one basis. Prior to a
tax free spin-off, each outstanding share of
Class B Common Stock will automatically be
converted into one share of Class A Common Stock
upon any transfer of such share, if after the
transfer such share is not owned by Trilogy,
Trilogy, Inc. (Trilogy's parent), an affiliate
of Trilogy, Inc. or a non-affiliate of Trilogy,
Inc. which acquires more than 50% of the then
outstanding Class B Common Stock in a single
transaction. Upon a transfer of more than 50% of
the then outstanding Class B Common Stock held
by Trilogy to a non-affiliate in a single
transaction, any remaining shares of Class B
Common Stock held by Trilogy, Trilogy, Inc. or
an affiliate of Trilogy, Inc., shall
automatically be converted into an equal number
of shares of Class A Common Stock. In addition,
subject to certain conditions, each outstanding
share of Class B Common Stock will automatically
be converted into one share of Class A Common
Stock upon the fifth anniversary of the first
transfer of Class B Common Stock in a tax free
spin-off. However, after the tax free spin-off
and prior to such fifth anniversary, shares of
Class B Common Stock will not be convertible
into shares of Class A Common Stock, with the
exception of any shares of Class B Common Stock
held by Trilogy, Trilogy, Inc. or an affiliate
of Trilogy, Inc., which shares shall
automatically convert into an equal number of
shares of Class A Common Stock upon the tax free
spin-off. See "Description of Capital Stock".
Controlling stockholders..... Prior to this offering Trilogy owns 12,757,000
shares of Class B Common Stock or 98.3% of the
total outstanding Common Stock, representing
approximately 99.8% of the total voting power of
the Common Stock. After this offering, Trilogy's
ownership of the Class B Common Stock will
represent approximately 84.0% of the total
outstanding Common Stock and approximately 97.7%
of the total voting power of the Common Stock.
See "Risk Factors--Control by and Relationship
with Trilogy", "--Risks Associated with
Dependence on Trilogy; Limited Independent
Operating History; Potential Conflicts of
Interest", "--Possible Future Sales of Common
Stock by Trilogy" and "Principal Stockholders".
Use of proceeds.............. For general corporate purposes, including
capital expenditures and working capital. See
"Use of Proceeds".
Proposed Nasdaq National
Market symbol............... "PCOR"
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1998. Excludes
(i) 3,207,074 shares of Class A Common Stock issuable upon the exercise of
outstanding stock options under the Company's 1996 Stock Option Plan (the
"1996 Option Plan") at a weighted average exercise price of $4.00 per share
and (ii) an additional 144,324 shares of Class A Common Stock reserved for
future grant under the 1996 Option Plan. Also excludes the right under the
terms of an applications subscription agreement to require the Company to
grant to a customer an option to purchase up to 320,000 shares of Class A
Common Stock if one of specified certain events occurs, including an
initial public offering. As of December 31, 1998, no specified event had
occurred and the option was not outstanding. See "Management--1996 Stock
Option Plan", "--Agreement Regarding Grant of Options" and Note 8 of Notes
to Financial Statements.
6
<PAGE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
Statement of Operations Data: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software and subscriptions...... $ -- $ 1,836 $ 3,633 $ 6,475 $ 12,651
Content and services............ 515 1,887 2,249 4,114 9,063
-------- -------- -------- -------- --------
Total revenues................ 515 3,723 5,882 10,589 21,714
-------- -------- -------- -------- --------
Cost of revenues:
Software and subscriptions...... 148 818 822 1,023 3,242
Content and services............ 390 953 1,112 2,553 7,068
-------- -------- -------- -------- --------
Total cost of revenues........ 538 1,771 1,934 3,576 10,310
-------- -------- -------- -------- --------
Gross profit (loss).............. (23) 1,952 3,948 7,013 11,404
Operating expenses:
Research and development........ 106 660 1,168 1,129 4,292
Selling and marketing........... 72 577 2,555 4,793 12,151
General and administrative...... -- 116 726 1,792 3,689
Amortization of deferred stock
and stock compensation expense. -- -- -- -- 1,468
-------- -------- -------- -------- --------
Total operating expenses...... 178 1,353 4,449 7,714 21,600
-------- -------- -------- -------- --------
Operating income (loss).......... (201) 599 (501) (701) (10,196)
Interest income.................. -- -- -- -- 172
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................... (201) 599 (501) (701) (10,024)
Income tax provision
(benefit)(1).................... (68) 207 (191) 427 (386)
-------- -------- -------- -------- --------
Net income (loss)(1)............. $ (133) $ 392 $ (310) $ (1,128) $ (9,638)
======== ======== ======== ======== ========
Basic and diluted net income
(loss) per share(1)............. $ (0.10) $ 0.03 $ (0.02) $ (0.09) $ (0.75)
======== ======== ======== ======== ========
Weighted average shares
outstanding..................... 1,280 12,800 12,800 12,800 12,861
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------
Actual As Adjusted(2)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 4,726 $44,862
Working capital (deficit)(3)............................ (9,045) 31,340
Total assets............................................ 12,254 51,725
Stockholders' equity (deficit).......................... (8,545) 31,175
</TABLE>
- --------
(1) The unaudited pro forma income tax benefit, unaudited pro forma net loss
and unaudited pro forma basic and diluted net loss per share for the year
ended December 31, 1998 computed as if the Company filed a separate income
tax return is $292,000, $9,732,000 and $.76 per share, respectively.
(2) Adjusted to give effect to the receipt by the Company of the net proceeds
from the sale of the 2,200,000 shares of Class A Common Stock offered by
the Company hereby at an assumed initial public offering price of $20.00
per share. See "Use of Proceeds" and "Capitalization".
(3) Working capital (deficit) at December 31, 1998 includes the effect of
deferred revenue of $10,428,000.
Risk of Reliance on Recent Publicity
The November 30, 1998 issue of Forbes magazine contains an article regarding
the Company. The Forbes article included statements resulting directly or
indirectly from interviews with Ross Cooley and Christina Jones, the Company's
Chief Executive Officer and President, respectively, with representatives of
Forbes magazine. The statements in the Forbes article were not intended to be
relied upon by potential investors in making an investment decision to purchase
the Class A Common Stock offered hereby. Furthermore, the Company disclaims all
the information contained in the Forbes article for purposes of this offering,
and prospective investors should not rely on such information or any other
information not contained in this Prospectus in making an investment decision
to purchase the Class A Common Stock offered hereby. For a more detailed
discussion of the Forbes article, see "Risk Factors--Risk of Reliance on Recent
Publicity".
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Class A Common Stock offered hereby should carefully
consider the following factors in evaluating the Company and its business.
This Prospectus contains certain forward-looking statements. These statements
involve risks and uncertainties, and actual results could differ materially
from the results discussed in the forward-looking statements as a result of
certain of the risk factors set forth below and for the reasons described
elsewhere in this Prospectus. All forward-looking statements and reasons why
results may differ included in this Prospectus are made as of the date hereof,
and the Company assumes no obligation to update any such forward-looking
statement or reasons why actual results might differ.
Limited Operating History; History of Losses and Anticipated Continuing
Operating Losses
The Company was established as a separate business unit within Trilogy on
July 1, 1993, was incorporated on July 18, 1994 and began to recognize revenue
in April 1994. A majority of the Company's significant customers entered into
their agreements with the Company only since the third quarter of 1997.
Accordingly, the Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based and is subject to all
of the risks inherent in the establishment of a new business enterprise. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such
as the markets addressed by the Company. To address these risks, the Company
must, among other things, manage its growth, significantly expand its sales
and marketing organization, successfully develop new products and product
enhancements, achieve market acceptance of its products and services and
respond to competitive developments. There can be no assurance that the
Company will be successful in addressing these risks, that the Company's past
revenue growth will continue in the future or that the Company will achieve
profitability in the future or, if achieved, that the Company will maintain
profitability on a quarterly or annual basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Except for a small operating profit in 1995, the Company has incurred annual
losses from operations since its inception on July 1, 1993, and the Company
expects to continue to incur losses from operations on both a quarterly and an
annual basis for the foreseeable future. At December 31, 1998, the Company had
an accumulated deficit of $11.0 million. The Company believes that its future
profitability and success, if any, will depend in large part on, among other
things, its ability to maintain and expand relationships with computer
products manufacturers, distributors, resellers, retailers, other industry
participants and end-users, including corporate buyers and consumers, and its
ability to successfully enter into new relationships with such participants.
To date, the Company has achieved only limited penetration of its current
customers. A key element of the Company's strategy is to increase its
penetration of existing customer accounts through the sale of its products and
services that offer greater functionality and have higher revenue potential.
In order to implement this strategy, the Company intends to significantly
expand its sales and marketing organization, which will require substantial
financial, personnel and management expenditures. In the event that these or
other initiatives undertaken by the Company do not result in significantly
increased revenues, the Company's business, financial condition and results of
operations would be materially and adversely affected. The Company's business
is still in an emerging stage, and revenue and income potential from the
Company's business is unproven, making an evaluation of the Company and its
prospects difficult. There can be no assurance that the Company's revenues
will increase or even continue at their current levels or that the Company
will achieve or maintain profitability or generate cash from operations in
future periods. See "--Significant Fluctuations in Future Operating Results",
"--Risks Associated with Emerging Market for E-Commerce; Unproven Business
Model" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
8
<PAGE>
Significant Fluctuations in Future Operating Results
The Company's revenues and operating results have in the past fluctuated
significantly and are expected to fluctuate significantly in the future due to
a combination of factors, many of which are outside of the Company's control.
Factors that may materially and adversely affect the Company's future revenues
and operating results include, but are not limited to, the Company's ability
to significantly expand its sales and marketing organization, the Company's
ability to successfully develop new and enhanced products, the Company's
ability to manage its growth, the level of demand for the Company's products,
the timing and amount of license payments from the Company's customers, the
Company's ability to retain existing customers and increase sales to such
customers, the timing and volume of new orders and the Company's capacity to
fulfill such orders, the Company's ability to maintain or increase current
rates of sales productivity, the level of product and price competition, the
announcement or introduction of new or enhanced products and services by the
Company or its competitors, the Company's ability to upgrade and develop its
internal control systems, the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business and sales and
marketing infrastructure, downtime of the Company's systems or Internet
capacity or reliability problems, risks associated with the Company's
relationship with Trilogy, the Company's ability to attract and retain key
technical, sales and managerial personnel, the growth in the use and
acceptance of, and activity on, the Internet, World Wide Web ("Web") and
Internet-related technologies, particularly by corporate, institutional and
government users for the purchase of computer products, the extent to which
unauthorized access and use of online information is perceived as a threat to
network security, customer budgets, seasonal trends in customer purchasing and
general economic conditions. In response to competitive pressures or new
product introductions, the Company may take certain pricing or marketing
actions that could materially and adversely affect the Company's operating
results. In addition, the timing and amount of revenues associated with
particular sales can vary significantly based upon (i) the number of products
that are accessed and the number of authorized users, and (ii) whether the
fees are perpetual or subscription-based. The Company has in the past
recognized, and may in the future be required to recognize, a significant
portion of revenue derived from license agreements with its customers in a
single fiscal quarter, which can cause significant variations in quarterly
revenues. Moreover, small delays in customer orders can cause significant
variability in the Company's revenues and results of operations for any
particular period. As a result, the timing of significant orders and the
recognition of revenue from such orders is unpredictable. Unfavorable changes
in any of the above factors could materially and adversely affect the
Company's revenues, gross margins and results of operations.
As a result of the Company's limited operating history and the emerging
nature of the e-commerce market in which the Company competes, there can be no
assurance that the Company will be able to accurately forecast its revenues.
The Company's current and future expense levels are based primarily on its
operating plans and estimates of future revenues and are to a large extent
fixed costs. The Company may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues would likely have an immediate material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, the Company currently intends to significantly expand
its sales and marketing organization, which would result in a substantial
increase in operating expenses. To the extent such expenses are incurred prior
to or do not result in increased revenues, the Company's operating losses in a
given quarter may be significantly greater than expected. Based upon all of
the foregoing, the Company believes that its quarterly and annual revenues,
expenses and operating results are likely to vary significantly in the future,
that period-to-period comparisons of the Company's results of operations are
not necessarily meaningful and that such comparisons should not be relied upon
as indications of future performance. Moreover, although the Company's
revenues have increased in recent periods, there can be no assurance that the
Company's revenues will grow in future periods, that they will grow at past
rates or that the Company will achieve profitability on a quarterly or annual
basis in the future. Due to the foregoing as well as other factors, it is
likely that the Company's operating results will be
9
<PAGE>
below market analysts' expectations in some future quarters, which could
materially and adversely affect the market price of the Class A Common Stock.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Unaudited Quarterly Results of
Operations".
Dependence on Significant Growth of Sales and Marketing Organization
The Company believes that its future profitability and success will depend
in large part on, among other things, its ability to maintain and expand its
relationships with computer product manufacturers, distributors, resellers,
retailers and other industry participants, and its ability to enter into new
relationships with such participants. To date, the Company has achieved only
limited penetration of its current customers. A key element of the Company's
strategy is to increase its penetration of existing customer accounts. In
order to implement this strategy, the Company intends to significantly expand
its sales and marketing organization. However, competition for sales and
marketing personnel is intense. Moreover, the recruitment and hiring of such
individuals is typically a time-consuming and expensive process. There can be
no assurance that the Company will be able to attract, assimilate and retain
qualified sales and marketing personnel on a timely basis in the future, or at
all. The Company's failure to do so would have a material adverse effect on
the Company's business, financial condition and results of operations.
Risks Associated with Emerging Market for E-Commerce; Unproven Business Model
The market for software products such as those offered by the Company is
still emerging, and there can be no assurance that it will continue to grow or
that, even if the market does grow, the Company's products will achieve market
acceptance among computer product manufacturers, distributors, resellers,
retailers, other industry participants and end users, including corporate
buyers and consumers. Historically, these entities have purchased computer
products and accessories and exchanged information regarding such products
primarily through traditional means of commerce and communications. The
Company has expended, and will continue to expend, significant resources
educating potential customers about the Company's products and their
capabilities and benefits. There can be no assurance that these expenditures
will enable the Company's products to achieve market acceptance. If the market
for the Company's products fails to grow or grows more slowly than the Company
anticipates, or if the Company's products fail to achieve significant market
acceptance, the Company's business, results of operation and financial
condition would be materially and adversely affected.
The Company's business model is evolving and unproven. The Company is
dependent on its ability to attract a significant number of customers and
channel partners from the computer industry and expand its existing
relationships. There can be no assurance that the Company will be successful
in achieving market acceptance of its independent third-party e-commerce
solutions and services or in achieving significant market share before
competitors offer products, applications or services with features similar or
superior to the Company's current or proposed offerings. If a significant
number of participants fail to adopt the Company's solutions or adopt such
solutions more slowly than anticipated, or if the Company fails to retain or
fails to further penetrate its existing customer accounts, the Company may not
achieve the critical mass of users it believes is necessary to enable the
success of its solutions and services. In particular, a fundamental element of
the Company's business strategy is to enter into contractual relationships
with manufacturers and distributors that enable the Company to derive
increasing revenues from such customers to the extent that the Company's e-
commerce solutions are more broadly adopted by market participants.
Accordingly, the Company intends to incur significant expenses during 1999 to
implement such strategy. There can be no assurance that the Company will be
successful in its efforts to increase the number of manufacturers,
distributors, resellers, retailers and other market participants that adopt
the Company's solutions. Any failure on the
10
<PAGE>
part of the Company to do so would have a material adverse effect on the
Company's business, financial condition and results of operations.
Customer Concentration; Risks Associated with Reliance on Certain Contracts
In 1996, 1997 and 1998, the Company's top five customers accounted for 89%,
64% and 62%, respectively, of the Company's total revenues. Generally,
contracts with these customers have terms ranging from one to five years and
may be terminated earlier in the event of an uncured breach or certain other
events. In addition, revenues from contracts with these customers are not
equally distributed over the term of the contracts, and there can be no
assurance that total revenues will not decline because of decreased revenues
from these customers in future periods. The Company expects that it will
continue to depend upon a relatively small number of contracts for a
substantial portion of its revenues for the foreseeable future. There can be
no assurance that the Company will derive any revenue from sales of products
pursuant to agreements with these customers in any given future period. In the
event that any such contracts are not renewed or are otherwise terminated, the
Company's business, financial condition and results of operations would be
materially and adversely affected. See "Business--Products".
A majority of the Company's significant customers have entered into their
agreements with the Company only since the third quarter of 1997. These
contracts generally have terms ranging from one to five years, and the Company
has only limited experience with renewing such contracts. The Company's future
growth is dependent in part on its ability to renew existing contracts on
terms favorable to the Company and to further penetrate its existing customer
accounts with products that offer greater functionality and higher revenue
potential. For example, the Company entered into an agreement with Ingram
Micro in September of 1998 in connection with subscriptions to, and related
services supporting, various products of the Company, including Prime Access
Web Storefront and Customer Desktop. pcOrder retains ownership of all software
licensed under the agreement. The Company agreed to indemnify Ingram Micro
Inc. ("Ingram Micro") in the event of a claim that any software licensed to
Ingram Micro by the Company infringes the intellectual property of a third
party. Additionally, pursuant to the agreement with Ingram Micro, the source
code for software licensed to Ingram Micro will be deposited in escrow. The
initial term of the agreement is through December 2003, unless terminated
earlier by either party upon prior notice in the event of a payment default,
material breach, termination of business or breach of confidentiality. The
agreement may be renewed for additional one year periods upon the agreement of
the parties prior to the end of the current term. Because of the Company's
limited experience with contract renewals in general, there can be no
assurance the Company will be successful in renewing the Ingram Micro contract
or other existing contracts, or if such contracts are renewed, that they will
be renewed on terms favorable to the Company. Any failure to do so on the part
of the Company would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Growth of the Internet, Internet Infrastructure Development and
Internet Commerce
The increased use of the Internet for retrieving, sharing and transferring
information among manufacturers, distributors, resellers, retailers and end
users, including corporate buyers and consumers of computers and computer
products, has only recently begun to develop, and the Company's success will
depend in large part on continued growth in, and the use of, the Internet for
commerce. Critical issues remain unresolved concerning commercial use of the
Internet, including security, reliability, cost, ease of access, quality of
service and necessary increases in bandwidth availability, and these issues
are likely to affect the development of the market for the Company's products.
The adoption of the Internet for information retrieval and exchange, commerce
and communications, particularly by those enterprises that have historically
relied upon traditional means of commerce and communications, generally will
require the acceptance by these entities of a new and evolving medium of
conducting business and exchanging information. Such acceptance is likely only
11
<PAGE>
in the event that the Internet provides these entities with greater efficiency
and an improved arena of commerce and communication. Demand for and market
acceptance of commerce on the Internet are subject to a high level of
uncertainty and are dependent on a number of factors, including the growth in
commercial access to and acceptance of new interactive technologies, the
development of technologies that facilitate interactive communication between
organizations and targeted audiences and increases in user bandwidth. If the
Internet as a commercial or business medium fails to develop or develops more
slowly than expected, the Company's business, results of operations and
financial condition would be materially adversely affected. The recent growth
in the use of the Internet has caused frequent periods of performance
degradation, requiring the upgrade of routers and switches, telecommunications
links and other components forming the infrastructure of the Internet by
Internet service providers and other organizations with links to the Internet.
Any perceived degradation in the performance of the Internet as a whole could
undermine the benefits of the Company's products. The Company's ability to
increase the speed with which it provides services to customers and to
increase the scope of such services ultimately is limited by and reliant upon
the speed and reliability of the networks operated by third parties.
Consequently, the emergence and growth of the market for the Company's
products is dependent on improvements being made to the entire Internet
infrastructure to alleviate overloading and congestion. No assurance can be
given that these improvements will be made or that, if made, they will be made
in a sufficiently timely and cost-effective manner so as to facilitate market
acceptance of the Company's products.
Lengthy Sales and Implementation Cycle
Due in part to the significant departure from traditional means of commerce
and communications entailed by the adoption and use of the Company's products,
the Company is generally required to provide a significant level of education
regarding the use and benefits of its products, and potential customers tend
to engage in extensive internal reviews before making purchase decisions. In
addition, the purchase of the Company's products by its customers for
deployment within a customer's organization typically involves a significant
commitment of capital and other resources, and is therefore subject to delays
that are beyond the Company's control, such as the customers' internal
procedures to approve large capital expenditures, budgetary constraints and
the testing and acceptance of new technologies that affect key operations,
among other factors. The decision-making process can also be substantially
impacted by the sales practices of, and product introductions by, the
Company's competitors. The Company has historically experienced a lengthy
cycle for sales of its products to resellers, and longer sales cycles for
sales of its products to manufacturers and distributors. There can be no
assurance that the Company will not continue to experience lengthy sales
cycles in the future. Certain of the Company's customers have in the past
experienced difficulties or delays in completing implementations of the
Company's products. Although such difficulties and delays to date have not had
a material adverse effect on the Company, no assurances can be given that
similar difficulties or delays will not occur in the future. Any such
difficulties or delays could cause delays in the recognition of related
revenues, cause customers to reject the Company's solutions or lead to the
delay or non-receipt of future orders for the Company's products, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "--Significant Fluctuations in Future
Operating Results".
Dependence on Computer Industry
The Company derives substantially all of its revenues either directly or
indirectly from the computer industry, and the Company's future growth is
dependent on the computer industry. The computer industry is sensitive to
general economic, business and industry conditions that can cause buyers of
computers and computer products to reduce or delay their investments in
computer systems. Any event or condition that results in decreased spending on
computers or computer products, or consolidation within the computer industry,
could have a negative effect on the Company's customers
12
<PAGE>
and negatively impact the Company's business, operating results and financial
condition. Furthermore, certain of the Company's customers have recently been
acquired. Although to date such acquisitions have not had an adverse effect on
the Company' s relationships with these customers, there can be no assurance
that these acquisitions or other acquisitions of the Company's customers in
the future will not have a material adverse effect on the Company's business,
results of operations and financial condition.
Risks Associated with Maintaining Database
The Company updates and maintains an extensive database of technical and
descriptive information on computer products, including over 600,000 product
SKUs from over 1,000 manufacturers. This information is used to support the
Company's software applications and the Company seeks to provide users with
timely access to current, comprehensive information on product specifications,
availability and pricing. Certain of the Company's contracts obligate it to
maintain data accuracy at prescribed levels. Maintaining the Company's
databases is a highly manual process and the Company utilizes a combination of
highly trained internal personnel and contract personnel provided by third-
party service organizations. Furthermore, the Company's computer systems and
databases must be sufficiently scalable to process large amounts of complex
product specification and configuration data without significant degradation
in performance. In the past the Company has experienced periodic difficulties
with data accuracy. For example, in the second quarter of 1998, database
capacity constraints limited the Company's ability to accept daily pricing and
availability updates from distributors, which resulted in a temporary
disruption in the Company's ability to provide this data to certain reseller
customers, and failures to renew and delays of contract renewals by certain of
such customers. Although these difficulties have not in the past materially
adversely affected the Company, there can be no assurance that the Company
will not experience similar data maintenance and accuracy problems in future
periods, which could result in a loss of customers or have a material adverse
effect on the Company's business, financial condition and results of
operations. Furthermore, certain of the Company's customer contracts provide
for service level guarantees for data accuracy. To the extent the Company is
unable to maintain data accuracy at required levels, the Company could incur
significant liabilities and the applicable contracts could be terminated, any
of which would have a material adverse effect on the Company's business,
results of operations and financial condition.
Control By and Relationship with Trilogy
The Company is currently a subsidiary of Trilogy. Upon completion of this
offering, Trilogy will own 12,757,000 shares of Class B Common Stock
representing approximately 84.0% of the total outstanding Common Stock of the
Company (82.3% if the Underwriters' over-allotment option is exercised in
full), and approximately 97.7% of the total voting power of the Common Stock.
Following this offering, as a result of its ownership of Class B Common Stock,
Trilogy will have the voting power to determine the outcome of any matter
submitted for the vote or consent of pcOrder stockholders, except where a
separate vote of the holders of Class A Common Stock is required by Delaware
law. Since each share of Class B Common Stock entitles its holder to eight
votes while each share of Class A Common Stock entitles its holder to one
vote, Trilogy will retain this voting power even while it holds less than a
majority of the Company's outstanding Common Stock. For example, Trilogy will
be able to direct the election of all directors of the Company, to cause the
amendment of the Company's Certificate of Incorporation, Bylaws and other
documents, and generally to exercise a controlling influence over the business
and affairs of the Company, including any determinations with respect to
mergers or other business combinations involving the Company, the acquisition
or disposition of assets by the Company, future issuances of equity securities
by the Company, the incurrence of indebtedness by the Company and the payment
of dividends with respect to the Common Stock. Similarly, Trilogy will have
the power to prevent, delay or cause a change in control of the Company and
could take other actions that might be favorable to Trilogy but not
necessarily favorable to other stockholders of the Company. There can be no
assurance that conflicts, disagreements or other disputes between the Company
and Trilogy will not arise, or that such disputes will be resolved in a manner
that does not
13
<PAGE>
adversely affect the business, financial condition or results of operations of
the Company. There can be no assurance that Trilogy's ownership of the
Company's Class B Common Stock or its other relationships with the Company
will not have a material adverse effect on the Company's business, financial
condition or results of operations, on its other stockholders or on the market
price of the Company's Class A Common Stock.
Trilogy could elect to sell all or a substantial portion of its equity
interest in the Company to a third party, which could represent a controlling
or substantial interest in the Company, without offering to other stockholders
of the Company the opportunity to participate in such a transaction. Under the
terms of the Company's Certificate of Incorporation, a single transaction
resulting in the transfer of greater than 50% of Trilogy's equity interest in
the Class B Common Stock to a non-affiliate of Trilogy will result in such
non-affiliate having the disproportionate per share voting rights currently
held by Trilogy. In the event of a sale of Trilogy's interest to a third
party, such third party may be able to control the Company in the manner that
Trilogy is currently able to control the Company, including with respect to
the election of all of the members of the Company's Board of Directors. Such a
sale may adversely affect the Company's other stockholders and the market
price of the Class A Common Stock and may adversely affect the Company's
business, financial condition and results of operations. See "--Possible
Future Sales of Common Stock by Trilogy". The Company and Trilogy have entered
into various agreements intended to define the relationship between them. See
"Relationship with Trilogy".
Risks Associated with Dependence on Trilogy; Limited Independent Operating
History; Potential Conflicts of Interest
The Company is dependent upon Trilogy to provide certain key technology and
management functions to the Company. Pursuant to the terms of a Technology,
Services and License Agreement, (the "Technology Agreement"), the Company
licenses certain technology from Trilogy on a non-exclusive basis subject to
certain limitations. Any termination of such license, or reduction in the
performance of such licensed technology, that requires the Company to
internally develop or license similar technology from a third party would be
disruptive to the Company's business. Further, the Company believes that
similar technology is not currently available from any third party and, if the
license from Trilogy were terminated, there can be no assurance that the
Company could successfully internally develop similar technology or license
similar technology from a third party. As a result, any termination of the
license from Trilogy would have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, Trilogy
is prohibited from competing with the Company only through June 1, 1999. There
can be no assurance that Trilogy will not compete directly with the Company
after June 1, 1999, and that such competition would not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Relationship with Trilogy". Further, Trilogy has joint
ownership rights in technology jointly developed by the Company and Trilogy
during the term of the Technology Agreement, and there can be no assurance
that Trilogy will not utilize such technology in competition with the Company
after June 1, 1999 or license its technology to competitors of the Company,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Relationship with
Trilogy".
The Company has historically relied on Trilogy to provide certain human
resource, finance, recruiting, legal and other services. Upon completion of
this offering, Trilogy will have no obligation to provide assistance to the
Company except as described in "Relationship with Trilogy". The Company will
be required to develop and implement the operational, administrative and other
systems and infrastructure necessary to support its current and future
business. The Company estimates that the cost of such development and
implementation will be material to the Company. Any failure to successfully
develop and implement such systems and infrastructure would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Control By and Relationship with Trilogy" and "--Management
of Growth".
14
<PAGE>
Conflicts of interest may arise between the Company and Trilogy in a number
of areas relating to their past and ongoing relationships, including potential
competitive business activities, indemnity arrangements, tax and intellectual
property matters, potential acquisitions or financing transactions, sales or
other dispositions by Trilogy of shares of the Company's Common Stock held by
it following this offering and the exercise by Trilogy of its ability to
control the management and affairs of the Company. The Company and Trilogy
have not established any formal procedures to address or resolve these
potential conflicts. There can be no assurance that any conflicts that may
arise between the Company and Trilogy will be resolved in a manner that does
not have a material adverse effect on the Company or its other stockholders,
even if such result is not intended by Trilogy. In addition, except as
described in "Relationship with Trilogy", nothing in the Company's agreements
with Trilogy prohibits Trilogy from competing directly with the Company or
being acquired by a third party, either of which could have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, in the event of a tax free spin-off, the shares of
Class B Common Stock held by Trilogy's transferee will not be convertible into
Class A Common Stock for a period of five years following such tax free spin-
off. Accordingly, following a tax free spin-off, a transferee or group of
transferees of such Class B Common Stock could hold the voting power to affect
or determine the outcome of matters submitted to the vote or consent of
pcOrder stockholders, which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Relationship with Trilogy".
Ownership interests of directors or officers of the Company in the common
stock of Trilogy or service as both a director or officer of the Company and
an officer or employee of Trilogy could create or appear to create potential
conflicts of interest when directors and officers are faced with decisions
that could have different implications for the Company and Trilogy. Joseph A.
Liemandt, a director of the Company, is the Chairman and Chief Executive
Officer and a substantial stockholder of Trilogy. The Company and Trilogy have
not established any formal procedures to address or resolve these potential
conflicts.
Possible Future Sales of Common Stock by Trilogy
Subject to applicable federal securities laws and the restrictions set forth
in the Certificate of Incorporation, after completion of this offering,
Trilogy may sell any and all of the shares of the Company's Class B Common
Stock beneficially owned by it or shares of the Class A Common Stock issuable
upon conversion of the Class B Common Stock (which, after completion of this
offering, would represent approximately 84.0% of the outstanding Common Stock
combined) or distribute any or all of such shares of Class B Common Stock to
its stockholders. In general, prior to a tax free spin-off each share of Class
B Common Stock is convertible into one share of Class A Common Stock at the
election of the holder thereof, and each share of Class B Common Stock will be
converted automatically into one share of Class A Common Stock upon a transfer
if after the transfer such share is not owned by Trilogy, Trilogy Inc.
(Trilogy's parent), an affiliate of Trilogy, Inc. or a non-affiliate of
Trilogy, Inc. that acquires more than 50% of the then outstanding Class B
Common Stock in a single transaction. In addition, in the event of a tax free
spin-off, the shares of Class B Common Stock held by Trilogy's transferee will
not be convertible into Class A Common Stock for a period of five years
following such tax free spin-off. Accordingly, following a tax free spin-off,
a transferee or group of transferees of such Class B Common Stock would hold
the voting power to affect or determine the outcome of matters submitted to
the vote or consent of pcOrder stockholders, which could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Description of Capital Stock". Sales or distribution by
Trilogy of substantial amounts of Common Stock in the public market or to its
stockholders, or the perception that such sales or distribution could occur,
could adversely affect the prevailing market prices for the Class A Common
Stock. Trilogy is not subject to any obligation to retain its controlling
interest in the Company, except that Trilogy has agreed not to sell or
otherwise dispose of any shares of Class B Common Stock (or shares of Class A
Common Stock issuable upon the conversion of such Class B Common Stock) for a
period of 180 days after the date of this Prospectus
15
<PAGE>
without the prior written consent of Goldman, Sachs & Co. See "Underwriting".
No notice will be given to stockholders of the Company if Goldman, Sachs & Co.
grants such written consent to Trilogy. As a result, there can be no assurance
concerning the period of time during which Trilogy will maintain its ownership
of Class B Common Stock (or shares of Class A Common Stock issuable upon the
conversion of such Class B Common Stock) following this offering. Moreover,
there can be no assurance that, in any transfer by Trilogy of a controlling
interest in the Company, any holders of Class A Common Stock will be able to
participate in such transaction or will realize any premium or other amounts
with respect to their shares of Class A Common Stock. Trilogy has registration
rights with respect to the shares of Class B Common Stock owned by it and the
shares of Class A Common Stock issuable upon conversion thereof, which rights
would facilitate any future disposition. These registration rights may be
transferred by Trilogy to any transferee of its shares of Class B Common Stock
(or shares of Class A Common Stock issuable upon the conversion of such Class
B Common Stock). See "Relationship with Trilogy".
Risk of System Failure; Single Site
The Company's success depends largely upon the efficient and uninterrupted
operation of its communication systems. The Company has contracted with
certain of its customers to provide server hosting and to maintain redundant
leased lines to ensure system availability. All of the Company's development
and management systems are located at a single facility leased by the Company
in Austin, Texas. The Company's systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins and similar events. Although the Company has taken certain
steps to prevent a system failure, there can be no assurance that such
measures will be successful and that the Company will not experience system
failures in the future. Furthermore, the Company does not have a formal
disaster recovery plan and does not carry sufficient business interruption
insurance to compensate it for losses that may occur as a result of any system
failure. The occurrence of any system failure or similar event could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may move to third-party
hosting of its servers. There can be no assurance that this transition, if
undertaken, would be effected without interruptions that could adversely
affect the Company's business, results of operations and financial condition.
Further, such third-party host would be subject to the same risks of system
failure as the Company's current site. See "Business--Facilities".
Risk of Reliance on Recent Publicity
The November 30, 1998 issue of Forbes magazine contained an article
regarding the Company (the "Forbes Article"). The Forbes Article included
statements resulting directly or indirectly from interviews with Ross Cooley
and Christina Jones, the Company's Chief Executive Officer and President,
respectively, by representatives of Forbes magazine. Such statements include
the following: (i) "Last year pcOrder lost $1.1 million on revenues of $10.6
million; this year revenues should double while losses continue;" (ii) "The
grand vision is to have every single computer bought using pcOrder
technology;" (iii) "The software is too slow, users complained. And it doesn't
let them send quotes via E-mail. Some pcOrder customers still prefer printed
catalogs from PC makers. Perhaps with good reason, since pcOrder has had
trouble with data reliability;" (iv) "Jones insists that the problem [with
data reliability] has been fixed;" (v) "[pcOrder is] celebrating a deal
reported to be worth $30 million or so that pcOrder.com, Inc. just closed with
Ingram Micro Inc., the world's largest computer distributor;" (vi) "Trilogy
Software, Inc....now an estimated $100 million-plus company;" (vii) "[S]ome
companies just won't jump on board. But even if [Jones] gets most big players,
[Jones will] be able to gather data about buying habits and trends and use the
information to forecast demand. Stuff worth a gold mine to PC makers and
distributors;" (viii) "pcOrder is hardly a guaranteed winner. While the major
PC-makers and distributors are on board, only 5,500 salespeople actually use
the software, approximately 45,000 remain to be convinced that ordering PCs
over the Web beats doing business over the phones and faxes;" and
(ix) "pcOrder recently spent several hundred thousand dollars on a direct-mail
marketing campaign
16
<PAGE>
that flopped." These statements were not intended to be relied upon by
potential investors in making an investment decision to purchase the Class A
Common Stock offered hereby. Furthermore, the Company disclaims all the
information contained in the Forbes Article for purposes of this offering, and
prospective investors should not rely on such information or any other
information not contained in this Prospectus in making an investment decision
to purchase the Class A Common Stock offered hereby. Forecasts relating to
market position, revenues, data reliability and market acceptance of the
Company and its products, especially given the rapidly evolving market for the
Company's products and services, are forward-looking statements that involve
numerous risks and uncertainties. The Company's actual results could differ
materially from those stated in such forward-looking statements as a result of
numerous factors, including those set forth in these "Risk Factors" and
elsewhere in this Prospectus.
Future Capital Needs; Uncertainty of Additional Financing
The Company requires substantial working capital to fund its business and
expects to use a significant portion of the net proceeds of this offering to
fund its expected continuing operating losses. The Company currently believes
that its existing capital resources, combined with the net proceeds of this
offering, will be sufficient to meet its presently anticipated cash
requirements for at least the next 12 months. Thereafter, the Company may be
required to raise additional funds; provided, however, no assurance can be
given that the Company will not need to raise additional financing prior to
such time. If additional funds are raised through the issuance of equity
securities, stockholders of the Company may experience significant dilution.
Furthermore, there can be no assurance that additional financing will be
available when needed or that, if available, such financing will be available
on terms acceptable to the Company and its stockholders. If such financing is
not available when required or is not available on acceptable terms, the
Company may be unable to expand its sales and marketing organization, develop
new products and product enhancements, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
Management of Growth
The Company's business has grown rapidly in the last three years, with total
revenues increasing from $5.9 million in 1996 to $21.7 million in 1998 and the
total number of employees increasing from 1 in July 1994 to 194 as of December
31, 1998. Furthermore, significant increases in the number of employees are
anticipated in future periods. In particular, the Company currently intends to
significantly expand the number of employees in its sales and marketing
organization and to expand the number of employees in its client services,
research and development and finance organizations. This growth has resulted
in, and can be expected to continue to require, substantial expansion of the
Company's infrastructure, including operating and financial systems and
controls and the geographic scope of its operations and customers. Recent
rapid growth has also resulted, and will continue to result, in new and
increased responsibilities for management personnel, and such growth has
placed and, if it continues, is expected to continue to place, a significant
strain on the Company's management and operations. The Company has recently
hired a significant number of executives to augment its management
infrastructure to manage the potential growth of its business, including its
Chief Financial Officer and certain key sales and marketing personnel. These
individuals have not previously worked together or with the Company's existing
management and are in the process of integrating as a management team. There
can be no assurance that they will be able to work together effectively. In
addition, the Company has historically relied on Trilogy to provide certain
human resource, finance, recruiting, legal and other services, and the Company
is in the process of assuming responsibility for such services and similar
services provided by outside sources. Furthermore, the Company's dependence on
outside sources to provide services previously performed by Trilogy will
likely increase.
17
<PAGE>
There can be no assurance that the Company will be able to manage any future
expansion successfully, and any inability to do so would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview".
New Products and Technological Changes; Risks Associated with Transition to
New Technology Platform
The market for the Company's e-commerce solutions is characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. The introduction of products embodying new technologies
or the emergence of new industry standards can render existing products
obsolete and unmarketable. The Company's success will depend upon its ability
to enhance its existing products and to develop and introduce, on a timely and
cost-effective basis, new products that keep pace with technological
developments and emerging industry standards and address increasingly
sophisticated customer requirements. There can be no assurance that the
Company will be successful in identifying, developing and marketing product
enhancements or new products that respond to technological change or evolving
industry standards, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing
of these products, or that its new products and product enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. The Company's business, operating results and financial condition
would be materially and adversely affected if the Company were to incur
difficulties or delays in developing new products or enhancements or if such
products or enhancements did not gain market acceptance.
Products as complex as those offered by the Company may contain undetected
errors or defects when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and by current and
potential customers, errors will not be found in new products or product
enhancements after commencement of commercial shipments, resulting in loss of
or delay in market acceptance. The Company's introduction of new products or
product enhancements with reliability, quality or compatibility problems could
also result in reduced bookings, delays in collecting accounts receivable and
in additional service and warranty costs. The Company has in the past
experienced difficulties and delays in successfully installing its products at
certain customer sites. Although in each case the problems were remedied and
did not have a material adverse effect on the Company, no assurances can be
given that similar problems will not occur in the future or that such
problems, if they were to occur, would not have a material adverse effect on
the Company.
The Company is currently engaged in transitioning certain aspects of its
product architecture to a more modular and flexible design. There can be no
assurance that the Company or its new customers will not experience any
performance problems with this new technology platform, whether in the form of
bugs, compatibility difficulties or otherwise. In addition, there can be no
assurance that the Company's existing customers will be able to successfully
transition to this new technology platform. A failure of the Company's
products based on this new technology platform to perform satisfactorily or a
failure by the Company to properly manage the transition by its existing
customers to this new technology platform could result in cancellation of
customer contracts, a decline in the Company's competitive position or reduced
or delayed sales of its products, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Dependence Upon Key Personnel
The Company's future success depends in significant part upon the continued
service of a relatively small number of key management, technical, sales and
marketing personnel, especially Ross A. Cooley, the Company's Chairman of the
Board and Chief Executive Officer, and Christina C. Jones, the Company's
President, Chief Operating Officer and founder, each of whom is a party to an
employment
18
<PAGE>
agreement with the Company. See "Management--Employment Agreements." Mr.
Cooley, in his capacity as the Company's Chairman of the Board and Chief
Executive Officer, currently performs various executive and leadership
functions, including development of the Company's strategic and operational
plans, executive management of new customer and new account relationship
activities and recruitment of senior management personnel. Ms. Jones, in her
capacity as the Company's President and Chief Operating Officer, is
principally responsible for managing the Company's daily operations. The
Company currently does not carry key person life insurance for either Mr.
Cooley or Ms. Jones. The Company believes that it depends primarily on Mr.
Cooley and Ms. Jones, the loss of either of whom would have a material adverse
effect on the Company. The Company's future success also depends on its
continuing ability to attract and retain other highly qualified management,
technical, sales and marketing personnel. Competition for such personnel is
intense, and the Company has at times in the past experienced difficulty in
recruiting qualified personnel. There can be no assurance that the Company
will retain its key management, technical, sales and marketing employees or
that it will be successful in attracting, assimilating and retaining other
highly qualified management, technical, sales and marketing personnel in the
future. The loss of any member of the Company's key management, technical,
sales and marketing personnel or the inability to attract and retain
additional qualified personnel would have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management".
Risk of Changes in Accounting Standards
Effective December 15, 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-9, "Modification of SOP
97-2, "Software Revenue Recognition', With Respect to Certain Transactions."
SOP 98-9 amends SOP 97-2 and 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2," extending the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. Full
implementation guidelines for this standard have not yet been issued. Once
available, the Company's revenue accounting practices may need to change and
there can be no assurance that such change would not materially adversely
affect the Company's business, operating results and financial condition.
Competition
The market for software products that enable e-commerce is intensely
competitive, and the Company expects competition in its market segment to
increase substantially. Numerous companies provide e-commerce solutions, and
several competitors target the specific computer and computer related products
industry in which the Company competes. The Company's competitors include both
large companies with substantially greater resources than the Company, systems
integrators and the internal IT departments of certain of the Company's
customers and potential customers. The Company believes that its principal
sources of competition are systems integrators and the internal IT departments
of its customers and potential customers. These organizations may seek to
develop e-commerce solutions through the use of tools offered by the Company's
competitors primarily focused on providing e-commerce enabling solutions to
the computer industry such as Calico Software, Selectica, Inc., SMART
Technologies, Inc., Open Market, Inc. and BroadVision, Inc. Furthermore, there
are a number of significantly larger companies with which the Company does not
currently compete that do not presently offer the same or similar e-commerce
solutions offered by the Company but that could with limited barriers to entry
compete directly with the Company in the future. In addition, except as
described in "Relationship with Trilogy", nothing in the Company's agreements
with Trilogy prohibits Trilogy from competing directly or indirectly with the
Company. The Company believes that the principal competitive factors for
companies seeking to provide e-commerce enabling solutions are price,
functionality, product performance, content, reliability and customer service.
Increased competition could result in price reductions, reduced margins and
loss of market share, any of which
19
<PAGE>
would materially and adversely affect the Company's business, operating
results and financial condition. Many of the Company's current and potential
competitors have significantly longer operating histories and significantly
greater financial, technical, marketing and other resources than the Company.
There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition. See
"Business--Competition".
Uncertain Protection Of Intellectual Property
The Company's success depends in part on its ability to protect its
proprietary software and other intellectual property. To protect its
proprietary rights, the Company relies generally on copyright, trademark and
trade secret laws, confidentiality agreements with employees and third parties
and license agreements with consultants, vendors and customers, although the
Company has not signed such agreements in every case. Despite such
protections, a third party could, without authorization, copy or otherwise
obtain and use the Company's products or technology, or develop similar
technology. There can be no assurance that the Company's agreements with
employees, consultants and others who participate in product development
activities will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's software or trade secrets will not
otherwise become known or independently developed by competitors.
Many of the Company's current and potential competitors dedicate
substantially greater resources to protection and enforcement of intellectual
property rights, especially patents. If a blocking patent has been issued or
is issued in the future, the Company would need to either obtain a license or
design around the patent. There can be no assurance that the Company would be
able to obtain such a license on acceptable terms, if at all, or to design
around the patent. The Company pursues the registration of certain of its
trademarks and service marks in the United States and in certain other
countries, although it has not secured registration of all of its marks. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States, and
effective copyright, trademark and trade secret protection may not be
available in such jurisdictions. The Company licenses certain of its
proprietary rights to third parties, and there can be no assurance that such
licensees will abide by compliance and quality control guidelines with respect
to such proprietary rights or that such licensees will not take actions that
would materially and adversely affect the Company's business, financial
condition and results of operations.
There can be no assurance that the Company's efforts to protect its
intellectual property rights through copyright, trademark and trade secret
laws will be effective to prevent misappropriation of its technology or to
prevent the development by others of products or technologies similar to or
competitive with those developed by the Company. The Company's failure or
inability to protect its proprietary rights could materially and adversely
affect its business, financial condition and results of operations.
The computer software industry is characterized by frequent and substantial
intellectual property litigation that often is complex and expensive and
involves a significant diversion of resources and uncertainty of outcome. In
the future, the Company may need to pursue litigation to enforce and protect
its intellectual property rights or to defend against a claim of infringement
or invalidity. The Company attempts to avoid infringing known proprietary
rights of third parties in its product development efforts. However, the
Company has not conducted and does not intend to conduct comprehensive patent
searches to determine whether the technology used in its products infringes
patents held by third parties. In addition, it is difficult to proceed with
certainty in a rapidly evolving technological environment in which there may
be numerous patent applications pending, many of which are confidential when
filed. If the Company were to discover that its products violate third-party
proprietary rights, there can be no assurance that it would be able to obtain
licenses to continue offering such products, that any such licenses would be
available on commercially reasonable terms, if at all, or that litigation
regarding
20
<PAGE>
alleged infringement could be avoided or settled without substantial expense
and damage awards. Any claims against the Company relating to the infringement
of third-party proprietary rights, even if not meritorious, could result in
the expenditure of significant financial and managerial resources and in
injunctions preventing the Company from distributing certain products. Such
claims could materially and adversely affect the Company's business, financial
condition and results of operations.
Risk of Product Liability Claims
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. However, the limitation of liability provisions contained in
the Company's license agreements may not be effective under the laws of
certain jurisdictions. Although the Company has not experienced any material
product liability claims to date, the sale and support of the Company's
products entails the risk of such claims. The Company currently has only
limited insurance coverage against product liability and errors and omissions
claims and there can be no assurance that such insurance will continue to be
available to the Company on commercially reasonable terms or at all. A product
liability claim brought against the Company could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Product Development".
International Sales Risks
Although the Company has had limited sales outside of the U.S. and Canada,
the Company expects to increase its sales in international markets. In order
to expand international sales, the Company must establish additional foreign
operations, hire additional personnel and establish relationships with
additional channel partners. This expansion will require significant
management attention and financial resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that the Company will be
able to maintain or increase international market demand for the Company's
products and services. Although the Company's international sales are
primarily denominated in U.S. dollars, the Company expects to incur an
increasing percentage of obligations denominated in foreign currencies. A
change in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in those markets and could otherwise adversely affect the
Company's ability to meet its foreign-currency-denominated obligations.
Currently, the Company does not employ currency hedging strategies to reduce
this risk. In addition, the Company's international business may be subject to
a variety of risks, including difficulties in collecting international
accounts receivable or obtaining U.S. export licenses, potentially longer
payment cycles, increased costs associated with maintaining international
marketing efforts, the introduction of non-tariff barriers and higher duty
rates and difficulties in enforcement of contractual obligations and
intellectual property rights. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition or results
of operations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations,
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices or engage in other normal
business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements. The Company uses a number of computer software programs
and operating systems and its proprietary solutions include source code which
must address the Year 2000 issue. However, the Company believes that its Year
2000 issues are limited to information technology
21
<PAGE>
("IT") systems (i.e., software programs and computer operating systems) and
that because its business is not solely dependent on the use of non-IT systems
(i.e., embedded systems such as devices used to control, monitor or assist the
operation of equipment and machinery), the failure of any such non-IT systems
as a result of Year 2000 issues would not have a material adverse effect on
the Company's operations.
The Company relies, in part, on Trilogy's internal computer systems. The
Company has been informed by Trilogy that Trilogy's internal computer systems
are Year 2000 compliant. The Company has completed a limited review of its IT
systems and the products for which the Company currently provides maintenance
and support, which involved testing and verification as described below. Based
on such review, the Company believes its own IT systems and the products for
which the Company currently provides maintenance and support are Year 2000
compliant. The Company's Year 2000 compliance effort consisted of verifying
and testing the ability of the products for which the Company currently
provides maintenance and support to successfully handle the date change from
December 31, 1999 to January 1, 2000, date changes from February 28 to
February 29 and arbitrary dates ranging from 2000 to 2037. The Company has no
plans to conduct further review of its currently supported products or IT
systems. The Company has not historically made any material expenditures in
readying its IT systems or currently support products for the Year 2000 and
does not believe it will be necessary in the future to expend any material
amounts in connection with Year 2000 compliance.
Notwithstanding the foregoing, there can be no assurance that Year 2000
errors or defects will not be discovered in the Company's current or future
products. Any failure by the Company to make its products Year 2000 compliant,
or of such products not to be Year 2000 compliant as a result of a failure of
Trilogy's products to be Year 2000 compliant, could result in a decrease in
sales of the Company's products, unanticipated expenses to address Year 2000
problems or significant liabilities resulting from losses suffered by the
Company's customers due to such Year 2000 problems, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not have, and currently has no plan to
make, a contingency plan for the remediation of Year 2000 problems that may
effect the Company's IT systems and products, or the third-party equipment and
software utilized by the Company, and it will be necessary for the Company to
make the necessary expenditures to assess and remedy such problems in the
event they arise in the future, which expenditures, if any, cannot be
estimated by the Company. There can be no assurance that such expenditures, if
required, would not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000
Compliance".
The Company's solutions also utilize and depend on third-party equipment and
software that may not be Year 2000 compliant. The Company contacted certain
third-party vendors in order to ascertain their Year 2000 compliance. Based on
information supplied by such third-party vendors, the Company's officially
supported products developed using Visual Basic 5, Visual C++ or Java can be
certified Year 2000 compliant only through December 31, 2036, the last date
which the Company tested and verified. The Company estimates that such
certification applies to 90% to 95% of the Company's total products. Many of
the Company's products also use or rely on Microsoft's SQL Server product,
which has been certified Year 2000 compliant through December 31, 9999. The
Company believes that approximately 1.0% of the Company's products use or rely
on third-party vendor software which may be subject to Year 2000 issues and
for which the Company has received no assurance of Year 2000 compliance. To
the extent any of the Company's products are customized, whether by the
Company or a third party, there can be no assurance that any such customized
product will continue to be Year 2000 compliant. Failure of such third-party
equipment or software, or of systems maintained by the Company's suppliers, to
operate properly with regard to the Year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, to the extent the Company's products
are installed on customers' systems which rely on other
22
<PAGE>
software, firmware or hardware which may not be Year 2000 compliant, problems
in communications among industry participants could result in a delay in the
Company's products achieving market acceptance. Furthermore, the purchasing
patterns of customers or potential customers may be affected by Year 2000
issues as companies expend significant resources to correct their current
systems for Year 2000 compliance. These expenditures may result in reduced
funds available to purchase products from the Company of computer products
manufacturers, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
No Prior Market for the Common Stock; Possible Volatility of Share Price
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop upon completion of this offering or, if it does develop, that such
market will be sustained. The initial public offering price of the Common
Stock will be determined by negotiation between the Company and the
representatives of the Underwriters, and may not be representative of the
price that will prevail in the open market. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The market price of the Common Stock after this offering may be
significantly affected by factors such as the announcement of new products or
product enhancements by the Company or its competitors, technological
innovations by the Company or its competitors, quarterly variations in the
Company's results of operations, and general market conditions or market
conditions specific to particular industries. In particular, the stock prices
for many companies in the technology and emerging growth sector have
experienced wide fluctuations which have often been unrelated to the operating
results of such companies. Such fluctuations may adversely affect the market
price of the Common Stock. Furthermore, in the past, following periods of
volatility in the market price of a company's securities, securities class
action claims have been brought against the issuing company. There can be no
assurance that such litigation will not occur in the future with respect to
the Company. Such litigation could result in substantial costs and a diversion
of management's attention and resources, even if ultimately determined in
favor of the Company, and any adverse determination in such litigation could
also subject the Company to significant liabilities, any or all of which could
have a material adverse effect on the Company's business, operating results
and financial condition.
Shares Eligible for Future Sale; Registration Rights
Sales of substantial amounts of Class A Common Stock in the public market
after this offering (including by optional or automatic conversion of shares
of Class B Common Stock into Class A Common Stock), or the anticipation of
such sales, could have a material adverse effect on then-prevailing market
prices. Upon completion of the offering, the Company will have 2,426,648
shares of Class A Common Stock outstanding and 12,757,000 shares of Class B
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option and no exercise of currently outstanding options or
warrants). After this offering, Trilogy will beneficially own all of the
12,757,000 shares of Class B Common Stock, representing approximately 84.0% of
the outstanding Common Stock. Shares of Class B Common Stock are convertible
into Class A Common Stock on a share-for-share basis at the election of the
holder or automatically upon certain transfers thereof. The 2,200,000 shares
of Class A Common Stock sold in this offering (plus any additional shares sold
upon exercise of the Underwriters' over-allotment option) will be freely
transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), unless they are held by "affiliates" of the Company as
that term is used under the Securities Act and the regulations promulgated
thereunder ("Affiliates"). The remaining 226,648 shares of Class A Common
Stock and the 12,757,000 shares of Class A Common Stock issuable upon
conversion of the Class B Common Stock (including the shares of Class A Common
Stock issuable upon certain transfers of the Class B Common Stock or at the
option of the holder thereof) held by Trilogy are "restricted securities" as
that term is defined in Rule 144 of the Securities Act (the "Restricted
Shares"). Restricted Shares may be sold in the public market only if
registered or
23
<PAGE>
if they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act. As a result of contractual restrictions and the
provisions of Rules 144 and 701, additional shares will be available for sale
in the public market as follows: (i) no Restricted Shares will be eligible for
immediate sale on the effective date of this offering; (ii) approximately
80,673 Restricted Shares will be eligible for sale 90 days after the date of
this offering; (iii) approximately 77,975 Restricted Shares will be eligible
for sale without restriction and 25,000 Restricted Shares will be eligible for
sale subject to volume limitations, in each case 180 days after the effective
date of this offering upon the expiration of a contractual lock-up agreement
with the Company and the representatives of the Underwriters and (iv) and
approximately 43,000 of the Restricted Shares will be eligible for sale from
time to time thereafter upon expiration of their respective holding periods
under Rule 144. In addition, the 12,757,000 shares of Class A Common Stock
issuable upon conversion of Class B Common Stock will be eligible for sale
180 days after the date of this offering upon the expiration of contractual
lock-up agreements. The Company's officers and directors and Trilogy have
agreed not to sell any of their shares of Common Stock for 180 days after the
date of this Prospectus without the prior written consent of the
representatives of the Underwriters. Goldman, Sachs & Co., on behalf of the
Underwriters, may, in its sole discretion and at any time without notice,
release all or any portion of securities subject to the lock-up agreement with
the Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person (or persons whose shares are aggregated) who owns
shares that were purchased from the Company (or any Affiliate) at least one
year previously, including any person who may be deemed an Affiliate of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
the Common Stock, or (ii) the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who owns
Restricted Shares under Rule 144 that were purchased from the Company (or any
Affiliate) at least two years previously, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers prior to the date the
issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Exchange Act, along with the shares
acquired upon exercise of such options (including exercises after the date of
this Prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this Prospectus, may be sold (i) by
persons other than Affiliates, subject only to the manner of sale provisions
of Rule 144, and (ii) by Affiliates under Rule 144 without compliance with its
one-year holding period requirement.
The Company has agreed not to offer, sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock for a
period of 180 days after the date of this Prospectus, without the prior
written consent of the representatives of the Underwriters, subject to certain
limited exceptions. See "Underwriting".
24
<PAGE>
Trilogy has the right in certain circumstances to require the Company to
register its shares of Class B Common Stock and the shares of Class A Common
Stock issuable upon conversion of such Class B Common Stock under the
Securities Act for resale to the public. These registration rights are subject
to certain conditions and limitations, among them the right of the
underwriters, if any, of an offering to limit the number of shares included in
such registration. If the Company were required to include in a Company-
initiated registration shares held by Trilogy, such registration or sales of
stock may have a material adverse effect on the market price for the Company's
Class A Common Stock and on the Company's ability to raise new capital. In
addition, the Company intends to file a registration statement under the
Securities Act covering approximately 4,853,725 shares of Class A Common Stock
reserved for issuance under the Option Plans. See "Management--1996 Stock
Option Plan" and "Management--1999 Stock Incentive Plan". Such registration
statement is expected to be filed within 90 days after the date of this
Prospectus and will automatically become effective upon filing. Following such
filing, shares registered under such registration statement will, subject to
the Lock-Up Agreements, Rule 144 volume limitations applicable to Affiliates
and the lapsing of the Company's repurchase rights, be available for sale in
the open market upon the exercise of vested options 90 days after the effective
date of this Prospectus. At December 31, 1998, options to purchase
3,207,074 shares were issued and outstanding under the 1996 Plan. See "Shares
Eligible for Future Sale".
Effect of Certain Charter Provisions; Anti-Takeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended and restated ("Bylaws"), contain
certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable. These provisions include
the right of the holders of Class B Common Stock to eight votes per share,
versus one vote per share for the holders of Class A Common Stock, and provide
that stockholders may not call special meetings. In addition, upon completion
of this offering, the Company's Certificate of Incorporation will authorize the
Board of Directors to issue without stockholder approval "blank check"
preferred stock with voting, conversion and other rights and preferences that
could adversely affect the voting power or other rights of the holders of
Common Stock of the Company. In addition, certain provisions of Delaware law
may also have the effect of discouraging, delaying or preventing a change in
control of the Company or unsolicited acquisition proposals. The anti-takeover
effect of these provisions may also have an adverse effect on the public
trading price of the Company's Class A Common Stock. See "Management--Stock
Plans", "Description of Capital Stock--Preferred Stock" and "--Certain Anti-
Takeover, Limited Liability and Indemnification Provisions; Section 203 of the
Delaware General Corporation Law".
Legal Proceedings
The Company is from time to time involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. In January 1999,
the Company filed an action for declaratory judgment against its former Vice
President, Sales from July 1998 to December 1998, seeking to have certain
claims for sales commissions, other commissions and stock grants declared
invalid. On February 5, 1999, the defendant in the Company's action filed a
complaint against the Company and Christina Jones, the Company's President and
Chief Operating Officer, requesting actual and punitive damages of not less
than $3.0 million as a result of the alleged failure of the Company to pay
certain commissions and make certain stock grants, among other matters. The
Company intends to contest the action vigorously and does not believe that
resolution of this action will have a material adverse effect on the Company's
financial condition. However, litigation is subject to inherent uncertainties
and, therefore, there can be no assurance that this action will not have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business--Legal Proceedings".
25
<PAGE>
Immediate and Substantial Dilution
The initial public offering price is substantially higher than the book
value per share of all of the outstanding classes of Common Stock. As a
result, investors purchasing Class A Common Stock in this offering will incur
immediate and substantial dilution. To the extent outstanding options to
purchase Class A Common Stock are exercised, there will be further dilution to
such investors. See "Dilution" and "Shares Eligible for Future Sale".
Uncertainty as to Use of Proceeds
The principal purposes of this offering are to increase the Company's
working capital, to create a public market for the Company's Class A Common
Stock and to facilitate future access to public equity markets. The Company
currently has no specific plans for the use of the net proceeds from this
offering other than for general corporate purposes, including working capital
and capital expenditures. Accordingly, the Company's management will retain
broad discretion as to the allocation of a substantial portion of the net
proceeds from this offering. Pending any such uses, the Company plans to
invest the net proceeds in investment-grade, interest-bearing securities. See
"Use of Proceeds" and "Certain Transactions".
26
<PAGE>
USE OF PROCEEDS
Based on an assumed initial public offering price of $20.00 per share, the
net proceeds to the Company from the sale of the 2,200,000 shares of Class A
Common Stock to be sold by the Company hereby will be approximately
$39,720,000 (approximately $45,858,800 if the Underwriters exercise their
over-allotment option in full), after deduction of underwriting discounts and
commissions and estimated offering expenses payable by the Company.
The principal purposes of this offering are to increase the Company's
working capital, to create a public market for the Company's Class A Common
Stock, to facilitate future access by the Company to public equity markets,
and to provide increased visibility and credibility to the Company. The
Company presently has no specific plans for use of the net proceeds of this
offering. The Company intends to use the net proceeds primarily for general
corporate purposes, including working capital to fund anticipated operating
losses arising in part from substantial investment in expanding the Company's
sales and marketing organization, and capital expenditures. The Company may,
when and if the opportunity arises, use an unspecified portion of the net
proceeds to acquire or invest in complementary businesses, products and
technologies. The Company has no present understandings, commitments or
agreements with respect to any material acquisition of, or investment in,
third parties. The Company believes that its existing capital resources,
combined with the net proceeds of this offering, will be sufficient to meet
its presently anticipated cash requirements through at least the next 12
months. There can be no assurance that the Company will not be required to
raise additional financing prior to such time, that additional financing will
be available when needed or that, if available, such financing will be
available on terms favorable to the Company and its stockholders. Pending use
of the net proceeds for the above purposes, the Company intends to invest such
funds in interest- bearing, investment-grade securities. See "Risk Factors--
Future Capital Needs; Uncertainty of Additional Financing".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends on its Class A Common
Stock or Class B Common Stock in the foreseeable future.
27
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the cash position
and capitalization of the Company (i) on an actual basis, and (ii) on an as
adjusted basis to give effect to the sale by the Company of the 2,200,000
shares of Class A Common Stock offered by the Company hereby at an assumed
initial public offering price of $20.00 per share and the receipt by the
Company of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
December 31, 1998
--------------------
Actual As Adjusted
------- -----------
(in thousands,
except share
amounts)
<S> <C> <C>
Cash and cash equivalents................................. $ 4,726 $44,862
======= =======
Long-term obligations, less current portion............... $ -- $ --
Stockholders' equity (deficit):
Preferred Stock, $.01 par value per share; 10,000,000
shares authorized; no shares issued or outstanding
(actual and as adjusted)............................... -- --
Class A Common Stock, $.01 par value per share;
37,243,000 shares authorized; 191,602 shares issued and
outstanding (actual)(1); and 2,391,602 shares issued
and outstanding (as adjusted)(1)....................... 1 23
Class B Common Stock, $.01 par value per share;
12,757,000 authorized; 12,757,000 shares issued and
outstanding (actual and as adjusted)................... 128 128
Additional paid-in capital.............................. 4,024 43,722
Deferred stock compensation............................. (1,726) (1,726)
Accumulated deficit..................................... (10,972) (10,972)
------- -------
Total stockholders' equity (deficit).................. (8,545) 31,175
------- -------
Total capitalization.................................. $(8,545) $31,175
======= =======
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1998.
Excludes (i) 3,207,074 shares of Class A Common Stock issuable upon the
exercise of outstanding stock options under the Company's 1996 Stock
Option Plan (the "1996 Option Plan") at a weighted average exercise price
of $4.00 per share and (ii) an additional 144,324 shares of Class A Common
Stock reserved for future grant under the 1996 Option Plan. Also excludes
the right under the terms of an applications subscription agreement to
require the Company to grant to a customer an option to purchase up to
320,000 shares of Class A Common Stock if one of specified certain events
occurs, including an initial public offering. As of December 31, 1998, no
specified event had occurred and the option was not outstanding. See
"Management--1996 Stock Option Plan", "--Agreement Regarding Grant of
Options" and Note 8 of Notes to Financial Statements.
28
<PAGE>
DILUTION
At December 31, 1998, the net tangible book value of the Company was a
deficit of $9,210,000, or $0.71 per share of Common Stock. Net tangible book
value (deficit) per share represents the amount of total tangible assets of
the Company reduced by the amount of its total liabilities, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale
by the Company of the 2,200,000 shares of Class A Common Stock offered by the
Company hereby at an assumed initial public offering price of $20.00 per share
and the receipt by the Company of the estimated net proceeds therefrom, the
pro forma net tangible book value of the Company as of December 31, 1998 would
have been $31,175,000, or $2.06 per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $2.77 per share to
existing stockholders and an immediate dilution of $17.94 per share to new
investors purchasing shares of Class A Common Stock in this offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $20.00
Net tangible book deficit per share as of December 31, 1998... $(0.71)
Increase per share attributable to new investors.............. 2.77
------
As adjusted net tangible book value per share after this
offering....................................................... 2.06
------
Dilution per share to new investors............................. $17.94
======
</TABLE>
The following table sets forth, on an as adjusted basis as of December 31,
1998, with respect to existing stockholders and new investors in this
offering, a comparison of the number of shares of Common Stock acquired from
the Company, the percentage ownership of such shares, the total cash
consideration paid, the percentage of total cash consideration paid and the
average price per share paid assuming the sale by the Company of the 2,200,000
shares of Class A Common Stock offered by the Company hereby at an assumed
initial public offering price of $20.00 per share and the receipt by the
Company of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 12,948,602 85.5% $ 446,000 1.0% $ 0.03
New investors.................. 2,200,000 14.5 44,000,000 99.0 $20.00
---------- ----- ----------- -----
Total........................ 15,148,602 100.0% $44,446,000 100.0%
========== ===== =========== =====
</TABLE>
The preceding table assumes no exercise of any outstanding stock options. As
of December 31, 1998, there were options outstanding to purchase a total of
3,207,074 shares of Class A Common Stock at a weighted average exercise price
of $4.00 per share and 144,324 additional shares reserved for future grant.
Also excludes the right under the terms of an applications subscription
agreement to require the Company to grant to a customer an option to purchase
up to 320,000 shares of Class A Common Stock if one of specified certain
events occurs, including an initial public offering. As of December 31, 1998,
no specified event had occurred and the option was not outstanding. To the
extent outstanding options are exercised or shares reserved for future grant
are issued, there will be further dilution to new investors. See "Management--
1996 Stock Option Plan" and Note 8 of Notes to Financial Statements.
29
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and with the Financial Statements and Notes thereto which are
included elsewhere in this Prospectus. The statement of operations data for
the fiscal years ended December 31, 1996, 1997 and 1998 and the balance sheet
data at December 31, 1997 and 1998 are derived from the audited Financial
Statements included elsewhere in this Prospectus. The statement of operations
data for the years ended December 31, 1994 and 1995, and the balance sheet
data at December 31, 1994, 1995 and 1996 are derived from audited financial
statements not included in this Prospectus. Historical results are not
necessarily indicative of results in the future. See "Risk Factors--
Significant Fluctuations in Future Operating Results" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software and subscriptions..... $ -- $ 1,836 $ 3,633 $ 6,475 $ 12,651
Content and services........... 515 1,887 2,249 4,114 9,063
-------- -------- -------- -------- --------
Total revenues................ 515 3,723 5,882 10,589 21,714
-------- -------- -------- -------- --------
Cost of revenues:
Software and subscriptions..... 148 818 822 1,023 3,242
Content and services........... 390 953 1,112 2,553 7,068
-------- -------- -------- -------- --------
Total cost of revenues........ 538 1,771 1,934 3,576 10,310
-------- -------- -------- -------- --------
Gross profit (loss)............. (23) 1,952 3,948 7,013 11,404
Operating expenses:
Research and development....... 106 660 1,168 1,129 4,292
Selling and marketing.......... 72 577 2,555 4,793 12,151
General and administrative..... -- 116 726 1,792 3,689
Amortization of deferred stock
and stock compensation
expense....................... -- -- -- -- 1,468
-------- -------- -------- -------- --------
Total operating expenses...... 178 1,353 4,449 7,714 21,600
-------- -------- -------- -------- --------
Operating income (loss)......... (201) 599 (501) (701) (10,196)
Interest income................. -- -- -- -- 172
-------- -------- -------- -------- --------
Income (loss) before income
taxes.......................... (201) 599 (501) (701) (10,024)
Income tax provision
(benefit)(1)................... (68) 207 (191) 427 (386)
-------- -------- -------- -------- --------
Net income (loss)(1)............ $ (133) $ 392 $ (310) $ (1,128) $ (9,638)
======== ======== ======== ======== ========
Basic and diluted net income
(loss) per share(1)............ $ (0.10) $ 0.03 $ (0.02) $ (0.09) $ (0.75)
======== ======== ======== ======== ========
Weighted average shares
outstanding.................... 1,280 12,800 12,800 12,800 12,861
======== ======== ======== ======== ========
<CAPTION>
December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents(2).... $ -- $ -- $ -- $ 2,207 $ 4,726
Working capital (deficit)(3).... (291) 255 (253) (1,489) (9,045)
Total assets.................... 1,088 1,492 3,435 4,978 12,254
Stockholders' equity (deficit).. (287) 442 132 (995) (8,545)
</TABLE>
- --------
(1) The unaudited pro forma income tax benefit, unaudited pro forma net loss
and unaudited pro forma basic and diluted net loss per share for the year
ended December 31, 1998 computed as if the Company filed a separate income
tax return is $292,000, $9,732,000 and $.76 per share, respectively.
(2) Prior to 1997, the Company relied on Trilogy for all of its cash
management requirements.
(3) Working capital (deficit) at December 31, 1996, 1997 and 1998 includes the
effect of deferred revenue of $2,162,000, $4,212,000 and $10,428,000,
respectively.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this Prospectus.
Overview
pcOrder is a leading provider of Internet-based e-commerce solutions that
are designed to enable the computer industry's suppliers, resellers and end
users to buy and sell computer products online. The Company leverages Internet
technologies to provide comprehensive e-commerce solutions designed to
increase sales and marketing productivity, meet end-user demand for online
ordering, reduce costs and shorten order fulfillment cycles for industry
participants. The Company's solutions include software applications that
automate product search, comparison, configuration, pricing, financing and
ordering, combined with what the Company believes is the industry's largest
content database consisting of detailed product, categorization,
compatibility, pricing and availability information.
The Company was established as a separate business unit within Trilogy on
July 1, 1993, and was incorporated on July 18, 1994. The Company began to
recognize revenue in April 1994, and has periodically released new products
and enhancements to its existing products since that date. In late 1996, Ross
A. Cooley joined the Company as Chairman and Chief Executive Officer and
brought significant computer industry experience and long-term relationships
with computer industry participants to the Company. Since that time, the
Company's e-commerce solutions for the computer industry have gained broader
acceptance, and have been adopted by market leaders including Compaq Computer
Corporation ("Compaq"), CompuCom Systems, Inc. ("CompuCom"), CompUSA Inc.
("CompUSA"), CMP Publications, Inc. ("CMP Publications"), GE Capital Corp.
("GE Capital"), Hewlett-Packard Company ("HP"), Ingram Micro, International
Business Machines Corporation ("IBM"), Kingston Technology Corporation
("Kingston"), Nortel Networks Inc. ("Nortel Networks"), MCI Systemhouse Corp.
("MCI Systemhouse"), MicroAge Integration Company, PC Wholesale, Pinacor, Inc.
("Pinacor") and Tech Data Corporation ("Tech Data"). In addition, over 500
resellers use the Company's solution. The Company's revenues have grown from
$5.9 million in 1996 to $21.7 million in 1998.
The Company derives its revenues from software and subscription fees and
related content and service fees. Software and subscription fees consist of
subscription-based and perpetual license arrangements. Prior to 1997, the
Company's software and subscription fees had been derived primarily from
perpetual licenses of the Company's products. In late 1996, the Company
commenced a transition of its pricing model to subscription-based
arrangements. Currently, the Company derives the majority of its software and
subscription fees from subscription-based arrangements, but may from time to
time grant perpetual licenses to accommodate individual customer needs.
Content fees are charged for access, entry, updating and maintenance of
computer product data and are generally contracted for on a subscription
basis. The Company's service fees consist of providing integration,
customization and training services to the Company's customers. Such fees are
generally charged on a time and materials basis; however, the Company has in
the past and may from time to time in the future provide such services on a
fixed price basis.
Revenue from perpetual licenses and software subscriptions is recognized
when persuasive evidence of an arrangement exists, delivery of the product has
occurred, the fee is fixed or determinable and collectibility is probable. In
the case of perpetual licenses, revenue is recognized immediately upon
31
<PAGE>
achievement of the above criteria. In the case of subscriptions, revenue
recognition commences upon achievement of the above criteria, but is generally
recognized ratably over the life of the arrangement. Software maintenance fees
relating to perpetual licenses are recognized ratably over the term of the
applicable maintenance agreement. Content fees are generally recognized
ratably over the applicable maintenance period, which generally commences upon
initial content entry.
Time and materials service fees are recognized as the services are
performed. The Company recognizes revenue on fixed price service arrangements
upon (i) the completion of specific contractual events, or (ii) based on an
estimated percentage of completion as work progresses.
The Company records cash advances and amounts billed in excess of revenue
recognized as deferred revenue. The Company's deferred revenue balance on
December 31, 1998 was $12.5 million. Approximately $10.4 million of this
deferred revenue is expected to be recognized as revenue within the following
twelve months, with the remaining amount expected to be recognized subsequent
to December 31, 1999. The deferred revenue balance generally results from
contractual commitments made by customers to pay amounts to the Company in
advance of receipt of products or services. The timing and amount of cash
advances from customers can vary significantly depending on specific contract
terms and can therefore have a significant impact on the amount of deferred
revenue in any given period. Deferred revenue is not indicative of the
Company's contract backlog or future revenues. The Company derives the
majority of its revenues from subscription-based arrangements which may have
pre-payment terms resulting in deferred revenue and which require renewal for
license access and service beyond the contract period. Fluctuations in
deferred revenue result in similar fluctuations in the Company's cash flow
from operations.
Statement of Position ("SOP") 97-2, "Software Revenue Recognition" was
issued in October 1997 by the American Institute of Certified Public
Accountants ("AICPA") and amended by SOP 98-4, "Deferral of the Effective Date
of a Provision of SOP 97-2". The Company adopted SOP 97-2 and SOP 98-4
effective January 1, 1998. Effective December 15, 1998, the AICPA issued SOP
98-9, "Modification of SOP 97-2, "Software Revenue Recognition', With Respect
to Certain Transactions." SOP 98-9 amends SOP 97-2 and 98-4, extending the
deferral of the application of certain passages of SOP 97-2 provided by SOP
98-4 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. The Company does not believe that the
final adoption of SOP 98-9 will have a material effect on the Company's
financial condition or results of operations.
Pursuant to an intercompany license agreement with Trilogy, the Company is
obligated to pay Trilogy royalties based on fees generated from perpetual
license agreements, software maintenance and subscription-based licenses.
Also, the Company has entered into certain agreements with Trilogy pursuant to
which Trilogy provides certain administrative and corporate support services
to the Company, including certain tax administration, payroll, payroll
accounting, banking, corporate finance, recruiting and employee training
services. In addition, the Company has entered into a tax allocation agreement
with Trilogy. See Notes 2 and 4 of Notes to Financial Statements.
Except for a small profit in 1995, the Company has incurred annual losses
from operations from its inception in July 1993 to date, and the Company
expects to continue to incur losses from operations on both a quarterly and an
annual basis for the foreseeable future. The Company had an accumulated
deficit of $11.0 million at December 31, 1998. Furthermore, the Company
intends to invest significantly in its sales and marketing organization,
programs and activities to increase sales of its products and services to its
existing customers and to new customers. However, historically the Company has
experienced a lengthy cycle for sales of its products to resellers and longer
sales cycles for sales of its products to manufacturers and distributors.
Consequently, even if the Company achieves increased sales of its products and
services as a result of its investments in its salesforce, such increases
likely will not be recognized in the quarter in which such investments are
made.
32
<PAGE>
Because the market for the Company's products has only recently emerged, and
based on other factors described in this Prospectus, the Company believes that
its quarterly and annual revenues, expenses and operating results are likely
to vary significantly in the future, that period-to-period comparisons of the
Company's results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance.
Moreover, although the Company's revenues have increased in recent periods,
there can be no assurance that the Company's revenues will grow in future
periods, that they will grow at past rates or that the Company will achieve
profitability on a quarterly or annual basis in the future. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in the early stage of development,
particularly companies in new and rapidly evolving markets. There can be no
assurance that the Company will be successful in addressing such risks and
difficulties or that the Company will achieve or sustain profitability in the
future.
Results of Operations
The following table sets forth the results of operations for the Company
expressed as a percentage of total revenues. The Company's historical
operating results are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Software and subscriptions.................................. 62% 61% 58%
Content and services........................................ 38 39 42
--- --- ---
Total revenues............................................ 100 100 100
--- --- ---
Cost of revenues:
Software and subscriptions................................... 14 10 15
Content and services........................................ 19 24 33
--- --- ---
Total cost of revenues.................................... 33 34 48
--- --- ---
Gross profit................................................. 67 66 52
Operating expenses:
Research and development.................................... 20 11 20
Selling and marketing....................................... 43 45 56
General and administrative.................................. 12 17 17
Amortization of deferred stock and stock compensation
expense.................................................... -- -- 6
--- --- ---
Total operating expenses.................................. 75 73 99
--- --- ---
Operating loss............................................... (8) (7) (47)
Interest income.............................................. -- -- 1
--- --- ---
Loss before income taxes..................................... (8) (7) (46)
Income tax provision (benefit)............................... (3) 4 (2)
--- --- ---
Net loss..................................................... (5)% (11)% (44)%
=== === ===
</TABLE>
33
<PAGE>
Comparison of 1997 and 1998
Revenues
Total revenues increased 105% from $10.6 million in 1997 to $21.7 million in
1998. The Company's top five customers in 1997 accounted for 64% of total
revenues during the year, and the Company's top five customers in 1998
accounted for 62% of total revenues during the year.
Software and Subscriptions. Software and subscription revenues increased 95%
from $6.5 million in 1997 to $12.7 million in 1998, representing 61% and 58%
of total revenues, respectively. The increase in absolute dollars was due
primarily to the addition of subscription-based and perpetual license
customers and increased subscription-based arrangements for additional
authorized users for existing customers. Software and subscription revenues
decreased as a percentage of total revenues primarily due to a higher relative
increase in content and service revenues related to additional content fees,
software integration, customization and training services associated with the
Company's increased customer base.
Software and subscription revenues recognized under perpetual licenses were
$744,000 and $3.2 million in 1997 and 1998, respectively, representing 7% and
15% of total revenues, respectively. The increase in absolute dollars and as a
percentage of total revenues was due primarily to a perpetual license
agreement executed during 1998.
Content and Services. Content and service revenues increased 120% from $4.1
million in 1997 to $9.1 million in 1998, representing 39% and 42% of total
revenues, respectively. The increase in absolute dollars and as a percentage
of total revenues was due primarily to additional content fees and software
integration, customization and training services associated with the Company's
increased customer base.
Cost of Revenues
Software and Subscriptions. Cost of software and subscription revenues
consists primarily of royalties paid to Trilogy and the cost of providing
software maintenance. Cost of software and subscription revenues increased
217% from $1.0 million during 1997 to $3.2 million during 1998, representing
16% and 26% of software and subscription revenues, respectively. The increase
in cost of software and subscription revenues in absolute dollars was due
primarily to (i) the increase in customer support headcount and the related
operating expenses and (ii) the increase in royalties paid to Trilogy on
software applications as a result of increased total revenues. The increase in
cost of software and subscription revenues as a percentage of software and
subscription revenues was due primarily to the increased personnel and other
costs associated with providing software maintenance services to a greater
number of customers.
Content and Services. Cost of content and service revenues consists
primarily of the cost of providing access, entry, update and maintenance
services for computer product information services and the cost of in-house
and contract personnel providing software integration, customization and
training services. Cost of content and service revenues increased 177% from
$2.6 million in 1997 to $7.1 million in 1998, representing 62% and 78% of
content and service revenues, respectively. The increase in cost of content
and service revenues in absolute dollars and as a percentage of content and
service revenues was due primarily to (i) the increase in headcount within the
Company's content management group ("PC Labs") and the depreciation related to
additional computer equipment for PC Labs purchased during 1998 and (ii) the
increased personnel and other costs associated with providing software
integration, customization and training services to a greater number of
customers. Additionally, the increase in cost of content and service revenues
as a percentage of total revenues for 1998 was offset primarily by the
recognition of revenue under a fixed fee arrangement for which the majority of
the associated costs were expensed in the fourth quarter of 1997.
34
<PAGE>
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel costs to support product development. Research and
development expenses increased 280% from $1.1 million in 1997 to $4.3 million
in 1998, representing 11% and 20% of total revenues, respectively. These
increases were due primarily to an increase in internal development personnel.
The Company believes that continued investment in research and development is
critical to attaining its strategic objectives and, as a result, expects
research and development costs in absolute dollars to increase significantly
in future periods.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries and outsourced personnel costs, advertising, travel, tradeshows and
public relations expenses. Selling and marketing expenses increased 154% from
$4.8 million in 1997 to $12.2 million in 1998, representing 45% and 56% of
total revenues, respectively. The increase in absolute dollars was due
primarily to an increase in personnel and the Company's increased marketing
campaign expenditures. The Company believes that such expenses will increase
in absolute dollars and as a percentage of revenues in future periods as it
expands its sales and marketing organization and activities.
General and Administrative. General and administrative expenses consist
primarily of personnel costs, recruiting and professional legal and accounting
services, as well as management fees paid to Trilogy. General and
administrative expenses increased 106% from $1.8 million in 1997 to $3.7
million in 1998, representing 17% of total revenues in both periods. The
increase in absolute dollars was due primarily to increased personnel and
facility expenses necessary to support the Company's growth. The Company
believes general and administrative expenses will increase in absolute dollars
as the Company expands its personnel and infrastructure to support its growth
and assumes the responsibilities of a public company.
Amortization of Deferred Stock and Stock Compensation Expense. In 1998, the
Company recorded total deferred stock compensation of $2.8 million in
connection with stock options granted during 1998. Such amount is being
amortized over the vesting periods of the applicable options, resulting in
amortization of $1.1 million for 1998. These amounts represent the difference
between the exercise price of certain stock option grants and the deemed fair
value of the Company's Common Stock at the time of such grants. Additionally,
the Company recorded approximately $383,000 in stock compensation expense
which represents the fair value of options granted to certain non-employees
during the year.
Income Taxes
The Company is included in the consolidated income tax return of Trilogy.
The Company has also entered into a tax sharing agreement with Trilogy. Should
Trilogy's ownership interest fall below 80% of the outstanding shares, the
Company will no longer be included in the consolidated group or subject to the
tax sharing agreement. See Note 2 of Notes to Financial Statements.
The Company's effective tax rate was 61.0% and (3.9)% for 1997 and 1998,
respectively. The primary differences between the effective tax rates for such
periods resulted from increases to the valuation allowance for the Company's
deferred tax assets. The pro forma income tax provision reflects the income
tax benefit for 1998 as if the Company had filed a separate income tax return.
Comparison of 1996 and 1997
Revenues
The Company's total revenues increased 80% from $5.9 million in 1996 to
$10.6 million in 1997. The Company's top five customers for 1996 accounted for
approximately 89% of total revenues in 1996, and the Company's top five
customers for 1997 accounted for 64% of total revenues in 1997.
Software and Subscriptions. Software and subscription revenues increased 78%
from $3.6 million in 1996 to $6.5 million in 1997, representing 62% and 61% of
total revenues, respectively.
35
<PAGE>
The increase in absolute dollars was due primarily to the increase in revenues
from subscription-based arrangements, partially offset by the decrease in
revenues from perpetual licenses, as customer demand shifted from perpetual
licenses to subscription-based arrangements. Software and subscription
revenues recognized under perpetual licenses were $2.0 million and $744,000 in
1996 and 1997, respectively, representing 33% and 7% of total revenues,
respectively. Revenues from subscription-based arrangements increased due
primarily to additional subscription- based customers.
Content and Services. Content and service revenues increased 83% from $2.2
million in 1996 to $4.1 million in 1997, representing 38% and 39% of total
revenues, respectively. The increase was due primarily to an increase in
content fees associated with new content customers and software integration,
customization and training services associated with an increase in the number
of software and subscription customers.
Cost of Revenues
Software and Subscriptions. Cost of software and subscription revenues
increased from $822,000 in 1996 to $1.0 million in 1997, representing 23% and
16% of software and subscription revenues, respectively. The decrease in cost
of software and subscription revenues as a percentage of such revenues was due
primarily to higher deployment costs incurred in 1996 as compared to 1997.
Content and Services. Cost of content and service revenues increased from
$1.1 million in 1996 to $2.6 million in 1997, representing 49% and 62% of
content and service revenues, respectively. The increase in cost of content
and service revenues in absolute dollars was due primarily to an increase in
personnel and other costs associated with providing these services to a
greater number of customers. Cost of content and service revenues increased as
a percentage of content and service revenues due primarily to an increase in
headcount in PC Labs and an increase in service personnel to handle the
Company's increased content and software customer base, and the incurrence of
costs associated with deployment of a fixed fee consulting arrangement in 1997
with the recognition of related revenues in 1998.
Operating Expenses
Research and Development. Research and development expenses decreased
marginally from $1.2 million in 1996 to $1.1 million in 1997, representing 20%
and 11% of total revenues, respectively. The decrease as a percentage of
revenues was due primarily to the completion of the development of certain of
the Company's products as such products became available for sale and
deployment in 1997. As a result, research and development expenses in absolute
dollars remained relatively flat from 1996 to 1997.
Selling and Marketing. Selling and marketing expenses increased 88% from
$2.6 million in 1996 to $4.8 million in 1997, representing 43% and 45% of
total revenues, respectively. The increase in absolute dollars was due
primarily to increases in personnel and expenditures relating to the Company's
sales and marketing organization and activities.
General and Administrative. General and administrative expenses increased
147% from $726,000 in 1996 to $1.8 million in 1997, representing 12% and 17%
of total revenues, respectively. The increase in absolute dollars and as a
percentage of total revenues was due primarily to increased personnel and
facility expenses necessary to support the Company's growth.
Income Taxes
The Company is included in the consolidated income tax return of Trilogy. An
income tax provision was recorded by the Company using an effective tax rate
of 38% and 61% for the years ended December 31, 1996 and 1997, respectively.
The increase in the effective rate for 1997 resulted from the establishment of
a valuation allowance to reduce the Company's net deferred tax assets to zero.
36
<PAGE>
Unaudited Quarterly Results Of Operations
The following table sets forth certain unaudited quarterly statement of
operations data for the eight quarters ended December 31, 1998. In the opinion
of management, this information has been prepared substantially on the same
basis as the audited Financial Statements appearing elsewhere in this
Prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results of operations. The quarterly data should be
read in conjunction with the audited Financial Statements of the Company and
the Notes thereto appearing elsewhere in this Prospectus. The operating
results for any quarter are not necessarily indicative of the operating
results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software and
subscriptions......... $1,259 $1,382 $1,717 $2,117 $2,397 $3,075 $ 3,264 $ 3,915
Content and services... 872 1,001 1,099 1,142 2,108 2,003 2,312 2,640
------ ------ ------ ------ ------ ------ ------- -------
Total revenues....... 2,131 2,383 2,816 3,259 4,505 5,078 5,576 6,555
------ ------ ------ ------ ------ ------ ------- -------
Cost of revenues:
Software and
subscriptions......... 182 194 232 415 580 634 983 1,045
Content and services... 389 586 740 838 946 1,417 1,780 2,925
------ ------ ------ ------ ------ ------ ------- -------
Total cost of
revenues............ 571 780 972 1,253 1,526 2,051 2,763 3,970
------ ------ ------ ------ ------ ------ ------- -------
Gross profit............ 1,560 1,603 1,844 2,006 2,979 3,027 2,813 2,585
Operating expenses:
Research and
development........... 283 221 320 305 810 975 1,148 1,359
Selling and marketing.. 988 1,183 1,270 1,352 1,553 2,170 4,601 3,827
General and
administrative........ 261 305 404 822 636 660 1,160 1,233
Amortization of
deferred stock and
stock compensation
expense............... -- -- -- -- -- 227 727 514
------ ------ ------ ------ ------ ------ ------- -------
Total operating
expenses............ 1,532 1,709 1,994 2,479 2,999 4,032 7,636 6,933
------ ------ ------ ------ ------ ------ ------- -------
Operating income
(loss)................. 28 (106) (150) (473) (20) (1,005) (4,823) (4,348)
Interest income......... -- -- -- -- 7 38 62 65
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) before
income taxes........... 28 (106) (150) (473) (13) (967) (4,761) (4,283)
Income tax provision
(benefit).............. (18) 65 93 287 -- -- (203) (183)
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss)....... $ 46 $ (171) $ (243) $ (760) $ (13) $ (967) $(4,558) $(4,100)
====== ====== ====== ====== ====== ====== ======= =======
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenues:
Revenues:
Software and
subscriptions......... 59% 58% 61% 65% 53% 61% 59% 60%
Content and services... 41 42 39 35 47 39 41 40
------ ------ ------ ------ ------ ------ ------- -------
Total revenues....... 100 100 100 100 100 100 100 100
------ ------ ------ ------ ------ ------ ------- -------
Cost of revenues:
Software and
subscriptions......... 9 8 8 13 13 12 18 16
Content and services... 18 25 27 25 21 28 32 45
------ ------ ------ ------ ------ ------ ------- -------
Total cost of
revenues............ 27 33 35 38 34 40 50 61
------ ------ ------ ------ ------ ------ ------- -------
Gross profit............ 73 67 65 62 66 60 50 39
Operating expenses:
Research and
development........... 13 9 11 9 18 19 20 21
Selling and marketing.. 47 50 45 42 35 43 82 58
General and
administrative........ 12 12 15 25 14 13 21 19
Amortization of
deferred stock and
stock compensation
expense............... -- -- -- -- -- 5 13 7
------ ------ ------ ------ ------ ------ ------- -------
Total operating
expenses............ 72 71 71 76 67 80 136 105
------ ------ ------ ------ ------ ------ ------- -------
Operating income
(loss)................. 1 (4) (6) (14) (1) (20) (86) (66)
Interest income......... -- -- -- -- -- 1 1 1
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) before
income taxes........... 1 (4) (6) (14) (1) (19) (85) (65)
Income tax provision
(benefit).............. (1) 3 3 9 -- -- (3) (2)
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss)....... 2% (7)% (9)% (23)% (1)% (19)% (82)% (63)%
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
The Company's total revenues and software and subscription revenues
increased quarter to quarter during each of the eight quarters ended December
31, 1998 due primarily to increasing market acceptance of the Company's
products, and increases in its installed base of customers. Content and
37
<PAGE>
service revenues have generally increased quarter to quarter due primarily to
additional content fees, software integration, customization and training
services associated with an increase in the number of software applications
and content customers. Content and service revenues decreased as a percentage
of total revenues in the fourth quarter of 1997 and increased significantly in
absolute dollars and as a percentage of total revenues for the quarter ended
March 31, 1998 due primarily to the recognition of revenues from a significant
fixed fee arrangement in the quarter ended March 31, 1998 for which work began
in the quarter ended December 31, 1997. Cost of software and subscription
revenues increased in absolute dollars quarter to quarter with the increase in
software and subscription revenues. Cost of content and service revenues have
generally increased in absolute dollars and as a percentage of content and
service revenues quarter to quarter, with the exception of the quarter ended
March 31, 1998, due primarily to an increase in personnel and other costs
associated with providing these services to a greater number of customers. The
decrease in the quarter ended March 31, 1998, is due primarily to the fixed
fee arrangement discussed above.
Research and development expenses in absolute dollars and as a percentage of
total revenues were relatively constant through the four quarters ended
December 31, 1997. Commencing in the quarter ended March 31, 1998, research
and development expenses increased significantly in both absolute dollars and
as a percentage of revenues due to significant increases in research and
development personnel and related costs to fund development of new products,
data models and tools.
Selling and marketing expenses have increased in absolute dollars quarter to
quarter during each of the eight quarters ended December 31, 1998, reflecting
the increase in growth of the Company's sales and marketing organizations and
activities. Selling and marketing expenses increased in the third quarter of
1998 due primarily to increased marketing efforts focused on acquiring
regional resellers and corporate buyers, and remained relatively constant in
the fourth quarter of 1998.
With the exception of the quarter ended December 31, 1997, general and
administrative expenses generally increased quarter to quarter in absolute
dollars and remained relatively constant as a percentage of total revenues
through June 30, 1998. General and administrative expenses increased
significantly in the third and fourth quarters of 1998 due primarily to
increased personnel and facility expenses necessary to support the Company's
growth. The increase in the quarter ended December 31, 1997 was a result of an
increase in accrued management bonuses and allowance for bad debts.
Factors Affecting Operating Results
The Company's revenues and operating results have in the past fluctuated
significantly and are expected to fluctuate significantly in the future due to
a combination of factors, many of which are outside of the Company's control.
In addition, the timing and amount of revenues associated with particular
sales can vary significantly based upon (i) the number of products that are
accessed and the number of authorized users, and (ii) whether the fees are
perpetual or subscription-based. The Company has in the past recognized, and
may in the future be required to recognize, a significant portion of revenue
derived from license agreements with its customers in a single fiscal quarter,
which can cause significant variations in quarterly revenues. Moreover, small
delays in customer orders can cause significant variability in the Company's
total revenues and results of operations for any particular period. As a
result, the timing of significant orders and the recognition of revenue from
such orders is unpredictable. Unfavorable changes in any of the above factors
could materially and adversely affect the Company's revenues, gross margins
and results of operations in future periods.
As a result of the Company's limited operating history and the emerging
nature of the e-commerce market in which the Company competes, there can be no
assurance that the Company will be able to accurately forecast its revenues.
The Company's current and future expense levels are based primarily on its
operating plans and estimates of future revenues and are to a large extent
fixed costs. The
38
<PAGE>
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues would likely have an immediate material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Significant Fluctuation in Future Operating Results". Based upon all
of the foregoing, the Company believes that its quarterly and annual revenues,
expenses and operating results are likely to vary significantly in the future,
that period-to-period comparisons of the Company's results of operations are
not necessarily meaningful and that such comparisons should not be relied upon
as indications of future performance. Moreover, although the Company's
revenues have increased in recent periods, there can be no assurance that the
Company's revenues will grow in future periods, that they will grow at past
rates or that the Company will achieve profitability on a quarterly or annual
basis in the future. Due to the foregoing as well as other factors, it is
likely that the Company's operating results will be below market analysts'
expectations in some future quarters, which could materially and adversely
affect the market price of the Common Stock.
Historically, the Company has received a significant portion of its revenues
from a limited number of customer agreements. The Company believes that a
customer's decision to purchase its products or license its technology is
relatively discretionary and, especially for large-scale users, generally
involves a significant commitment of capital resources. Therefore, any
downturn in the economy or in the business of customers or potential customers
could have a material adverse effect on the Company's revenues and quarterly
results of operations. See "Risk Factors--Significant Fluctuations in Future
Operating Results".
Due to the foregoing factors, it is likely that in some future quarters the
Company's operating results will fall below the expectations of securities
analysts and investors, which would likely have a material adverse effect on
the trading price of the Common Stock.
Liquidity and Capital Resources
From inception through 1996, the Company financed its operations primarily
through advances from its parent, Trilogy. Since 1997, the Company has
primarily financed its operations from cash provided by operations. As of
December 31, 1998, the Company had $4.7 million of cash and cash equivalents.
As of December 31, 1998, the Company's principal commitments consisted of
obligations outstanding under operating leases. Although the Company has no
material commitments for capital expenditures, management anticipates a
substantial increase in its capital expenditures and lease commitments
consistent with anticipated growth in operations, infrastructure and
personnel.
Cash used by operations was $647,000 in 1996, and cash provided by
operations was $3.1 million and $4.7 million in 1997 and 1998, respectively.
Cash used in operations in 1996 resulted primarily from a net loss of $310,000
and an increase in accounts receivable of $2.2 million, largely offset by
increases in deferred revenue of $1.1 million and accounts payable and accrued
expenses of $618,000. Net cash provided by operations of $3.1 million in 1997
resulted primarily from an increase in deferred revenue of $2.1 million and
other favorable working capital changes, offset by a net loss of $1.1 million.
Net cash provided by operations of $4.7 million for the year ended
December 31, 1998 was primarily attributable to an increase in deferred
revenue of $8.3 million, an increase in the payable to Trilogy of $4.2
million, largely offset by a net loss of $9.6 million, net of the amortization
of deferred stock and stock compensation expense of $1.5 million.
Net cash used in investing activities of $359,000, $662,000, and $2.6
million for 1996, 1997 and 1998, respectively, was primarily related to
purchases of equipment. In 1998, the Company also had expenditures for
leasehold improvements related to the move into their current facility and
software and computers for additional employees.
39
<PAGE>
Cash provided by financing activities of $1.0 million in 1996 and cash used
in financing activities of $254,000 in 1997 was primarily attributable to the
net increase and decrease, respectively, in amounts payable to Trilogy for
advances received or repaid. Cash provided by financing activities of $445,000
for 1998, was attributable to proceeds received from the exercise of stock
options.
Since its inception, the Company has significantly increased its operating
expenses. The Company currently anticipates that it will continue to
experience significant growth in its operating expenses for the foreseeable
future and that its operating expenses will be a material use of the Company's
cash resources. The Company believes that its existing capital resources,
combined with the net proceeds of this offering, will be sufficient to meet
its presently anticipated cash requirements through at least the next 12
months. There can be no assurance that the Company will not be required to
raise additional financing prior to such time, that additional financing will
be available when needed or that, if available, such financing will be
available on terms favorable to the Company and its stockholders.
Recently Issued Accounting Pronouncements
See Note 2 of Notes to Financial Statements for recently adopted and
recently issued accounting standards.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations,
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices or engage in other normal
business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements. The Company uses a number of computer software programs
and operating systems and its proprietary solutions include source code which
must address the Year 2000 issue. However, the Company believes that its Year
2000 issues are limited to information technology ("IT") systems (i.e.,
software programs and computer operating systems) and that because its
business is not solely dependent on the use of non-IT systems (i.e., embedded
systems such as devices used to control, monitor or assist the operation of
equipment and machinery), the failure of any such non-IT systems as a result
of Year 2000 issues would not have a material adverse effect on the Company's
operations.
The Company relies, in part, on Trilogy's internal computer systems. The
Company has been informed by Trilogy that Trilogy's internal computer systems
are Year 2000 compliant. The Company has completed a limited review of its IT
systems and the products for which the Company currently provides maintenance
and support, which involved testing and verification as described below. Based
on such review, the Company believes its own IT systems and the products for
which the Company currently provides maintenance and support are Year 2000
compliant. The Company's Year 2000 compliance effort consisted of verifying
and testing the ability of the products for which the Company currently
provides maintenance and support to successfully handle the date change from
December 31, 1999 to January 1, 2000, date changes from February 28 to
February 29 and arbitrary dates ranging from 2000 to 2037. The Company has no
plans to conduct further review of its currently supported products or IT
systems. The Company has not historically made any material expenditures in
readying its IT systems or currently support products for the Year 2000 and
does not believe it will be necessary in the future to expend any material
amounts in connection with Year 2000 compliance.
Notwithstanding the foregoing, there can be no assurance that Year 2000
errors or defects will not be discovered in the Company's current or future
products. Any failure by the Company to make
40
<PAGE>
its products Year 2000 compliant, or of such products not to be Year 2000
compliant as a result of a failure of Trilogy's products to be Year 2000
compliant, could result in a decrease in sales of the Company's products,
unanticipated expenses to address Year 2000 problems or significant
liabilities resulting from losses suffered by the Company's customers due to
such Year 2000 problems, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company does not have, and currently has no plan to make, a contingency plan
for the remediation of Year 2000 problems that may effect the Company's IT
systems and products, or the third-party equipment and software utilized by
the Company, and it will be necessary for the Company to make the necessary
expenditures to assess and remedy such problems in the event they arise in the
future, which expenditures, if any, cannot be estimated by the Company. There
can be no assurance that such expenditures, if required, would not have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's solutions also utilize and depend on third-party equipment and
software that may not be Year 2000 compliant. The Company contacted certain
third-party vendors in order to ascertain their Year 2000 compliance. Based on
information supplied by such third-party vendors, the Company's officially
supported products developed using Visual Basic 5, Visual C++ or Java can be
certified Year 2000 compliant only through December 31, 2036, the last date
which the Company tested and verified. The Company estimates that such
certification applies to 90% to 95% of the Company's total products. Many of
the Company's products also use or rely on Microsoft's SQL Server product,
which has been certified Year 2000 compliant through December 31, 9999. The
Company believes that approximately 1.0% of the Company's products use or rely
on third-party vendor software which may be subject to Year 2000 issues and
for which the Company has received no assurance of Year 2000 compliance. To
the extent any of the Company's products are customized, whether by the
Company or a third party, there can be no assurance that any such customized
product will continue to be Year 2000 compliant. Failure of such third-party
equipment or software, or of systems maintained by the Company's suppliers, to
operate properly with regard to the Year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, to the extent the Company's products
are installed on customers' systems which rely on other software, firmware or
hardware which may not be Year 2000 compliant, problems in communications
among industry participants could result in a delay in the Company's products
achieving market acceptance. Furthermore, the purchasing patterns of customers
or potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000
compliance. These expenditures may result in reduced funds available to
purchase products from the Company of computer products manufacturers, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
41
<PAGE>
BUSINESS
Industry Background
Growth of Internet Usage and E-Commerce
The Internet and Internet-related technologies are revolutionizing the way
businesses and consumers communicate, share information and conduct business.
As the number of Internet users and the sophistication of Internet-enabled
content and development tools have increased, the Internet's functionality has
expanded from a medium primarily for publishing information to enabling
complex business-to-business and business-to-consumer communications and
commerce. At the same time, businesses across many industries are faced with
increasing competitive pressures to lower costs, decrease inventories, and
improve sales and marketing productivity and time-to-market. To address these
challenges, businesses are increasingly replacing paper-based transactions
with e-commerce solutions that provide enhanced accuracy and secure exchange
of time-sensitive business information. Forrester Research, Inc. ("Forrester")
estimates that the business-to-business e-commerce market will grow from $43
billion in 1998 to $1.3 trillion by 2003, representing a compound annual
growth rate of over 98%. In addition, Forrester believes that computer
products (including wholesale and retail equipment, software, semiconductors
and manufacturing) is the largest and fastest growing segment, by revenue, in
business-to-business e-commerce. Moreover, the Company believes that the
computer industry is particularly well-suited to the use of Internet-enabled
e-commerce solutions due to: (i) the large size and fragmented nature of the
industry, (ii) the high costs of sales and distribution, (iii) the challenges
in managing the volume and complexity of product, pricing, and configuration
information resulting from a wide array of products, short product life cycles
and increased demand for custom configured solutions, and (iv) its propensity
to embrace technology for automating processes.
Need to Enhance Efficiencies in the Sales, Marketing and Distribution of
Computer Products
According to International Data Corporation ("IDC"), the North American
computer products market, including PCs, servers, workstations, related
storage devices, peripherals and data communications equipment totaled $129
billion in 1997 and is expected to reach $178 billion by 2002. Furthermore,
purchases of computer products often involve purchases of related software
applications.
As the market for computer products has developed, the diverse group of
industry participants has grown both in size and complexity. These
participants include (i) computer hardware, software, peripheral and component
manufacturers, (ii) distribution channel participants, including distributors,
resellers, systems integrators and retailers, and (iii) end users, including
both corporate buyers and consumers. The computer industry supply chain
consists of various sales and distribution models, including direct-to-the-
end-user and indirect 2-tier and 3-tier models. Industry participants
frequently employ hybrids of these models and multiple industry participants
are typically involved in the sale and fulfillment of a transaction. For
example, national resellers and integrators may buy directly from
manufacturers or indirectly through multiple distributors. In addition,
manufacturers may choose to configure and ship directly to end users for
orders placed through resellers or they may utilize their distributor and
reseller channel partners to configure and fulfill orders. Direct
manufacturers may contract with distributors, resellers and integrators in
order to provide multi-vendor fulfillment or local service and support. As a
result of these numerous interrelationships, the industry faces challenges in
the timely and accurate sharing of information about customers, products,
configuration, pricing, inventory and ordering.
42
<PAGE>
[Graphic depicting the flow of commerce from (i) manufacturers to direct end-
users, (ii) manufacturers to corporate resellers and retailers, and corporate
resellers and retailers to end-users, and (iii) manufacturers to distributors,
distributors to VARs, Integrators and retailers, and VARs, integrators and
retailers to end-users.]
The relative success of the direct-to-the-end-user and build-to-order models
has put additional pressure on computer industry participants to improve
information flows within the channel in order to improve time-to-market,
reduce costs and compete more effectively. Rapid technological change has
resulted in the continuing decline of component prices and shorter life cycles
of computer products. Such pressures have heightened the need for industry
participants to employ build-to-order and configure-to-order models in order
to reduce inventories, improve the ability to gauge and meet changing customer
demands and improve time-to-market by enabling just-in-time component
acquisitions.
The increasing complexity of computer product distribution and the increase
in customers' demands for time-efficient ordering processes has forced
industry participants to increase the productivity and responsiveness of their
salesforces. Additionally, the substantial pricing pressure throughout the
industry has required manufacturers and distributors to reduce operating costs
and improve the efficiency and effectiveness of their sales and marketing
investments. The wide array of products, short product life cycles and high
volume of new product introductions make it difficult for sales
representatives and end users to remain current with changing product and
compatibility information. These difficulties have underscored the need for
tools and a central repository of current product information in order to
increase productivity and accuracy of sales representatives and enable end
users to independently select, configure and order computer products.
Both business-to-business and business-to-consumer e-commerce transactions
can offer better access to critical information affecting the purchase
decision, including product compatibility and availability, demand/supply data
and detailed end-user preferences. However, because the sale of computer
products frequently involves multiple industry participants, industry-wide
standardization and acceptance is required in order to provide a comprehensive
e-commerce solution for the industry. Past efforts to accomplish this have
been largely proprietary, point-to-point solutions and have required
significant investments to develop and maintain the required IT
infrastructure, including software applications, content databases and
integrations with partners' systems. Additionally, many of these systems have
lacked the ability to scale to meet industry requirements. It has also been
difficult for these systems to achieve widespread adoption because competition
amongst industry participants makes it difficult to reach agreement on a
single standard. The Company believes that many participants seek the benefits
of a robust and scalable system, but have not been able to justify the
associated costs of building such a system independently.
43
<PAGE>
The pcOrder Opportunity
The Company believes there is a significant need for an independent,
industry-wide solution for enabling the computer industry's suppliers,
resellers and end users to buy and sell computer products online. The Company
leverages Internet technologies to provide a comprehensive e-commerce solution
designed to increase sales and marketing productivity, meet end-user demand
for online ordering, reduce costs and shorten order fulfillment cycles for
industry participants.
The pcOrder Solution
pcOrder is a leading provider of Internet-based e-commerce solutions that
are designed to enable the computer industry's suppliers, resellers and end
users to buy and sell computer products online. The Company's solutions are
designed to increase the efficiency and effectiveness of the sales, marketing
and distribution of computer products and enable members of the industry to
take advantage of increasing adoption of e-commerce. The Company believes that
it is uniquely positioned to deliver these solutions through its: (i) ability
to offer a broad set of advanced front-office and e-commerce software
applications, including configuration and pricing; (ii) position as a leading
content provider of computer product and compatibility information; and, (iii)
experience in delivering industry-specific functionality and integrations into
business systems of computer industry participants. To date, the Company's
e-commerce solutions have been adopted by industry leaders such as Compaq,
CompuCom, CompUSA, CMP Publications, GE Capital, HP, IBM, Ingram Micro,
Kingston, Nortel Networks, MCI Systemhouse, MicroAge Integration Company, PC
Wholesale, Pinacor and Tech Data, as part of their overall e-commerce
strategy.
The Company's e-commerce solutions include software applications that are
designed to increase the automation of product search, comparison,
configuration, pricing, financing and ordering, and leverage the Company's
content databases. The Company's content databases contain more than 600,000
product SKUs from over 1,000 manufacturers, which the Company believes is the
industry's largest aggregation of product content, including detailed product,
categorization, compatibility, pricing and availability information. The
Company believes that its position as an independent, industry-leading
provider of product information has enabled it to offer a more cost-effective
and robust product database to industry participants than internally developed
solutions.
The Company is a party to a technology license agreement with its parent
company, Trilogy, which provides pcOrder the ability to leverage Trilogy's
front-office and e-commerce software applications, including what the Company
believes is one of the industry's leading configuration and pricing engines.
The Company has extended these applications to support the specific
configuration and pricing rules of the computer industry in order to help
industry sales representatives and end-users quickly and accurately build and
order custom-configured solutions across multiple vendors.
In addition to its development of applications and content, the Company has
integrated its solution with the systems of leading industry suppliers for
such functions as order placement, pricing and inventory queries, order status
queries, financing and credit approval. pcOrder customers can use these
integrations to establish or enhance electronic links with their business
partners. Furthermore, the Company provides software integration,
customization, training and Web hosting services designed to ensure the
successful deployment of its solutions.
pcOrder's solutions are designed to provide its customers with the following
benefits:
Meet Customer Demand for Online Ordering. The Company believes that end
users are increasingly demanding the ability to customize and purchase
computer products and services online. The Company's solutions are designed to
provide its customers the ability to offer online product configuration,
pricing, selection and ordering capabilities. This provides end users with the
ability to order computer products and support services from a manufacturer
providing fulfillment through the
44
<PAGE>
channel, or from a reseller providing products through a distributor or
manufacturer, all in a manner transparent to end users.
Increase Effectiveness and Reduce Costs of Sales and Marketing Efforts. The
Company's offering provides customers with a robust solution that is designed
to enhance the productivity and effectiveness of sales and marketing efforts.
The Company believes that its solutions enable computer industry participants
to increase salesforce productivity by providing a centralized, comprehensive
source for product data, and, in turn, enabling sales representatives to
rapidly respond to customer needs with accurate and complete information
regarding product, compatibility, pricing and availability. The Company's
electronic configuration and ordering technology is also designed to reduce
costs by producing more accurate multi-vendor product configurations and
enable online ordering.
Reduce Inventory Costs by Facilitating Build-to-Order, Configure-to-Order
and Channel Assembly. Rapidly declining prices in the computer industry have
increased the importance of time-to-market. By providing direct communication
links and product data to computer industry participants, the Company believes
that its solutions enhance industry efforts to increase inventory turns
through the automation and coordination of configuration, pricing, selection
and ordering. The Company believes that this, in turn, enables the Company's
customers to expand their build-to-order and channel assembly efforts,
decreasing the risk of product obsolescence and improving the industry's
ability to meet individual end-user demand. The Company further believes that
reducing order fulfillment cycles offers customers the opportunity to achieve
higher average selling prices and margins by enabling the sale and delivery of
commodity-based products earlier in their product life cycles.
Reduce Costs, Risks, and Time-to-Market of Establishing E-Commerce
Capabilities. The Company's position as an independent third-party solutions
provider, combined with its industry focus and experience, has enabled it to
build product functionality, content and supplier integrations that are
designed to support the diverse requirements of manufacturers, distributors,
resellers, retailers and other industry participants. Accordingly, the Company
believes that it is able to offer a more cost-effective and rapid time-to-
market solution for conducting e-commerce than internally developed solutions.
To the extent the Company continues to develop and enhance its applications,
content and supplier integrations, the Company believes that the incentives
will increase for companies to outsource these e-commerce services to the
Company.
Improve Industry Coordination by Increasing Accuracy, Availability and
Timeliness of Information. The Company's applications and content databases
are designed to enable multi-vendor search, comparison, configuration,
pricing, financing, ordering and reseller selection. The Company believes that
because of its status as an independent third-party provider of standardized
product information and applications, industry participants are more willing
to use pcOrder's applications and contribute product information to the
Company's databases. As more industry participants adopt pcOrder's
applications and content, the Company believes that its customers will derive
greater benefit from the increased opportunity to engage in business
electronically with more participants.
Strategy
The Company's objective is to be the leading e-commerce technology and
content provider to the computer industry. The Company's strategy to achieve
this objective includes the following key elements:
Leverage Internet Technology. pcOrder leverages Internet technology to
provide communication capability and support complex transactions across a
range of computer industry participants, regardless of participants' legacy
computing environments. Unlike traditional proprietary solutions focusing on
point-to-point solutions with narrowly defined functionality, Internet
technology
45
<PAGE>
enables the Company to electronically link computer industry participants,
including manufacturers, distributors, resellers, retailers, other industry
participants and end users, including corporate buyers and consumers, with the
objective of enhancing sales and marketing efficiency and effectiveness,
reducing costs, shortening the product fulfillment cycle and improving time-
to-market.
Broaden Adoption Through Relationships with Computer Industry Market
Leaders. The Company aggressively pursues relationships with leading computer
industry manufacturers, distributors, resellers, retailers and other industry
participants in order to increase adoption of its solutions. To date, the
Company has established relationships with GE Capital, Compaq, CompuCom,
CompUSA, HP, IBM, Ingram Micro, Kingston, Nortel Networks, MCI Systemhouse,
MicroAge, PC Wholesale, Pinacor and Tech Data. The Company's objective is to
cooperate with its customers through direct and indirect marketing initiatives
to broaden adoption of the Company's solutions by resellers and end users.
Extend Position as an Industry Leading Source of Product Information. The
Company has built and maintains content databases containing more than 600,000
product SKUs from over 1,000 manufacturers and seeks to add to or modify its
product information on an ongoing basis. The Company seeks to extend its
position as an industry leading product information source by continually
broadening and deepening its product data.
Leverage Position as Independent Third-Party Solutions Provider. The Company
plans to continue to leverage its position as an independent third-party
solutions provider in order to offer broad solutions to its customers. The
Company believes that its ability to offer standardized e-commerce solutions
to the computer industry creates the opportunity to gain economies of scale by
leveraging the Company's investment in content, technology and functionality
across a wide range of customers. The Company believes that this will enable
it to offer robust solutions more cost-effectively than individual industry
participants, making its e-commerce solutions increasingly attractive to
industry participants. The Company further believes that its position as an
independent third-party solutions provider may allow it to act as a
significant aggregator of sales order transaction and market demand data for
the computer industry.
Expand Application Functionality to Increase Automation of Additional Sales,
Marketing and Channel Management Functions. The Company intends to continue to
invest in the development of additional applications and services to meet the
e-commerce needs of the computer industry. The Company plans to execute this
strategy by working closely with its customers to understand and address their
needs and by further automating the critical processes in the sales, marketing
and distribution of computer products. In addition, the Company intends to
enhance its products with additional functionality, such as the Company's
lease financing product developed in conjunction with GE Capital. The Company
believes that by leveraging the knowledge gained from its relationships with a
broad range of industry participants, it is well-positioned to define and add
new functionality to its solutions. The Company further believes that by
helping to make its customers more competitive, it will become an increasingly
important part of its customers' businesses and participate in a higher
percentage of its customers' commerce volume.
46
<PAGE>
Customers
pcOrder has established a customer base of manufacturers, distributors,
resellers, integrators, retailers and other industry participants. During
1998, MicroAge, Nortel Networks and HP each represented more than 10% of total
revenues. The customers set forth in the table below represent 88% of total
revenues in 1998.
<TABLE>
<CAPTION>
Resellers, Integrators &
Suppliers Distributors Retailers Financing Companies
--------- ------------ ------------------------ -------------------
<S> <C> <C> <C>
Compaq Ingram Micro CompuCom GE Capital (Vendor
Hewlett- PC Wholesale CompUSA Financial Services)
Packard Pinacor GE Capital IT Solutions
Company Tech Data MCI Systemhouse
IBM MicroAge Integration Company
Kingston
Nortel
Networks
</TABLE>
In partnership with its major customers, the Company has deployed its
solutions to over 500 small and medium resellers. The Company's suite of
products and services are designed to automate and enhance its customers'
sales, marketing and inventory management capabilities.
The Company entered into an agreement with Ingram Micro in September of 1998
in connection with subscriptions to, and related services supporting, various
products of the Company, including Prime Access Web Storefront and Customer
Desktop. pcOrder retains ownership of all software licensed under the
agreement. The Company agreed to indemnify Ingram Micro in the event of a
claim that any software licensed to Ingram Micro by the Company infringes the
intellectual property of a third party. Additionally, pursuant to the
agreement with Ingram Micro, the source code for software licensed to Ingram
Micro will be deposited in escrow. The initial term of the agreement is
through December 2003, unless terminated earlier by either party upon prior
notice in the event of a payment default, material breach, termination of
business or breach of confidentiality. The agreement may be renewed for
additional one year periods upon the agreement of the parties prior to the end
of the current term. Although no revenues were recognized pursuant to the
Ingram Micro Agreement in 1998, the Company believes such revenues may
represent a significant portion of the Company's business in 1999.
47
<PAGE>
pcOrder Platform
pcOrder provides an integrated platform consisting of application, content
databases, industry integrations and related services that leverages Internet
and Internet-related technologies. The Company's solutions are designed to
meet the specific needs of each industry segment, including manufacturers,
distributors, resellers, integrators, retailers, other industry participants
and end users, including corporate buyers and consumers.
[Graphic depicting the Company's platform consisting of applications, content
and integrations. Applications are shown as applications Sales Desktop, Web
Storefront, Customer Desktop, Commerce-Station. Subcategories of these
applications are catalog, configuration, pricing, order, referral, finance and
promotion. Content database is shown as integrations and reseller,
distributor, manufacturer and finance company.]
Software Applications. The Company offers a suite of software applications
that are designed to increase the automation of sales, marketing and
distribution functions. Revenues from the licensing of, and subscriptions to,
software applications accounted for approximately 61.2% and 58.3% of the
Company's total revenues during 1997 and 1998, respectively. The Company's
software applications are modular in nature, enabling customers to purchase
and add specific functionality as needed. The Company's applications are built
upon various combinations of the following core modules:
Catalog. The Catalog Module is designed to enable users to easily search,
browse, compare, and view product datasheets from the Company's content
databases. For example, users can perform searches such as "show all laptop
computers with hard drives larger than 1 gigabyte."
Configuration. The Configuration Module is designed to enable users to more
efficiently configure valid systems. Users request desired features through
a needs analysis interface, which then interacts with Trilogy's
configuration engine to select components. This interface shields the user
from technical details of the components while preventing invalid
configurations.
Pricing. The Pricing Module is designed to allow users to access customized
pricing information. Utilizing Trilogy's SC Pricer engine, the Company has
developed a multi-tiered, channel-specific pricing module. For example,
end-user prices can be quoted as a function of the reseller's cost from the
distributor, thus providing seamless, dynamic pricing through the channel.
48
<PAGE>
Order. The Order Module is designed to enable online ordering and order
confirmation. Manufacturers, distributors and resellers can access pricing
and availability information from multiple legacy systems and provide such
real-time information to their potential customers. Links between the
Company's offering and the customer's ordering system takes the form of EDI
transactions, direct API calls to the ordering system or direct database
integration.
Referral. The Referral Module is designed to enable industry participants
to refer customers to resellers based on location or other characteristics.
In addition, the Referral Module delivers, processes, and tracks referrals
in order to connect end users with the appropriate channel partners. This
allows manufacturers to work constructively with their resellers with the
obligation of ensuring that customer needs are met.
Finance. The Finance Module is designed to allow users to quote lease
rates, electronically submit credit applications and maintain lease data,
as well as customize finance settings, select from multiple financing
options and specify optional financing terms.
Promotion. The Promotion Module is designed to provide the capability to
deliver and manage targeted promotions across multiple tiers in the
channel. The Promotion Module is designed to dynamically suggest
alternative or add-on products at the point of sale. For example, the
Program Module is designed to allow a component vendor to coordinate with a
reseller to offer the reseller's online customers pre-packaged alternatives
at the point of sale, in order to maximize reseller margins and dispose of
the vendor's excess inventory.
These modules may be accessed either through the Company's packaged software
applications or through customer-specific, custom developed applications.
The Company's software applications are specifically designed to meet the
needs of each industry segment, and may be integrated into customers' legacy
transaction and decision-support systems, thus preserving customers'
technology investments. The table below sets forth descriptions of the
Company's software applications and certain of the key benefits of such
products.
49
<PAGE>
<TABLE>
<CAPTION>
Software Applications Target Market Segment Description Benefits
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CommerceStation Manufacturers . Accepts customer orders on Enables
a website and facilitates manufacturers to
electronic transfer of display product,
orders to the appropriate pricing and
channel partner for availability
fulfillment. information and to
. Provides reseller-specific accept orders
pricing. directly from end
. Provides channel partners users that are
with requests for product fulfilled through
information, referrals or existing channel
leads. partners.
- ----------------------------------------------------------------------------------------------------
Web Storefront Distributors, . Accepts orders directly Enables Web-based
Resellers from customers via a Web sales, marketing
site. and ordering for
. Provides end users with distributors and
direct access to product resellers.
catalog, configuration,
pricing and availability
information.
. Provides promotion
capability through delivery
of targeted marketing
messages.
- ----------------------------------------------------------------------------------------------------
Sales Desktop Distributors, . Sales productivity tool Designed to help
Resellers, for sales representatives. distributors,
Integrators, . Provides instant access to resellers,
Retailers information on over 600,000 integrators and
product SKUs from over retailers to
1,000 manufacturers. increase sales
. Automates quote and order force productivity
generation. and order accuracy.
- ----------------------------------------------------------------------------------------------------
Customer Desktop Manufacturers, . Procurement management Designed to help
Resellers and software including support suppliers to
Integrators for custom catalogs, enhance customer
(indirect to end-users) contract pricing and loyalty by
purchase order approval providing
routing. electronic link
. Creates Internet-based between end-users'
link directly to suppliers' procurement
Web Storefront. processes and
suppliers' Web
Storefronts.
- ----------------------------------------------------------------------------------------------------
VIP Program Manufacturers . Provides manufacturer Designed to help
(VIPER) information, such as manufacturers to
product images and detailed enhance their
product specifications to presence at the
the Sales Desktop point of sale by
application. providing timely
. Enables manufacturers to information to end-
enter and maintain their users and channel
own product information partner
within the Company's representatives.
database.
- ----------------------------------------------------------------------------------------------------
Channel Assembly Module Manufacturers, . Delivers channel assembly Supplies
Distributors product, pricing, manufacturers and
configuration and other distributors with
business rules to channel timely and accurate
partners at the point of information to help
sale. increase efficiency
and flexibility of
supply chain.
- ----------------------------------------------------------------------------------------------------
Configuration & Distributors . Provides validation of Enables
Validation multi-vendor systems within distributors and
the on-line quoting and resellers to
ordering systems of provide private
distributors. label and custom
configured systems.
</TABLE>
Content. The Company's industry content databases contain product
information on more than 600,000 product SKUs from over 1,000 manufacturers.
These databases provide the user access to current product information,
including compatibility, necessary to consummate a sale. Revenues from content
fees accounted for approximately 22.6% and 15.4% of the Company's total
revenues during
50
<PAGE>
1997 and 1998, respectively. The Company receives updates and additions of
product data on a regular basis from manufacturers, distributors, and
resellers, and supplements the data in three ways:
Categorization/Classification. The Company's categorization and
classification processes are designed to create and populate standardized
product groupings across the industry and enable convenient access to a
broad array of products from multiple suppliers. For example, an end-user
can specify all monitors of a certain size and pick from a list of monitors
made by several manufacturers and/or available from multiple suppliers.
Data and logic modeling. The Company's data and logic modeling processes
are designed to enable accurate multi-vendor configuration. For example,
the Company's systems specify that a particular computer accepts SDRAM but
not EDO RAM, thereby helping the user to order the correct upgrade package.
The Company continually develops and enhances its Computer Industry Model
(CIM), a repository of much of the modeling and expertise that enables the
Company's applications to configure multi-vendor computer systems.
Data sheet creation. The Company creates data sheets designed to give
customers detailed product data in a standardized format, thus enabling
attribute-based searching and side-by-side comparisons of functionality
differences between two or more products. For example, a user deciding
between two otherwise identical laptop computers would be able to see that
one comes with a fax modem and more RAM, but the other is lighter and
smaller.
The Company has developed a detailed process for receiving, processing, and
verifying the accuracy of the content in its databases. In addition, the
Company has invested in creating advanced tools to enable pcLabs, the
Company's content management unit, to enter, maintain, and test component
data. pcLabs has developed and currently maintains extensive product and
pricing information on over 600,000 product SKUs from over 1,000
manufacturers. The Company receives electronic updates from many of its
manufacturers, distributors and reseller customers on a daily basis. After a
normalization process which assigns supplier codes and a master product SKU
number, the information is imported into the Company's databases. pcLabs
places each product SKU into the appropriate class and category, and then
performs extensive secondary research for content modeling and data sheet
creation. pcOrder maintains a staff of configuration modelers whose function
is to research new systems and components to determine the rules that govern
how they can be configured. The modelers convert this information into a
programming language with a configuration-specific syntax, which is then used
to update the CIM. For example, a laptop requires over 90 technical
specifications and allows for up to 40 marketing attributes. Throughout the
content creation process, the information undergoes rigorous quality assurance
testing. In order to manage data quality, the Company has implemented a
comprehensive Data Quality process which involves an automated regression test
and analysis of over 34,000 validation test cases. See "Risk Factors--Risks
Associated with Maintaining Databases".
51
<PAGE>
[Graphic depicting flow of electronic pricing information (SKU) through
normalization, classification, quality assurance, regression testing to
production.]
Integrations. The Company has completed mission-critical integrations to
the systems of leading industry suppliers for such functions as order
placement, pricing and inventory queries, order status queries, financing
and credit approval. These integrations can be leveraged by pcOrder
customers that wish to establish or enhance electronic links with their
business partners. For example, a manufacturer can quote pricing and
inventory available through its channel partners on its Web site, and then
transfer the order to a channel partner for delivery. Alternatively, a
reseller can access information about its suppliers, inventories in
addition to its own, and then display the combined total to its customers
through its Web Storefront.
Services. In order to provide a comprehensive platform, the Company offers a
range of services to speed integration and adoption of the Company's solutions
at the customer site. Revenues from services accounted for approximately 16.2%
and 26.3% of the Company's total revenues during 1997 and 1998, respectively.
Software Integration, Customization and Training. Several of the
Company's solutions, particularly higher-end installations, require a
significant amount of professional services. These services may include
the development of interfaces for integration with the customer's legacy
systems, the customization of the Company's software to meet the specific
needs and situation of the customer, or the training of the customer's
employees in the operation of the software application. The Company
provides all of these services through a dedicated consulting and
training force. Customers typically pay for consulting and training
services on a time-and-materials basis.
Web Hosting. While some of the Company's customers host their Web sites
internally, a substantial number of customers utilize the Company's
hosting services. The Company maintains a Web hosting facility including
multiple servers and connectivity through dedicated T-1 lines from its
Austin location. The Company may in the future outsource its hosting
services to a third party.
Sales and Marketing
The Company sells and markets its software applications, content and
services primarily through its sales and marketing organization.
52
<PAGE>
Sales. The Company's sales force consists of technical presale consultants,
account developers, field sales representatives and telemarketers. The Company
deploys sales teams consisting of both sales and technical professionals to
provide customized proposals, presentations and demonstrations to potential
customers. The primary decision makers in the Company's customers'
organizations typically include members of such customers' management
executives such as the chief executive officer, the chief financial officer,
vice presidents of marketing, vice presidents of sales and chief information
officers.
Marketing. The Company's marketing efforts are directed at establishing a
market leadership position and, therefore, the Company is investing heavily in
an expansion of its marketing organization and activities. Targeted at
executives in the computer industry, pcOrder's marketing programs are focused
on creating awareness and generating interest in the pcOrder solution. The
Company engages in a variety of co-marketing activities with certain of its
key customers designed to leverage and strengthen the Company's relationship
with its customers. The Company is an active participant in industry
conferences and expositions. It has sponsored several industry conferences in
the past, and believes that exposure of this nature has contributed to the
Company's visibility within the computer industry. The Company's marketing
personnel engage in a variety of marketing activities, including managing and
maintaining the pcOrder Web site, issuing newsletters, making direct mailings,
placing advertisements, conducting public relations and establishing and
maintaining close relationships with industry analysts.
Client Services
The Company implements its customer support, software integration,
customization and training services primarily through its client services
organization. The organization's goal is to ensure successful and rapid
deployment and high levels of customer satisfaction by facilitating open
communications to quickly identify, analyze and solve problems. The Company's
participation in the customer's implementation may include planning and
requirements definition, project management, custom integration, unit and
system tests and support procedures design. The Company believes that
providing a high level of customer service and technical support is necessary
to achieve timely product implementation. The Company provides ongoing product
support services to its customers in the form of telephone, e-mail and Web-
based support, documentation and software updates and error corrections. All
product updates are available to customers for downloading from the Company's
Web site. A team of dedicated engineers provides product, technical and
product registration support from 7:00 a.m. to 7:00 p.m., Central time, on
business days, from the Company's support offices. The Company also makes
training available to its customers.
Technology
The Company's solutions are based on open industry standards and are
designed to be fully modular and extensible. The architecture is designed to
allow new modules to be added to the backbone, and replaced when newer
versions become available. The Company's software applications and content
databases are made available through both thin client (Web browser/HTML) and
Win32 client-server interfaces. Both interfaces access the same application
layer, which provides functionality such as configuration, pricing, product
information data sheets, financing and online ordering.
The Company's software applications have been implemented through the use of
industry standard technologies, including HTTP/HTML, C++, COM/DCOM, CORBA,
Windows NT and ODBC. The Company believes this implementation provides timely
systems integration, ease of implementation, broad connectivity and the
ability to leverage technological advancements.
The Company has a non-exclusive, worldwide, royalty-bearing license to use,
make, reproduce and prepare derivative works of certain of Trilogy's front
office automation software. See "Relationship with Trilogy". The Company
customizes application modules licensed to it by Trilogy for the specific
53
<PAGE>
needs and situations of its customers. Examples of this customization include
industry-specific configuration and pricing modules. The Company creates its
own application modules that specifically address the functionality needs of
computer industry participants. An example of one of these modules is
CommerceStation, a computer industry-specific application that allows
manufacturers to accept orders directly from end users and fulfill them
through existing channel partners.
Research and Development
The Company's research and development efforts include software application
development and customization, data modeling and tools development. The
Company's software application development teams are dedicated to identifying
and developing software solutions to meet the unique needs of computer
industry participants. This includes both the development of original software
applications as well as customizing Trilogy's applications. The Company's
database content research and development efforts are primarily focused on the
development of data models and tools that enhance the Company's content
management and maintenance capabilities.
Research and development expenses were $1.1 million and $4.3 million in 1997
and 1998, respectively. The Company intends to continue to make substantial
investments in research and development and related activities to maintain and
enhance its product lines. The Company believes that its future success will
depend in large part on its ability to support current and future releases of
software applications, to maintain and extend its content databases and to
timely develop new products that achieve market acceptance. Any failure by the
Company to do so would have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors--New
Products and Technological Changes; Risks Associated with Transition to New
Technology Platform".
Competition
The market for software products that enable e-commerce is intensely
competitive, and the Company expects competition in its market segment to
increase substantially. Numerous companies provide e-commerce solutions, and
several competitors target the specific computer and computer related products
industry in which the Company competes. The Company's competitors include both
large companies with substantially greater resources than the Company, systems
integrators and the internal IT departments of certain of the Company's
customers and potential customers. The Company believes that its principal
sources of competition are systems integrators and the internal IT departments
of its customers and potential customers. These organizations may seek to
develop e-commerce solutions through the use of tools offered by the Company's
competitors primarily focused on providing e-commerce enabling solutions to
the computer industry such as Calico Software, Selectica, Inc., SMART
Technologies, Inc., Open Market, Inc. and BroadVision, Inc. Furthermore, there
are a number of significantly larger companies with which the Company does not
currently compete that do not presently offer the same or similar e-commerce
solutions offered by the Company but that could with limited barriers to entry
compete directly with the Company in the future. In addition, except as
described in "Relationship with Trilogy", nothing in the Company's agreements
with Trilogy prohibits Trilogy from competing directly or indirectly with the
Company. The Company believes that the principal competitive factors for
companies seeking to provide e-commerce enabling solutions are price,
functionality, product performance, content, reliability and customer service.
The Company believes its e-commerce solution differs from approaches taken by
its competitors primarily because of the content database the Company
provides. Increased competition could result in price reductions, reduced
margins and loss of market share, any of which would materially and adversely
affect the Company's business, operating results and financial condition. Many
of the Company's current and potential competitors have significantly longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company.
54
<PAGE>
Employees
As of December 31, 1998, the Company had 194 full-time employees, including
48 in sales and marketing, 26 in research and development, 41 in content
management, 29 in customer support, 27 in professional services and 23 in
administration. In addition, the Company also employed 44 part-time and
contract employees in content management and client support. All of these
employees are located in the United States. The Company believes that its
future success is dependent on attracting and retaining highly skilled
engineering, sales and marketing, and senior management personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will continue to be able to attract and retain qualified employees. The
Company's employees are not represented by any collective bargaining unit. The
Company has never experienced a work stoppage and considers its relations with
its employees to be good.
Facilities
The Company's principal facility occupies an aggregate of approximately
22,000 square feet in Austin, Texas, pursuant to leases that expire in March
1999, December 1999 and March 2003, respectively, and pcOrder believes that
its existing principal facility is adequate for its current requirements. The
Company further believes that additional space can be obtained to meet its
future growth requirements.
Legal Proceedings
The Company is from time to time involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. In January 1999,
the Company filed an action for declaratory judgment in the 345th Judicial
District Court of Travis County, Texas, Case No. 99-00787 against its former
Vice President, Sales from July 1998 to December 1998, seeking to have certain
claims for sales commissions, other commissions and stock grants declared
invalid. On February 5, 1999, the defendant in the Company's action filed a
complaint against the Company and Christina Jones, the Company's President and
Chief Operating Officer, in the County Court at Law, for Dallas County Texas,
case no. CC-99-01194d, requesting actual and punitive damages of not less than
$3.0 million as a result of the alleged failure of the Company to pay certain
commissions and make certain stock grants, among other matters. The Company
intends to contest the action vigorously and does not believe that resolution
of this action will have a material adverse effect on the Company's financial
condition. However, litigation is subject to inherent uncertainties and,
therefore, there can be no assurance that this action will not have a material
adverse effect on the Company's business, results of operations or financial
condition. See "Risk Factors--Legal Proceedings".
55
<PAGE>
RELATIONSHIP WITH TRILOGY
The Company was established as a separate business unit within Trilogy on
July 1, 1993, and was incorporated on July 18, 1994. As of December 31, 1998,
Trilogy owned 98.5% of the outstanding shares of Common Stock of the Company.
Mr. Liemandt, a director of the Company, is Chairman and Chief Executive
Officer and a substantial stockholder of Trilogy. Upon completion of this
offering, Trilogy will beneficially own approximately 84.0% of the outstanding
shares of Common Stock (82.3% if the Underwriters' over-allotment option is
exercised in full) and approximately 97.7% of the total voting power of the
Common Stock. For as long as Trilogy continues to beneficially own more than
50% of the outstanding shares of the Company's Common Stock, Trilogy will be
able to direct the election of all of the members of the Company's Board of
Directors and exercise a controlling influence over the business and affairs
of the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the incurrence of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities of the
Company, and the payment of dividends with respect to the Common Stock.
Similarly, Trilogy will have the power to determine matters submitted to a
vote of the Company's stockholders without the consent of the Company's other
stockholders, will have the power to prevent a change in control of the
Company and could take other actions that might be favorable to Trilogy. See
"Risk Factors-- Control By and Relationship with Trilogy".
Trilogy has advised the Company that its current intent is to continue to
hold all of the Common Stock beneficially owned by it following this offering.
However, Trilogy is not subject to any contractual obligation to retain its
controlling interest, except that Trilogy has agreed not to sell or otherwise
dispose of any shares of Common Stock of the Company for a period of 180 days
after the date of this Prospectus without the prior written consent of
Goldman, Sachs & Co. See "Underwriting". As a result, there can be no
assurance concerning the period of time during which Trilogy will maintain its
beneficial ownership of Common Stock owned by it following this offering. Any
disposition by Trilogy of any of the shares of Common Stock it owns following
this offering may be effected in one or more transactions, including a public
offering, a distribution by Trilogy of such Common Stock to its stockholders,
an offer by Trilogy to exchange such Common Stock for outstanding Trilogy
common stock, or other transaction. Beneficial ownership of at least 80% of
the total voting power of the Company and 80% of each class of nonvoting
capital stock of the Company is required in order for Trilogy to be able to
effect a tax free spin off of the shares of Common Stock or certain other tax
free transactions. See "Risk Factors--Risks Associated with Dependence on
Trilogy; Limited Independent Operating History; Potential Conflicts of
Interest" and "Risk Factors--Possible Future Sales of Common Stock by
Trilogy".
In June 1996, the Company and Trilogy entered into certain agreements for
the purpose of clarifying the ongoing relationship with between the two
companies. Because these agreements were entered into at a time when the
Company was a wholly-owned subsidiary of Trilogy, they may not be the result
of arms'-length negotiations between the parties. In August 1996, the Company
and Trilogy entered into an Asset Transfer Agreement, as amended in August
1998 (the "Asset Transfer Agreement"), pursuant to which Trilogy transferred
the assets and liabilities of its pcOrder.com division to the Company. In
exchange for the transferred assets, the Company issued to Trilogy 900 shares
of the Company's common stock, $0.01 par value per share, establishing the
Company as a wholly-owned subsidiary of Trilogy (such shares were subsequently
split into 11,520,000 shares of Common Stock). Pursuant to the Asset Transfer
Agreement, the parties made customary representations and warranties regarding
their businesses and operations, and each agreed to indemnify the other in the
event of any damages arising from the other's breach of any such
representation or warranty. In addition, Trilogy agreed not to engage in,
directly or indirectly, any business directly in competition with the Company
for a period of three years after the effective date of the Asset Transfer
Agreement. Further, during such three year period, Trilogy also agreed not to
hire or recruit any person who was,
56
<PAGE>
at the effective date of the Asset Transfer Agreement or within the 12 month
period preceding such effective date, an employee of the pcOrder.com division
of Trilogy. Trilogy has the right, and to the extent Trilogy transfers the
shares held by it, transferees of these shares will have the right, on no more
than five occasions after this offering, to require the Company to register
the shares of Common Stock held by it within 180 days of such request. In
addition, Trilogy has the right under certain circumstances, including the
filing of the registration statement to which this Prospectus is a part, to
require the Company to include shares held by Trilogy in a registration
statement registering other shares of Common Stock of the Company. These
registration rights are subject to certain conditions and limitations,
including a right of the Company not to effect a requested registration under
certain conditions. The Company has agreed to indemnify Trilogy and any
transferees of the shares of Common Stock currently held by Trilogy against,
and provide contribution with respect to, certain liabilities under the
Securities Act in connection with such registration. Trilogy's registration
rights expire eight years after the effective date of the Asset Transfer
Agreement. Trilogy has waived its right to include any of its shares in this
offering.
The Technology, Services and License Agreement, the Management Services
Agreement and the Tax Allocation Agreement described below, have each been
filed as exhibits to the Registration Statement of which this Prospectus forms
a part and such summaries are qualified in their entirety by this reference to
the full text of such agreements. Because the Company was greater than a 95%
subsidiary of Trilogy at the time these agreements were entered into, they may
not be the result of arms'-length negotiations between the parties.
Technology, Services and License Agreement
In September 1998, the Company and Trilogy entered into a Technology,
Services and License Agreement (the "Technology Agreement"), which amended and
superseded a Master Software License Agreement and a Reseller Agreement
previously entered into by the parties, pursuant to which Trilogy has licensed
certain intellectual property rights to the Company, and the Company has
agreed to license certain intellectual property rights to Trilogy. Each party
has granted the other access to, and a nonexclusive, irrevocable, perpetual,
worldwide, license to internally use, make, reproduce and/or prepare
derivative works of the products of the other party as of September 1, 1998,
in the form as of that date, and any updates, changes to, and new releases of
those products, subject to the happening of a Trigger Event (as defined below)
(as applicable, the "Trilogy Intellectual Property" or the "pcOrder
Intellectual Property"), or to sublicense any third party to do so, subject to
certain confidentiality and other restrictions. Trilogy also granted the
Company a nonexclusive, irrevocable, perpetual, worldwide right and license
under the Trilogy Intellectual Property to make, use, reproduce, prepare
derivative works based upon, license, offer to license, import, export,
publish, distribute, perform, display, advertise, market, promote, service and
or support those of pcOrder's products that are network based e-commerce
products for enabling sales, purchasing, marketing or distribution within the
computer products market ("Computer E-Commerce Products"), and to sublicense
any third party to do so, subject to the payment of royalties as described
below. The Company also granted Trilogy a nonexclusive, irrevocable,
perpetual, worldwide right and license to use pcOrder Intellectual Property to
make, use reproduce, prepare derivative works based upon, license, export,
publish, distribute, perform, display, advertise, market, promote, service and
support Trilogy Products (as defined in the Technology Agreement) and to
sublicense any third party to do so, subject to the payment of royalties
described below. However, following a change in control of Trilogy or such
time as Trilogy is no longer required by generally accepted accounting
principles to be consolidated with pcOrder for financial reporting purposes
(in either case, a "Trigger Event"), Trilogy shall not, until the later of
September 1, 2008 or the expiration of five years following such Trigger
Event, have any license to the pcOrder Intellectual Property with respect to
any Computer E-Commerce Product that utilizes pcOrder's product content or
certain tools developed by pcOrder. Following a Trigger Event, any Trilogy
license to pcOrder Intellectual Property, which license was granted pursuant
to the terms of the Technology
57
<PAGE>
Agreement prior to the happening of such Trigger Event, shall continue
indefinitely, subject to continued royalty payments. Pursuant to the
Technology Agreement, neither party is restricted from entering into or having
similar agreements with third parties or doing any activity relating to
competitive products and services (involving none of the other party's
information or intellectual property). Following a Trigger Event, pcOrder's
access to Trilogy products and its right to receive updates, changes and new
releases of Trilogy Intellectual Property shall continue until the later to
occur of five years after a Trigger Event or September 1, 2008.
Notwithstanding the foregoing, to the extent that any of the Trilogy
Intellectual Property (including Trilogy products based on such intellectual
property) is not of a same, similar, replacement or equivalent general type as
Trilogy Intellectual Property available prior to a Trigger Event, pcOrder will
not have rights to such Trilogy Intellectual Property. The Technology
Agreement further provides that where at least one employee and/or contractor
of the Company in conjunction with at least one employee and/or contractor of
Trilogy cooperate toward jointly creating, inventing or discovering new
material qualifying for either patent or copyright protection, the parties
shall negotiate in good faith on a project-by-project basis to determine to
what extent such newly developed material should be jointly owned. In the
event of joint ownership, the parties shall have an equal, undivided interest
in such patent, copyright or other intellectual property. The Company and
Trilogy are each obligated to pay to the other monthly royalties based on a
percentage of license fees derived from sales of products that incorporate,
and/or data maintenance services related to, the other party's technology; of
software maintenance fees other than data maintenance services in connection
with products that incorporate the other party's technology; and of on-line
subscription service fees from products that incorporate the other party's
technology. The Technology Agreement provides that each party will defend,
indemnify and hold harmless the other party for any claim against such other
party by any third party to the extent based on an actual or alleged: (i)
failure by a party to perform its obligations under the Technology Agreement;
(ii) breach of any one or more of a party's representations or warranties;
(iii) failure by a party to comply with government laws and regulations;
(iv) intentional or grossly negligent acts or omissions on the part of a
party, and (v) to the extent a party delivers Material (as defined in the
Technology Agreement) to the other party, (1) failure by the delivering party
to either own or have sufficient rights to deliver such Material to the other
party, (2) failure by a party to either own or have sufficient rights to grant
to the other party the license it has granted under the Technology Agreement,
(3) infringement (or violation) by such delivered Material of a third party's
intellectual property rights, or (4) failure to be Year 2000 compliant. Such
indemnification obligations are subject to the condition that the indemnified
party: (a) promptly provides notice of any claim to the indemnifying party;
(b) allows the indemnifying party to control the defense of the claim and
settlement negotiations; and (c) fully cooperates with the indemnifying party
in such defense and settlement negotiations. The Technology Agreement provides
that upon either party's request, the parties shall negotiate in good faith
regarding the terms and conditions upon which either party will perform
consulting services reasonably requested by the other party; provided,
however, that such obligation shall expire on the later of seven years
following a Trigger Event or September 1, 2010. The Technology, Services and
License Agreement has a perpetual term, unless terminated earlier by either
party upon 31 days prior notice of an uncured breach by the other party,
subject to extension for special circumstances, or the bankruptcy of either of
the parties.
Management Services Agreement
The Company and Trilogy entered into a Management Services Agreement,
effective as of July 1, 1998, which amended and superseded a Services
Agreement previously entered into by the parties, pursuant to which Trilogy
will provide certain administrative and corporate support services to the
Company. Trilogy has agreed to provide to the Company certain services
("Mandatory Services") including tax administration, payroll, payroll
accounting, banking, corporate finance, recruiting and employee training
services to the Company. In addition, Trilogy has agreed to provide the
Company certain additional services ("Optional Services"), including hardware
purchasing, shipping and
58
<PAGE>
receiving, purchase order database administration, network administration,
audit services, human resources administration, legal services and customer
training. The provision of Mandatory Services may not be unilaterally
terminated by either party during the effectiveness of the Management Services
Agreement. The provision of Optional Services may be terminated by either
party upon 90 days notice. The Management Services Agreement provides that
Trilogy will use the same level of care in rendering services to the Company
that Trilogy uses in rendering services to itself or any of its other
subsidiaries, which will be at least equal to the care, that Trilogy has used
in the past in rendering such services to the Company. However, the selection
of personnel to perform the various services will be within the sole control
of Trilogy. Specifically, Trilogy may, without the consent or approval of the
Company, subcontract any service to be provided under the Management Services
Agreement. The Management Services Agreement terminates on June 30, 1999, and
thereafter is subject to successive one-year renewal terms upon consent of the
parties. The Management Services Agreement may be terminated: (i) by either
party within 30 days of an uncured material breach by the other party; (ii) by
either party upon the liquidation or dissolution of the other party; (iii) by
Trilogy immediately upon notice to the Company if the Company fails to pay the
amount due to Trilogy under such agreement by the tenth day after notice of
nonpayment is given; or (iv) within 30 days of the date at which Trilogy
ceases to own a majority of the Company's Common Stock.
Tax Allocation Agreement
The Company is currently, and, as long as Trilogy beneficially owns at least
80% of the total voting power and value of the Company's outstanding Common
Stock, will continue to be, included in Trilogy's consolidated federal income
tax group, and the Company's federal income tax liability will be included in
the consolidated federal income tax liability of Trilogy. The Company and
Trilogy have entered into a Tax Allocation Agreement pursuant to which the
Company and Trilogy will make payments between them such that, with respect to
any period, the amount of taxes to be paid or received by the Company, subject
to certain adjustments, will be determined as though the Company were to file
separate federal, state and local income tax returns (including, except as
provided below, any amounts determined to be due as a result of a
redetermination of the tax liability of Trilogy arising from an auditor or
otherwise) rather than as a consolidated subsidiary of Trilogy with respect to
federal, state and local income taxes. Under the terms of the Tax Allocation
Agreement, the Company, in computing its stand alone tax liability or tax
refund, will be able to utilize certain tax items, such as net operating
losses, foreign tax credits and other tax credits (collectively, "Tax
Attributes"). In addition, with respect to Tax Attributes of the Company that
come into existence after the execution of the Tax Allocation Agreement, and
under the terms of the Tax Allocation Agreement, Trilogy will be required to
make any payment to the Company as such Tax Attributes of the Company are
utilized by the Trilogy consolidated federal income tax group. Pursuant to the
Tax Allocation Agreement, Trilogy's obligation to make any payment to the
Company relating to the Company's Tax Attributes will apply only to tax
periods during which the Company (or its affiliated subsidiaries) is a member
of Trilogy consolidated federal income tax group.
Trilogy will continue to have all the rights of a parent of a consolidated
group (and similar rights provided for by applicable state and local law with
respect to a parent of a combined, consolidated or unitary group), will be the
sole and exclusive agent for the Company in any and all matters relating to
the income, franchise and similar liabilities of the Company, will have sole
and exclusive responsibility for the preparation and filing of consolidated
federal and consolidated or combined state and local income tax returns (or
amended returns), and will have the power, in its sole discretion, to contest
or compromise any asserted tax adjustment or deficiency and to file, litigate
or compromise any claim for refund on behalf of the Company. In addition,
Trilogy has agreed to undertake to provide the aforementioned services with
respect to the Company's separate state and local returns and the Company's
foreign returns.
59
<PAGE>
The Tax Allocation Agreement will remain in effect until the expiration of
any open years for which pcOrder has filed as a member of the Trilogy
consolidated group. In general, the Company will be included in Trilogy's
consolidated group for federal income tax purposes for so long as Trilogy
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each member of a consolidated group is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax Allocation Agreement
allocates tax liabilities between the Company and Trilogy, during the period
in which the Company is included in Trilogy's consolidated group, the Company
could be liable in the event that any federal tax liability is incurred, but
not discharged, by any other member of Trilogy's consolidated group. Pursuant
to the Tax Allocation Agreement, however, Trilogy is obligated to indemnify
the Company for any tax liabilities, including any liability resulting from a
distribution of the Company's stock to Trilogy's stockholders provided that it
has paid its allocated share of such liabilities to Trilogy.
60
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information concerning the executive
officers and directors of the Company as of September 1, 1998.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Ross A. Cooley.................. 57 Chairman and Chief Executive Officer
Christina C. Jones.............. 29 President and Chief Operating Officer
James J. Luttenbacher........... 43 Vice President, Chief Financial Officer and
Secretary
Joseph A. Liemandt (2).......... 30 Director
Peter J. Barris (1)(2).......... 46 Director
Linwood A. Lacy, Jr. (1)........ 52 Director
Robert W. Stearns (1)........... 47 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Each director holds office until the next annual meeting of stockholders and
until his successor is elected and qualified or until his earlier resignation
or removal. Each officer serves at the discretion of the Board of Directors
(the "Board"). There are no family relationships among the directors or
executive officers of the Company.
Ross A. Cooley has been Chairman and Chief Executive Officer of the Company
since November 1996. From 1984 to 1996, Mr. Cooley was employed by Compaq,
most recently as Senior Vice President and General Manager responsible for all
North American business and operations. Mr. Cooley is a member of the
RosettaNet Board of Directors, the computer industry's e-commerce standards
effort, and a member of its Executive Committee. During his 18-year career at
IBM, Mr. Cooley completed the Harvard Business Senior Executive Program.
Mr. Cooley holds an A.A.S. from Broome Community College.
Christina C. Jones founded the Company and has been its President and Chief
Operating Officer since June 1996. In 1989, Ms. Jones co-founded Trilogy.
Prior to founding the Company, Ms. Jones was Director of Marketing of Trilogy.
Ms. Jones holds a B.A. in Economics from Stanford University.
James J. Luttenbacher has been the Company's Vice President and Chief
Financial Officer since March 1998. In August 1998, Mr. Luttenbacher was
appointed Secretary of the Company. From 1992 to 1998, Mr. Luttenbacher was
employed at Mentor Graphics Corporation, most recently as division manager for
a software product division focused on integrated circuit test and physical
verification applications. Mr. Luttenbacher holds a B.A. in Accounting from
the University of Michigan and a Masters of Management in finance and
operations from Kellogg Graduate School of Management at Northwestern
University.
Joseph A. Liemandt has been a director of the Company since its inception.
From July 1994 to June 1996, Mr. Liemandt was President of the Company.
Mr. Liemandt founded Trilogy in 1989. Since that time, Mr. Liemandt has served
as the President, Chief Executive Officer and Chairman of Trilogy.
Peter J. Barris has been a director of the Company since June 17, 1998.
Since 1992, Mr. Barris has been a partner, and, in 1994, was appointed a
General Partner of New Enterprise Associates, a firm that manages venture
capital investments. Mr. Barris is also a member of the Board of Directors of
Mobius Management Systems, Inc. Mr. Barris holds a B.S.E.E. from Northwestern
University and an M.B.A. from the Amos Tuck School at Dartmouth College.
61
<PAGE>
Linwood A. Lacy, Jr. has been a director of the Company since August 1998.
In November 1997, Mr. Lacy retired from Micro Warehouse Incorporated where he
had served as President and Chief Executive Officer since October 1996. From
1989 to May 1996, Mr. Lacy served as the Co-Chairman and Chief Executive
Officer of Ingram Micro, Inc., a microcomputer products distributor and a then
wholly-owned subsidiary of Ingram Industries, Inc. From December 1993 to June
1995, Mr. Lacy was also President of Ingram Industries Inc. From June 1995
until April 1996, he was President and Chief Executive Officer of Ingram
Industries Inc., and from April 1996 to May 1996 served as its Vice Chairman.
Mr. Lacy serves as a director of Ingram Industries Inc., Entex Information
Services, Inc. and Earthlink Network, Inc. Mr. Lacy holds a B.S.ChE from the
University of Virginia and an M.B.A. in Business from the Darden Graduate
School of Business Administration at the University of Virginia.
Robert W. Stearns has been a director of the Company since September 1998.
Mr. Stearns is currently a venture capitalist and management consultant. From
January 1996 to August 1998 Mr. Stearns served as the Senior Vice President,
Technology and Corporate Development of Compaq. He joined Compaq as Vice
President of Corporate Development in July 1993. Prior to his arrival at
Compaq, he was employed as a management consultant with McKinsey & Co.,
focusing on high technology clients. Mr. Stearns serves as a director of the
Houston Advanced Research Center and the Cynthia Woods Mitchell Pavilion. In
November 1996 Mr. Stearns was appointed to the Texas Science and Technology
Council and in March 1998 he became a fellow of the Aspen Institute and a
member of the Brookings Council of the Brookings Institute. Mr. Stearns holds
a B.S. in Chemistry from Brown University and a Master of Science from the
Massachusetts Institute of Technology.
Board Composition
The Company currently has authorized five directors. Each director is
elected for a period of one year at the Company's annual meeting of
stockholders and serves until the next annual meeting or until his successor
is duly elected and qualified. The executive officers serve at the discretion
of the Board of Directors. There are no family relationships among any of the
directors or executive officers of the Company.
Board Committees
In August 1998, the Board established the Audit Committee and Compensation
Committee. The Audit Committee of the Board of Directors reviews and monitors
the corporate financial reporting and the internal and external audits of the
Company, including, among other things, the Company's control functions, the
results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters that have a significant impact on the Company's financial condition.
The Audit Committee also consults with the Company's management and the
Company's independent accountants prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into
aspects of the Company's financial affairs. In addition, the Audit Committee
has the responsibility to consider and recommend the appointment of, and to
review fee arrangements with, the Company's independent accountants. The
current members of the Audit Committee are Messrs. Barris, Liemandt and
Stearns.
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board regarding the Company's compensation policies and
all forms of compensation to be provided to executive officers and directors
of the Company, including, among other things, annual salaries and bonuses and
stock option and other incentive compensation arrangements of the Company. In
addition, the Compensation Committee reviews bonus and stock compensation
arrangements for all other employees of the Company. The current members of
the Compensation Committee are Messrs. Barris and Liemandt.
62
<PAGE>
Director Compensation and Other Arrangements
The Company does not currently compensate its outside directors for
attending Board of Directors or committee meetings, but reimburses directors
for their reasonable travel expenses incurred in connection with attending
such meetings. On November 1, 1996, the Company granted to Mr. Liemandt an
option to purchase 100 shares of the Company's Class A Common Stock at an
exercise price of $3.00 per share. Upon joining the Board of Directors,
Messrs. Barris, Lacy and Stearns received options to acquire 10,000 shares at
$6.40 per share, 30,000 shares at $8.00 per share and 15,000 shares at $9.00
per share of Class A Common Stock, respectively.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee of the Board of Directors
has served at any time as an officer or employee of the Company. Prior to the
establishment of the Compensation Committee, all decisions relating to
executive compensation were made by the Board of Directors. No executive
officer of the Company serves as a member of the Board of Directors or
Compensation Committee of any entity which has one or more executive officers
serving as a member of the Board of Directors or Compensation Committee.
Trilogy is the parent corporation of the Company. Mr. Liemandt, a member of
the Company's Compensation Committee, beneficially owns more than 5.0% of the
Class B Common Stock of the Company.
Executive Compensation
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and certain other
executive officers of the Company (collectively, the "Named Executive
Officers") whose salary and bonus exceeded $100,000 for services rendered in
all capacities to the Company and its subsidiaries during the fiscal years
ended December 31, 1997 and 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- ------------
Number of
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options(2) Compensation
- --------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ross A. Cooley............. 1998 $ 1 -- -- --
Chairman and Chief
Executive Officer 1997 1 -- --
Christina C. Jones......... 1998 100,908(3) $ 500 125,000 --
President and Chief
Operating Officer 1997 100,908(3) -- -- --
James J. Luttenbacher(4)... 1998 145,362 5,000 150,000 $59,571(5)
Vice President, Chief
Financial Officer and
Secretary................ 1997 -- -- -- --
</TABLE>
- --------
(1) Reflects Bonus amount earned and paid in fiscal year.
(2) Securities Underlying Options represents shares of the Company's Class A
Common Stock.
(3) Includes $900 of reimbursement for excess amounts paid toward the
Company's standard employee medical benefit plan.
(4) Mr. Luttenbacher joined the Company in March 1998.
(5) Amount represents relocation expenses reimbursed by the Company.
63
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock option
grants made to each of the Named Executive Officers in Fiscal Year 1998. No
stock appreciation rights were granted to the Named Executive Officers during
such year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(3)
---------------------------------------------- ----------------------
Number of Percent of
Securities Total Granted Per Share
Underlying to Exercise
Options Employees in Base Expiration
Name Granted(1) Fiscal Year(2) Price Date 5% 10%
---- ---------- -------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ross A. Cooley(4)....... -- -- -- -- -- --
Christina C. Jones(5)... 125,000 4.8% $3.00 6/18/08 $ 235,836 $ 597,653
James J.
Luttenbacher(6)........ 150,000 5.8% 3.00 2/11/08 282,905 716,879
</TABLE>
- --------
(1) The options in this table are granted under the Company's 1996 Stock
Option Plan (the "1996 Plan") and have exercise prices equal to the fair
market value of the Company's Class A Common Stock on the date of grant.
All such options have 10-year terms and vest over a period of four years.
(2) Based on options to purchase an aggregate of 2,590,076 shares of Class A
Common Stock granted pursuant to the 1996 Plan during fiscal 1998.
(3) Potential realizable value is based on an assumption that the price per
share of Class A Common Stock appreciates annually at the rate shown
(compounded annually) from the date of grant until the end of the
respective option term. Potential realizable value is shown net of
exercise price. These rates of appreciation are derived from the
regulations promulgated by the Commission and do not represent the
Company's estimate or projection of future stock price growth.
(4) For the material terms of Mr. Cooley's stock option grant, including the
vesting thereof, see "Cooley Employment Agreement".
(5) Ms. Jones' stock option grant vests at the rate of 25% annually over four
years from the date of grant.
(6) For the material terms of Mr. Luttenbacher's stock option grant, including
the vesting thereof, see "Luttenbacher Employment Agreement".
Aggregate Option Exercised Year-End Option Values
The following table sets forth the options exercised by each of the Named
Executive Officers during fiscal year 1998 and the number and value of the
securities underlying unexercised options that were held by each Named
Executive Officer as of December 31, 1998.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1998 at December 31, 1998(1)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ross A. Cooley.......... -- -- 525,000 350,000 $4,200,000 $2,800,000
Christina C. Jones...... -- -- 406,300 368,800 3,250,400 2,950,400
James J. Luttenbacher... 25,000 $ 0 -- 125,000 0 1,000,000
</TABLE>
- --------
(1) Based on the estimated fair market value as of December 31, 1998 of $11.00
per share for the Company's Class A Common Stock, as determined by the
Company's Board of Directors.
64
<PAGE>
Employment Agreements
The Company has entered into employment agreements with Ross A. Cooley, the
Company's Chairman and Chief Executive Officer, Christina C. Jones, the
Company's President and Chief Operating Officer, and James J. Luttenbacher,
the Company's Vice President, Chief Financial Officer and Secretary. Each of
these agreements has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and the following summaries are qualified
in their entirety by this reference to the full text of such agreements.
Cooley Employment Agreement. The Company and Ross A. Cooley are parties to
an employment agreement dated November 1, 1996 and an amendment effective
November 1, 1997 (the "Cooley Agreement"), which provides for an employment
period of four years at an annual salary of not less than $1.00. In addition,
Mr. Cooley is eligible to participate in the Company's management incentive
compensation plan as may be in effect from time to time. Mr. Cooley, in his
capacity as the Company's Chairman of the Board and Chief Executive Officer,
currently performs various executive and leadership functions, including
development of the Company's strategic and operational plans, strategic
planning, executive management of new customer and new account relationship
activities and recruitment of senior management personnel. Pursuant to the
Cooley Agreement, Mr. Cooley has been granted a stock option of 875,000 shares
of the Company's Class A Common Stock at an exercise price of $3.00 per share,
of which 425,000 shares became exercisable at the time the Cooley Agreement
was entered into 100,000 of such shares became exercisable on November 1, 1998
and an additional 100,000 shares shall become exercisable upon November 1,
1999 and November 1, 2000. The remaining 150,000 shares under such stock
option grant shall become exercisable upon November 1, 2003, provided that the
Cooley Agreement is in effect on such date. Under the terms of the Company's
1996 Stock Option Plan, in the event of a Change of Control (as defined in
such Plan), all unvested shares under such option become immediately
exercisable. The Cooley Agreement may be terminated by the Company or Mr.
Cooley at any time. If the Cooley Agreement is terminated by the Company for
Cause (as defined therein) or by Mr. Cooley for reasons other than as a result
of a Change in Control (as defined therein) of the Company, no further rights
to compensation or benefits shall accrue to Mr. Cooley. If the Cooley
Agreement is terminated by the Company without Cause or by Mr. Cooley as a
result of a Change of Control of the Company, Mr. Cooley shall not be entitled
to any additional compensation under the terms of the Cooley Agreement, but
shall have such rights relating to the exercise of then unexercised stock
options as are provided in his Stock Option Agreement. During his employment
by the Company and for a period of two years following the Company's
termination of his employment, Mr. Cooley shall not (i) solicit any customers
of the Company, (ii) induce or attempt to induce any Customer or withdraw,
curtail or cancel its business with the Company or in any manner modify or
fail to enter into any actual or potential business relationship with the
Company, (iii) recruit or solicit any employee or vendor of the Company to
cease his, her or its relationship with the Company or (iv) permit his name to
be used by or engage in any business competing with the business of the
Company.
Jones Employment Agreement. The Company and Christina C. Jones are parties
to an employment agreement dated November 1, 1996 (the "Jones Agreement"),
which provides for an employment period of four years at an annual salary of
not less than $100,000. In addition, Ms. Jones is eligible to participate in
any management incentive compensation plan which the Company may have from
time to time. Pursuant to the Jones Agreement, Ms. Jones has been granted a
stock option to purchase up to 650,000 shares of the Company's Class A Common
Stock at an exercise price of $3.00 per share (the "Option"). As a condition
to the grant of the Option, Ms. Jones entered into a Option Cancellation
Agreement with Trilogy which terminated a Stock Option Agreement dated
February 10, 1994 between Trilogy and Ms. Jones pursuant to which Ms. Jones
had been granted a stock option to purchase shares of Trilogy Class B Common
Stock at an exercise price of $1.50 per share. Under the terms of the
Company's 1996 Stock Option Plan, in the event of a Change of Control (as
defined in such Plan), all unvested shares under the Option become immediately
exercisable. The
65
<PAGE>
Jones Agreement may be terminated by the Company at any time and by Ms. Jones
for Good Reason (as defined therein). The definition of Good Reason includes,
among other things, a Change of Control (as defined therein) of the Company.
If the Jones Agreement is terminated by the Company for Cause (as defined
therein), no further rights to compensation or benefits shall accrue to Ms.
Jones. If the Jones Agreement is terminated by the Company without Cause or by
Ms. Jones for Good Reason, including upon a Change of Control, Ms. Jones shall
continue to receive employee benefits and monthly payments equal to one-
twelfth of her then-current annual salary for a period of twelve months
following the effective date of such termination. During her employment by the
Company and for a period of two years following the Company's termination of
her employment, Ms. Jones shall not (i) solicit any customers of the Company,
(ii) induce or attempt to induce any Customer to withdraw, curtail or cancel
its business with the Company or in any manner modify or fail to enter into
any actual or potential business relationship with the Company, (iii) recruit
or solicit any employee or vendor of the Company or Trilogy to cease his, her
or its relationship with the Company or with Trilogy or (iv) permit her name
to be used by or engage in any business competing with the business of the
Company.
Luttenbacher Employment Agreement. The Company and James J. Luttenbacher are
parties to an employment agreement dated February 12, 1998 (the "Luttenbacher
Agreement"), which provides for an employment period of four years at an
annual salary of not less than $175,000. In addition, Mr. Luttenbacher is
eligible to participate in any management incentive compensation plan which
the Company may have from time to time for an amount up to 50% of his then-
current annual salary. Mr. Luttenbacher received a bonus of $5,000 upon
commencement of his employment with the Company. Pursuant to the Luttenbacher
Agreement, Mr. Luttenbacher has been granted a stock option to purchase up to
150,000 shares of the Company's Class A Common Stock at an exercise price of
$3.00 per share. Under the terms of the Company's 1996 Stock Option Plan, in
the event of a Change of Control (as defined in such Plan), all unvested
shares under such option become immediately exercisable. The Luttenbacher
Agreement may be terminated by the Company or Mr. Luttenbacher at any time. If
the Luttenbacher Agreement is terminated by the Company for Cause (as defined
therein) or by Mr. Luttenbacher for reasons other than as a result of a Change
in Control (as defined therein) of the Company, no further rights to
compensation or benefits shall accrue to Mr. Luttenbacher. If the Luttenbacher
Agreement is terminated by the Company without Cause or by Mr. Luttenbacher as
a result of a Change in Control (as defined therein) of the Company, Mr.
Luttenbacher shall continue to receive employee benefits and monthly payments
equal to one-twelfth of his then-current annual salary for a period of six
months following the effective date of such termination. During his employment
by the Company and for a period of two years following the Company's
termination of his employment, Mr. Luttenbacher shall not (i) solicit any
customers of the Company, (ii) induce or attempt to induce any Customer to
withdraw, curtail or cancel its business with the Company or in any manner
modify or fail to enter into any actual or potential business relationship
with the Company, (iii) recruit or solicit any employee or vendor of the
Company to cease his, her or its relationship with the Company or (iv) permit
his name to be used by or engage in any business competing with the business
of the Company.
Limitation of Liability and Indemnification Matters
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware provides that a
director of a corporation will not be personally liable for monetary damages
for breach of such individual's fiduciary duties as a director except for
liability (i) for any breach of such director's duty of loyalty to the Company
or to its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases as provided in
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which a director derives an improper personal benefit.
66
<PAGE>
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers, and may indemnify its officers, employees and other
agents, to the full extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross
negligence on the part of an indemnified party. The Company's Bylaws also
permit the Company to advance expenses incurred by an indemnified party in
connection with the defense of any action or proceeding arising out of such
party's status or service as a director, officer or employee or other agent of
the Company. Such indemnified party shall repay such advances if it is
ultimately determined that such party is not entitled to indemnification. The
Company believes that its Certificate of Incorporation and Bylaw provisions
and indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. The Company also maintains directors' and
officers' liability insurance.
At present the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company in which
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Plan") was approved by the
Board of Directors and stockholders in September 1996. The 1996 Plan provides
for the grant of options intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options. A total of 3,500,000 shares of Class
A Common Stock have been reserved for issuance under the 1996 Plan. As of
December 31, 1998, 148,602 shares of Class A Common Stock has been issued upon
exercise of options granted under the 1996 Plan, 3,207,074 shares remained
reserved for future issuance upon the exercise of outstanding options, and
144,324 shares remained available for future grant.
The Board of Directors or a committee designated by the Board has the power,
subject to the limitations contained in the 1996 Plan, to prescribe the terms
and conditions of any option granted under the 1996 Plan, including the total
number of share to be offered to each optionee. The maximum term of any stock
option granted under the 1996 Plan is ten years, except that with respect to
incentive stock options granted to a person possessing more than 10% of the
combined voting power of the Company (a "10% Stockholder"), the term of such
stock options shall be for no more than five years. The exercise price of
incentive stock options granted under the 1996 Plan must be at least 100% of
the fair market value of the Class A Common Stock on the grant date except
that the exercise price of incentive stock options granted to a 10%
Stockholder must be at least 110% of such fair market value on the date of
grant. The aggregate fair market value on the date of grant of the Class A
Common Stock for which incentive stock options are exercisable for the first
time by an employee during any calendar year may not exceed $100,000.
Nonqualified stock options may be granted in exchange for previously granted
stock options having an exercise price higher than the options received in
such exchange. In the event of a Change of Control (as defined in the 1996
Plan), all of the options granted under the 1996 Plan shall become immediately
exercisable. The Board may amend the 1996 Plan at any time, except that
certain amendments require stockholder approval. The 1996 Plan will terminate
in September 2006, unless earlier terminated by the Board of Directors. From
and after the offering, all further option grants will be made solely under
the 1999 Plan.
1999 Plan
The Company's 1999 Plan (the "1999 Plan") was adopted by the Board of
Directors and approved by the stockholders of the Company in February 1999. A
total of 1,500,000 shares of Class A Common Stock is initially reserved for
issuance under the 1999 Plan. In addition, the 1999 Plan authorizes an annual
increase in the number of shares of Class A Common Stock issuable under the
1999 Plan
67
<PAGE>
equal to five percent (5%) of the total number of shares of Class A Common
Stock and Class B Common Stock outstanding on the first day of each fiscal
year of the Company, beginning fiscal 2000. The 1999 Plan also provides that
the aggregate number of shares of Class A Common Stock available for grant as
Incentive Stock Options shall not exceed 1,500,000 shares, plus an annual
increase to be added on the first day of each fiscal year beginning in fiscal
2000 equal to the lesser of (i) 500,000 shares of Class A Common Stock, (ii)
two percent (2%) of the number of shares of Class A Common Stock outstanding
as of such date, or (iii) a lesser number of shares of Class A Common Stock
determined by the Administrator. The shares to be issued pursuant to 1999 Plan
may be authorized but unissued or reacquired Class A Common Stock.
The purpose of the 1999 Plan is to attract and retain the best available
personnel, to provide additional incentive to employees, directors and
consultants of the Company and its related entities and to promote the success
of the Company's business. The 1999 Plan provides for the granting to
employees of Incentive Stock Options and the granting of nonstatutory stock
options, stock appreciation rights, dividend equivalent rights, restricted
stock, performance units, performance shares, and other equity-based rights
("1999 Awards") to employees, directors and consultants of the Company and its
related entities.
With respect to 1999 Awards granted to directors or officers, the 1999 Plan
is administered by the Board of Directors or a committee designated by the
Board of Directors constituted to permit such 1999 Awards to be exempt from
Section 16(b) of the Exchange Act in accordance with Rule 16b-3 thereunder.
With respect to 1999 Awards granted to other participants, the 1999 Plan is
administered by the Board of Directors or a committee designated by the Board
of Directors. In each case, the respective plan administrator shall determine
the provisions, terms and conditions of each 1999 Award, including, but not
limited to, the 1999 Award vesting schedule, repurchase provisions, rights of
first refusal, forfeiture provisions, form of payment upon settlement of the
1999 Award, payment contingencies and satisfaction of any performance
criteria.
Incentive Stock Options are not transferable by the optionee other than by
will or the laws of descent or distribution, and each Incentive Stock Option
is exercisable during the lifetime of the grantee only by such grantee. Other
1999 Awards shall be transferable to the extent provided in the agreement
evidencing the 1999 Award.
The per share exercise price of Incentive Stock Options granted pursuant to
the 1999 Plan must be at least equal to the per share fair market value of the
Class A Common Stock on the date of grant, and the term of the option must not
exceed ten years. The term of other 1999 Awards will be determined by the
respective plan administrator. With respect to an employee who owns stock
representing more than 10% of the voting power of the Company's outstanding
capital stock, the per share exercise price of any Incentive Stock Option must
equal at least 110% of the per share fair market value of the Class A Common
Stock on the date of grant and the term of the option must not exceed five
years. The exercise price or purchase price, if any, of other 1999 Awards will
be determined by the respective plan administrator, but shall not be less than
100% of the fair market value of the stock granted thereunder. The
consideration to be paid upon exercise or purchase of the shares of Class A
Common Stock pursuant to a 1999 Award will be determined by the respective
plan administrator and may include cash, check, promissory note, shares of
Class A Common Stock, or the assignment of part of the proceeds from the sale
of shares acquired upon exercise or purchase of the 1999 Award.
Where the 1999 Award agreement permits the exercise or purchase of a 1999
Award for a certain period of time following the recipient's termination of
service with the Company, disability, or death, such 1999 Award will terminate
to the extent not exercised or purchased on the last day of the specified
period or the last day of the original term of such 1999 Award, whichever
occurs first.
68
<PAGE>
The Administrator may at any time offer to buy out for a payment in cash or
Class A Common Stock, an Award previously granted, based on such terms and
conditions as the respective administrator shall establish and communicate to
the grantee at the time that such offer is made.
In the event of a merger of the Company in which the Company does not
survive, a sale of substantially all of the Company's assets in connection
with the liquidation or dissolution of the Company, a person acquiring more
than 50% of the voting power of the Company or upon an acquisition of
beneficial ownership of securities possessing more than 50% of the voting
power of the Company's stockholders, subject to the 1999 Plan administrator's
determination that any such acquisition shall be deemed not to be a "Corporate
Transaction" (as such term is defined in the 1999 Plan), and immediately prior
to the effective time of any such foregoing transaction, one half of the then
unvested shares subject to outstanding 1999 Awards will vest, such 1999 Awards
will become immediately exercisable as to such shares and the repurchase or
forfeiture rights as to such shares will terminate. Upon consummation of such
transaction all outstanding 1999 Awards will terminate, unless they are
assumed by the successor company. In the event of a hostile takeover of the
Company or a change in the majority of the Board of Directors through one or
more contested elections, the vesting of all outstanding 1999 Awards will
accelerate as described above, but the outstanding 1999 Awards will remain
exercisable according to their terms.
Unless terminated sooner, the 1999 Plan will terminate automatically in
2009. The Board has the authority to amend, suspend or terminate the 1999 Plan
subject to stockholder approval of certain amendments and provided no such
action may affect 1999 Awards previously granted under the 1999 Plan unless
agreed to by the affected grantees.
Agreement Regarding Grant of Options
Pursuant to an agreement (the "GE Agreement") between the Company and
General Electric Capital Information Technology Solutions ("GE Capital"), GE
Capital has the right (the "Right") to require the Company to grant GE Capital
an option to purchase up to 320,000 shares of restricted Class A Common Stock
of the Company at the initial price to the public. The Right is triggered upon
the happening of certain events, including an initial public offering by the
Company of its Class A Common Stock. In the event GE Capital exercises such
Right, the GE Option will expire at 11:59 pm on the first date of such public
offering. If GE Capital is granted and exercises the GE Option, the shares of
Class A Common Stock issued pursuant to the exercise of the GE Option will be
restricted stock and will not be subject to any registration rights.
69
<PAGE>
CERTAIN TRANSACTIONS
Agreements with Executive Officers
The Company has entered into employment agreements with Mr. Cooley, Ms.
Jones and Mr. Luttenbacher. See "Management--Employment Agreements".
Agreements Between the Company and Trilogy
Asset Transfer Agreement
In August 1996, the Company and Trilogy entered into an Asset Transfer
Agreement, as amended in August 1998 (the "Asset Transfer Agreement"),
pursuant to which Trilogy transferred the assets and liabilities of its
pcOrder.com division to the Company. In exchange for the transferred assets,
the Company issued to Trilogy 900 shares of the Company's common stock, $0.01
par value per share, establishing the Company as a wholly-owned subsidiary of
Trilogy (such shares were subsequently split into 11,520,000 shares of Common
Stock and in February 1999 reclassified as Class B Common Stock). Pursuant to
the Asset Transfer Agreement, the parties made customary representations and
warranties regarding their businesses and operations, and each agreed to
indemnify the other in the event of any damages arising from the other's
breach of any such representation or warranty. In addition, Trilogy agreed not
to engage in, directly or indirectly, any business directly in competition
with the Company for a period of three years after the effective date of the
Asset Transfer Agreement. Further, during such three year period, Trilogy also
agreed not to hire or recruit any person who was, at the effective date of the
Asset Transfer Agreement or within the 12 month period preceeding such
effective date, an employee of the pcOrder.com division of Trilogy. Trilogy
has the right, and to the extent Trilogy transfers the shares held by it,
other holders of these shares have the right, on no more than five occasions
after this offering, to require the Company to register the shares of Common
Stock held by such stockholders within 180 days of such request. The Company
is obligated to indemnify such stockholders and underwriters, if any, against
liability due to information in the registration statement furnished by the
Company. Trilogy's registration rights expire eight years after the effective
date of the Asset Transfer Agreement. Additionally, holders of the transferred
shares have the right to sell any shares held by such stockholder in this
offering. Trilogy has waived its registration rights in connection with this
offering.
Technology, Services and License Agreement
In September 1998, the Company and Trilogy entered into a Technology,
Services and License Agreement (the "Technology Agreement"), which amended and
superseded a Master Software License Agreement and a Reseller Agreement
previously entered into by the parties, pursuant to which Trilogy has licensed
certain intellectual property rights to the Company, and the Company has
agreed to license certain intellectual property rights to Trilogy. Each party
has granted the other access to, and a nonexclusive, irrevocable, perpetual,
worldwide, license to internally use, make, reproduce and/or prepare
derivative works of the products of the other party as of September 1, 1998,
in the form as of that date, and any updates, changes to, and new releases of
those products, subject to the happening of a Trigger Event (as defined below)
(as applicable, the "Trilogy Intellectual Property" or the "pcOrder
Intellectual Property"), or to sublicense any third party to do so, subject to
certain confidentiality and other restrictions. Trilogy also granted the
Company a nonexclusive, irrevocable, perpetual, worldwide right and license
under the Trilogy Intellectual Property to make, use, reproduce, prepare
derivative works based upon, license, offer to license, import, export,
publish, distribute, perform, display, advertise, market, promote, service and
or support those of pcOrder's products that are network based e-commerce
products for enabling sales, purchasing, marketing or distribution within the
computer products market ("Computer E-Commerce Products"), and to sublicense
any third party to do so, subject to the payment of royalties as described
below. The Company also granted Trilogy a nonexclusive, irrevocable,
perpetual, worldwide right and license to use pcOrder Intellectual Property
70
<PAGE>
to make, use reproduce, prepare derivative works based upon, license, export,
publish, distribute, perform, display, advertise, market, promote, service and
support Trilogy Products (as defined in the Technology Agreement) and to
sublicense any third party to do so, subject to the payment of royalties
described below. However, following a change in control of Trilogy or such
time as Trilogy is no longer required by generally accepted accounting
principles to be consolidated with pcOrder for financial reporting purposes
(in either case, a "Trigger Event"), Trilogy shall not, until the later of
September 1, 2008 or the expiration of five years following such Trigger
Event, have any license to the pcOrder Intellectual Property with respect to
any Computer E-Commerce Product that utilizes pcOrder's product content or
certain tools developed by pcOrder. Following a Trigger Event, any Trilogy
license to pcOrder Intellectual Property, which license was granted pursuant
to the terms of the Technology Agreement prior to the happening of such
Trigger Event, shall continue indefinitely, subject to continued royalty
payments. Pursuant to the Technology Agreement, neither party is restricted
from entering into or having similar agreements with third parties or doing
any activity relating to competitive products and services (involving none of
the other party's information or intellectual property). Following a Trigger
Event, pcOrder's access to Trilogy products and its right to receive updates,
changes and new releases of Trilogy Intellectual Property shall continue until
the later to occur of five years after a Trigger Event or September 1, 2008.
Notwithstanding the foregoing, to the extent that any of the Trilogy
Intellectual Property (including Trilogy products based on such intellectual
property) is not of a same, similar, replacement or equivalent general type as
Trilogy Intellectual Property available prior to a Trigger Event, pcOrder will
not have rights to such Trilogy Intellectual Property. The Technology
Agreement further provides that where at least one employee and/or contractor
of the Company in conjunction with at least one employee and/or contractor of
Trilogy cooperate toward jointly creating, inventing or discovering new
material qualifying for either patent or copyright protection, the parties
shall negotiate in good faith on a project-by-project basis to determine to
what extent such newly developed material should be jointly owned. In the
event of joint ownership, the parties shall have an equal, undivided interest
in such patent, copyright or other intellectual property. The Company and
Trilogy are each obligated to pay to the other monthly royalties based on a
percentage of license fees derived from sales of products that incorporate,
and/or data maintenance services related to, the other party's technology; of
software maintenance fees other than data maintenance services in connection
with products that incorporate the other party's technology; and of on-line
subscription service fees from products that incorporate the other party's
technology. The Technology Agreement provides that each party will defend,
indemnify and hold harmless the other party for any claim against such other
party by any third party to the extent based on an actual or alleged: (i)
failure by a party to perform its obligations under the Technology Agreement;
(ii) breach of any one or more of a party's representations or warranties;
(iii) failure by a party to comply with government laws and regulations;
(iv) intentional or grossly negligent acts or omissions on the part of a
party, and (v) to the extent a party delivers Material (as defined in the
Technology Agreement) to the other party, (1) failure by the delivering party
to either own or have sufficient rights to deliver such Material to the other
party, (2) failure by a party to either own or have sufficient rights to grant
to the other party the license it has granted under the Technology Agreement,
(3) infringement (or violation) by such delivered Material of a third party's
intellectual property rights, or (4) failure to be Year 2000 compliant. Such
indemnification obligations are subject to the condition that the indemnified
party: (a) promptly provides notice of any claim to the indemnifying party;
(b) allows the indemnifying party to control the defense of the claim and
settlement negotiations; and (c) fully cooperates with the indemnifying party
in such defense and settlement negotiations. The Technology Agreement provides
that upon either party's request, the parties shall negotiate in good faith
regarding the terms and conditions upon which either party will perform
consulting services reasonably requested by the other party; provided,
however, that such obligation shall expire on the later of seven years
following a Trigger Event or September 1, 2010. The Technology, Services and
License Agreement has a perpetual term, unless terminated earlier by either
party's 31 days prior notice of an uncured breach, subject to extension for
special circumstances, or the bankruptcy of either of the parties.
71
<PAGE>
Management Services Agreement
The Company and Trilogy entered into a Management Services Agreement,
effective as of July 1, 1998, which amended and superseded a Services
Agreement previously entered into by the parties, pursuant to which Trilogy
will provide certain administrative and corporate support services to the
Company. Trilogy has agreed to provide to the Company certain services
("Mandatory Services") including tax administration, payroll, payroll
accounting, banking, corporate finance, recruiting and employee training
services to the Company. In addition, Trilogy has agreed to provide the
Company certain additional services ("Optional Services"), including hardware
purchasing, shipping and receiving, purchase order database administration,
network administration, audit services, human resources administration, legal
services and customer training. The provision of Mandatory Services may not be
unilaterally terminated by either party during the effectiveness of the
Management Services Agreement. The provision of Optional Services may be
terminated by either party upon 90 days notice. The Management Services
Agreement provides that Trilogy will use the same level of care in rendering
services to the Company that Trilogy uses in rendering services to itself or
any of its other subsidiaries, which will be at least equal to the care, that
Trilogy has used in the past in rendering such services to the Company.
However, the selection of personnel to perform the various services will be
within the sole control of Trilogy. Specifically, Trilogy may, without the
consent or approval of the Company, subcontract any service to be provided
under the Management Services Agreement. The Management Services Agreement
terminates on June 30, 1999, and thereafter is subject to successive one-year
renewal terms upon consent of the parties. The Management Services Agreement
may be terminated: (i) by either party within 30 days of an uncured material
breach by the other party; (ii) by either party upon the liquidation or
dissolution of the other party; (iii) by Trilogy immediately upon notice to
the Company if the Company fails to pay the amount due to Trilogy under such
agreement by the tenth day after notice of nonpayment is given; or (iv) within
30 days of the date at which Trilogy ceases to own a majority of the Company's
Common Stock.
Tax Allocation Agreement
The Company is currently, and after the offering will be, included in
Trilogy's consolidated federal income tax group, and the Company's federal
income tax liability will be included in the consolidated federal income tax
liability of Trilogy. The Company and Trilogy have entered into a Tax
Allocation Agreement pursuant to which the Company and Trilogy will make
payments between them such that, with respect to any period, the amount of
taxes to be paid or received by the Company, subject to certain adjustments,
will be determined as though the Company were to file separate federal, state
and local income tax returns (including, except as provided below, any amounts
determined to be due as a result of a redetermination of the tax liability of
Trilogy arising from an auditor or otherwise) rather than as a consolidated
subsidiary of Trilogy with respect to federal, state and local income taxes.
Under the terms of the Tax Allocation Agreement, the Company, in computing its
stand alone tax liability or tax refund, will be able to utilize certain tax
items, such as net operating losses, foreign tax credits and other tax credits
(collectively, "Tax Attributes"). In addition, with respect to Tax Attributes
of the
Company that come into existence after the execution of the Tax Allocation
Agreement, and under the terms of the Tax Allocation Agreement, Trilogy will
be required to make any payment to the Company as such Tax Attributes of the
Company are utilized by the Trilogy consolidated federal income tax group.
Pursuant to the Tax Allocation Agreement, Trilogy's obligation to make any
payment to the Company relating to the Company's Tax Attributes will apply
only to tax periods during which the Company (or its affiliated subsidiaries)
is a member of Trilogy consolidated federal income tax group.
Trilogy will continue to have all the rights of a parent of a consolidated
group (and similar rights provided for by applicable state and local law with
respect to a parent of a combined, consolidated or unitary group), will be the
sole and exclusive agent for the Company in any and all matters relating to
the income, franchise and similar liabilities of the Company, will have sole
and exclusive responsibility for the preparation and filing of consolidated
federal and consolidated or combined state and local
72
<PAGE>
income tax returns (or amended returns), and will have the power, in its sole
discretion, to contest or compromise any asserted tax adjustment or deficiency
and to file, litigate or compromise any claim for refund on behalf of the
Company. In addition, Trilogy has agreed to undertake to provide the
aforementioned services with respect to the Company's separate state and local
returns and the Company's foreign returns.
The Tax Allocation Agreement will remain in effect until the expiration of
any open years for which pcOrder has filed as a member of the Trilogy
consolidated group. In general, the Company will be included in Trilogy's
consolidated group for federal income tax purposes for so long as Trilogy
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each member of a consolidated group is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax Allocation Agreement
allocates tax liabilities between the Company and Trilogy, during the period
in which the Company is included in Trilogy's consolidated group, the Company
could be liable in the event that any federal tax liability is incurred, but
not discharged, by any other member of Trilogy's consolidated group. Pursuant
to the Tax Allocation Agreement, however, Trilogy is obligated to indemnify
the Company for any tax liabilities, including any liability resulting from a
distribution of the Company's stock to Trilogy's stockholders provided that it
has paid its allocated share of such liabilities to Trilogy.
73
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Class A Common Stock as of February 2, 1999, and as adjusted
to reflect the sale of shares offered hereby, by (i) each person who is known
by the Company to own beneficially more than five percent of the Class A
Common Stock, (ii) each of the Company's Named Officers and directors, and
(iii) all current officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Owned(1)
-----------------
5% Beneficial Owners, Directors Number of Shares Before After
& Named Executive Officers Beneficially Owned(1) Offering Offering
- ------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Trilogy, Inc.(2)....................... 12,757,000 98.3% 84.0%
6034 West Courtyard Drive
Austin, TX 78730
Joseph A. Liemandt(3).................. 12,757,050 98.3 84.0
6034 West Courtyard Drive
Austin, TX 78730
Ross A. Cooley(4)...................... 525,000 3.9 3.3
Christina C. Jones(5).................. 406,300 3.0 2.6
James J. Luttenbacher(6)............... 56,250 * *
Peter J. Barris........................ -- * *
Linwood A. Lacy, Jr. .................. -- * *
Robert W. Steans....................... -- * *
All Directors and Officers as a Group
(7 persons)(7)........................ 13,744,600 98.6% 85.1%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of February
2, 1999 are deemed outstanding. Percentage of beneficial ownership is
calculated assuming all shares of Class B Common Stock have been
converted into shares of Class A Common Stock of the Company, or
12,979,945 shares prior to this offering and 15,179,945 shares after this
offering, as of February 2, 1999 (assuming no exercise of the
Underwriters' overallotment option or the GE Option). To the Company's
knowledge, except as set forth in the footnotes to this table and subject
to applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name.
(2) Shares beneficially owned by Trilogy, Inc. are registered in the name of
Trilogy Software, Inc., a wholly owned subsidiary of Trilogy, Inc.
(3) Through his ownership of securities of Trilogy, Inc., Mr. Liemandt has
the right to cause to be elected a majority of the Board of Directors of
Trilogy, Inc. As a result, Mr. Liemandt is, under the rules of the
Securities and Exchange Commission, deemed to be the beneficial owner of
the 12,757,000 owned indirectly by Trilogy, Inc. In addition, Mr.
Liemandt's ownership includes 50 shares issuable upon exercise of stock
options exercisable within 60 days of February 2, 1999.
(4) Includes 525,000 shares issuable upon exercise of stock options
exercisable within 60 days of February 2, 1999.
(5) Includes 406,300 shares issuable upon exercise of stock options
exercisable within 60 days of February 2, 1999.
(6) Includes 31,250 shares issuable upon exercise of stock options
exercisable within 60 days of February 2, 1999.
(7) Includes (i) 962,600 shares issuable upon exercise of stock options
exercisable within 60 days of February 2, 1999 and (ii) 12,757,000 shares
owned by Trilogy (see footnote 2).
74
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, par value $0.01 per share, consisting of 37,243,000 shares of
Class A Common Stock and 12,757,000 shares of Class B Common Stock and
10,000,000 shares of Preferred Stock, par value $0.01 per share. Upon
consummation of this offering, no shares of Preferred Stock, 2,426,648 shares
of Class A Common Stock (2,756,648 shares if the Underwriters' overallotment
option is exercised in full) and 12,757,000 shares of Class B Common Stock
will be outstanding. The following summary is qualified in its entirety by
this reference to the Company's Certificate of Incorporation and Bylaws,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
Reclassification
On February 2, 1999, all then outstanding shares of Common Stock held by
Trilogy were reclassified into Class B Common Stock on a one-for-one basis and
all shares of then outstanding Common Stock not held by Trilogy were
reclassified into shares of Class A Common Stock on a one-for-one basis.
Common Stock
Immediately prior to this offering, there were 12,983,648 shares of Common
Stock outstanding of which 226,648 shares were Class A Common Stock held by
individuals and 12,757,000 were Class B Common Stock held by Trilogy. The
Class A Common Stock and Class B Common Stock have substantially identical
rights other than with respect to voting, conversion and transfer, as further
described below. Except as required by the Company's Certificate of
Incorporation or applicable law, the Class B Common Stock entitles its holders
to eight votes per share while the Class A Common Stock entitles its holders
to one vote per share on all matters submitted to a vote or for the consent of
stockholders. Except as required by the Company's Certificate of Incorporation
or by applicable law, the Class A Common Stock and Class B Common Stock will
vote together as a single class on all matters submitted to a vote or for the
consent of stockholders. Additionally, the Common Stock votes on a non-
cumulative basis. The holders of Common Stock are entitled to receive ratably
such noncumulative dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. In the event
of liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of Preferred
Stock, if any, then outstanding. The Common Stock has no preemptive rights or
other subscription rights. The Class A Common Stock has no conversion rights.
The shares of Class B Common Stock are convertible at any time prior to a tax-
free spin-off at the option of the holder into shares of Class A Common Stock
on a one-for-one basis. Prior to a tax free spin-off each outstanding share of
Class B Common Stock will automatically be converted into a share of Class A
Common Stock upon any transfer of such share, if after the transfer, such
share is not owned by Trilogy, Trilogy, Inc. (Trilogy's parent), an affiliate
of Trilogy, Inc. or a non-affiliate of Trilogy, Inc. which acquires more than
50% of the then outstanding Class B Common Stock in a single transaction. In
addition, unless the Company received an opinion of counsel that such
conversion would adversely affect the tax free nature of such spin-off, upon
the fifth anniversary of the first transfer of Class B Common Stock pursuant
to a tax free spin-off, all of the then outstanding shares of Class B Common
Stock will convert on a one-for-one basis into shares of Class A Common Stock.
In the event the Company does receive an opinion of counsel that such
conversion would adversely affect the tax free nature of the spin-off, the
matter of conversion of such shares will be submitted to the stockholders of
the Company, upon whose approval such shares of Class B Common Stock shall
automatically convert into an equal number of shares of Class A Common Stock.
However, after a tax free spin-off and prior to such fifth anniversary, such
shares of Class B Common Stock will generally not be convertible into shares
of Class A Common Stock with the exception of any shares of Class B Common
Stock held by Trilogy, Trilogy, Inc. or an affiliate of
75
<PAGE>
shares shall automatically convert into an equal number of shares of Class A
Common Stock upon the tax free spin-off. Pursuant to the Company's Certificate
of Incorporation, the Company shall at all times reserve and keep available
out of its authorized but unissued Class A Common Stock, such number of shares
of Class A Common Stock necessary for conversion of all then outstanding
shares of Class B Common Stock. There are no redemption or sinking fund
provisions applicable to the Common Stock. The Class B Common Stock may only
be transferred pursuant to the restrictions contained in the Certificate
Trilogy, Inc., which of Incorporation. All outstanding shares of Common Stock
are fully paid and nonassessable, and the shares of Class A Common Stock to be
issued upon completion of this offering will be fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without further action by the
stockholders, to issue the Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series of Preferred Stock or the designation of such
series, without further vote or action by the stockholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders
and may adversely affect the voting and other rights of the holders of Common
Stock. The issuance of Preferred Stock with voting and conversion rights may
have the effect of decreasing the market price of the Common Stock, and may
adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. At present, the Company has no plans to
issue any shares of Preferred Stock.
Certain Anti-Takeover, Limited Liability and Indemnification Provisions;
Section 203 of the Delaware General Corporation Law
The Company's Certificate of Incorporation provides for the reclassification
of the capital stock of the Company outstanding immediately prior to February
2, 1999, the effective date of such reclassification, into Class A Common
Stock or Class B Common Stock. The Class B Common Stock has disproportionate
voting rights and, following this offering, the outstanding Class B Common
Stock will represent 97.7% of the total voting power of the stockholders of
the Company. Trilogy will hold all of the 12,757,000 shares of Class B Common
Stock and thus control the outcome of any matter presented to the stockholders
for a vote. In addition, Trilogy could elect to sell all or a substantial
portion of its equity interest in the Company to a third party, which could
represent a controlling or substantial interest in the Company, without
offering to other stockholders of the Company the opportunity to participate
in such a transaction. Under the terms of the Company's Certificate of
Incorporation, a single transaction resulting in the transfer of greater than
50% of Trilogy's equity interest in the Class B Common Stock to a non-
affiliate of Trilogy will result in such non-affiliate having the
disproportionate per share voting rights currently held by Trilogy. In the
event of a sale of Trilogy's interest to a third party, such third party may
be able to control the Company in the manner that Trilogy is currently able to
control the Company, including with respect to the election of all of the
members of the Company's Board of Directors. Such a sale may adversely affect
the Company's other stockholders and the market price of the Class A Common
Stock. The overall effect of the disproportionate voting rights of the Class B
Common Stock may be to discourage a potential purchaser of a majority interest
of the Class A Common Stock.
The Company is subject to Section 203 of the Delaware General Corporation
Law, as amended ("Section 203"), which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that such stockholder became an interested stockholder, unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
that
76
<PAGE>
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combinations to include (i) any merger or
consolidation involving the corporation or any majority-owned subsidiary of
the corporation and any other person or entity, (ii) subject to certain
exceptions, any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation or any majority-owned subsidiary of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation or any majority-owned subsidiary of the corporation of any stock
of the corporation to the interested stockholder, (iv) any transaction
involving the corporation or any majority-owned subsidiary of the corporation
that has the effect of increasing the proportionate share of the stock of any
class or series of the corporation or any majority-owned subsidiary of the
corporation beneficially owned by the interested stockholder, or (v) the
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation or any majority-owned subsidiary of the corporation. In general,
Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more or the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Limitation of Director Liability
The Certificate of Incorporation of the Company limits the liability of
directors of the Company (in their capacity as directors but not in their
capacity as officers) to the Company or its stockholders to the fullest extent
permitted by Delaware law. Specifically, directors of the Company will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, which relates to unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit.
Indemnification
The Bylaws of the Company provide that the directors and officers of the
Company shall be indemnified and provide for the advancement to any such
indemnified director or officer of expenses in connection with actual or
threatened proceedings and claims arising out of their status as director or
officer of the Company as such to the fullest extent permitted by the Delaware
General Corporation Law.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Class A Common Stock is American
Stock Transfer & Trust Company. The Transfer Agent's address is 40 Wall
Street, New York, New York 10005 and telephone number is (718) 921-8207.
77
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
after this offering (including by optional or automatic conversion of shares
of Class B Common Stock into Class A Common Stock), or the anticipation of
such sales, could have a material adverse effect on then-prevailing market
prices. Upon completion of the offering, the Company will have 2,226,648
shares of Class A Common Stock outstanding and 12,757,000 shares of Class B
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option and no exercise of currently outstanding options or
warrants). After this offering, Trilogy will beneficially own all of the
12,757,000 shares of Class B Common Stock representing approximately 84.0% of
the outstanding Common Stock. Shares of Class B Common Stock are convertible
into Class A Common Stock on a share-for-share basis at the election of the
holder or automatically upon certain transfers thereof. The 2,200,000 shares
of Class A Common Stock sold in this offering (plus any additional shares sold
upon exercise of the Underwriters' over-allotment option) will be freely
transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), unless they are held by "affiliates" of the Company as
that term is used under the Securities Act and the regulations promulgated
thereunder ("Affiliates"). The remaining 226,648 of Class A Common Stock and
the 12,757,000 shares of Class A Common Stock issuable upon conversion of the
Class B Common Stock (including the shares of Class A Common Stock issuable
upon certain transfers of the Class B Common Stock or at the option of the
holder thereof) held by Trilogy are "restricted securities" as that term is
defined in Rule 144 of the Securities Act (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act. As a result of contractual restrictions and the
provisions of Rules 144 and 701, additional shares will be available for sale
in the public market as follows: (i) no Restricted Shares will be eligible for
immediate sale on the effective date of this offering; (ii) approximately
80,673 Restricted Shares will be eligible for sale 90 days after the date of
this offering; (iii) approximately 77,975 Restricted Shares will be eligible
for sale without restriction and 25,000 Restricted Shares will be eligible for
sale subject to volume limitations, in each case 180 days after the effective
date of this offering upon the expiration of a contractual lock-up agreement
with the Company and the representatives of the Underwriters and (iv) and
approximately 43,000 of the Restricted Shares will be eligible for sale from
time to time thereafter upon expiration of their respective holding periods
under Rule 144. In addition, the 12,757,000 shares of Class A Common Stock
issuable upon conversion of Class B Common Stock will be eligible for sale
180 days after the date of this offering upon the expiration of contractual
lock-up agreements. Goldman, Sachs & Co., on behalf of the Underwriters, may,
in its sole discretion and at any time without notice, release all or any
portion of securities subject to the lock-up agreement with the Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person (or persons whose shares are aggregated) who owns
shares that were purchased from the Company (or any Affiliate) at least one
year previously, including that person who may be deemed an Affiliate of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
the Common Stock or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who owns
Restricted Shares under Rule 144 that were purchased from the Company (or any
Affiliate) at least two years previously, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
78
<PAGE>
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers prior to the date the
issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Exchange Act, along with the shares
acquired upon exercise of such options (including exercises after the date of
this Prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this Prospectus, may be sold (i) by
persons other than Affiliates, subject only to the manner of sale provisions
of Rule 144, and (ii) by Affiliates under Rule 144 without compliance with its
one-year holding period requirement.
The Company has agreed not to offer, sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock for a
period of 180 days after the date of this Prospectus, without the prior
written consent of the representatives of the Underwriters, subject to certain
limited exceptions. See "Underwriting".
Trilogy has the right in certain circumstances to request the Company to
register its shares of Class B Common Stock and shares of the Class A Common
Stock issuable upon conversion of such Class B Common Stock under the
Securities Act for resale to the public. These registration rights are subject
to certain conditions and limitations, among them the right of the
underwriters, if any, of an offering to limit the number of shares included in
such registration. If the Company were required to include in a Company-
initiated registration shares held by Trilogy, such registration or sales of
stock may have a material adverse effect on the market price for the Company's
Class A Common Stock and on the Company's ability to raise new capital. In
addition, the Company intends to file a registration statement under the
Securities Act covering approximately 4,853,725 shares of Common Stock
reserved for issuance under the Option Plan. See "Management--1996 Stock
Option Plan" and "Management--1999 Stock Incentive Plan". Such registration
statement is expected to be filed within 90 days after the date of this
Prospectus and will automatically become effective upon filing. Following such
filing, shares registered under such registration statement will, subject to
the Lock-Up Agreements, Rule 144 volume limitations applicable to Affiliates
and the lapsing of the Company's repurchase rights, be available for sale in
the open market upon the exercise of vested options 90 days after the
effective date of this Prospectus. At December 31, 1998, options to purchase
3,207,074 shares were issued and outstanding under the 1996 Plan. See "Risk
Factors--Shares Eligible for Future Sale".
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morrison & Foerster LLP, Palo Alto, California. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Venture Law Group, A Professional Corporation, Menlo Park,
California.
79
<PAGE>
EXPERTS
The financial statements of the Company at December 31, 1997 and 1998, and
for each of the three years in the period ended December 31, 1998, appearing
in this Prospectus and the Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document are not necessarily complete;
reference is made in each instance to the copy of such contract or any other
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World
Trade Center, 13th Floor, New York, New York 10048 after payment of fees
prescribed by the Commission. The Commission also maintains a Web site which
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at the address http://www.sec.gov.
80
<PAGE>
Index to Financial Statements
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Equity (Deficit)................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders of
pcOrder.com, Inc.
We have audited the accompanying balance sheets of pcOrder.com, Inc. (the
Company), a subsidiary of Trilogy Software, Inc. and its predecessor entities
including Trilogy Development Group, Inc., as of December 31, 1997 and 1998,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1998.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of pcOrder.com, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
February 5, 1999
F-2
<PAGE>
pcOrder.com, Inc.
Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,207 $ 4,726
Accounts receivable, net of allowance of $281 in 1997 and
$350 in 1998.............................................. 2,277 4,775
Other current assets....................................... -- 150
------- --------
Total current assets..................................... 4,484 9,651
Property and equipment, net................................. 494 1,938
Other assets................................................ -- 665
------- --------
Total assets............................................. $ 4,978 $ 12,254
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................... $ 37 $ 612
Accrued expenses........................................... 781 2,260
Accrued payroll and related liabilities.................... 511 890
Payable to Trilogy......................................... 432 4,506
Deferred revenue........................................... 4,212 10,428
------- --------
Total current liabilities................................ 5,973 18,696
Deferred revenue............................................ -- 2,103
Commitments and contingencies
Stockholders' equity (deficit):
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued or outstanding............... -- --
Class A Common Stock, $.01 par value; 37,243,000 shares
authorized; 43,225 and 191,602 shares issued and
outstanding in 1997 and 1998, respectively................ -- 1
Class B Common Stock, $.01 par value; 12,757,000 shares
authorized, issued and outstanding in 1997 and 1998....... 128 128
Additional paid-in capital................................. 211 4,024
Deferred stock compensation................................ -- (1,726)
Accumulated deficit........................................ (1,334) (10,972)
------- --------
Total stockholders' equity (deficit)..................... (995) (8,545)
------- --------
Total liabilities and stockholders' equity (deficit)..... $ 4,978 $ 12,254
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
pcOrder.com, Inc.
Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Revenues:
Software and subscriptions...................... $ 3,633 $ 6,475 $ 12,651
Content and services............................ 2,249 4,114 9,063
------- -------- --------
Total revenues................................ 5,882 10,589 21,714
------- -------- --------
Costs of revenues:
Software and subscriptions...................... 510 440 2,170
Software and subscriptions--affiliated royalty
fee............................................ 312 583 1,072
------- -------- --------
Total software and subscriptions............... 822 1,023 3,242
Content and services............................ 1,112 2,553 7,068
------- -------- --------
Total cost of revenues........................ 1,934 3,576 10,310
------- -------- --------
Gross profit...................................... 3,948 7,013 11,404
Operating expenses:
Research and development........................ 1,168 1,129 4,292
Selling and marketing........................... 2,555 4,793 12,151
General and administrative...................... 726 1,792 3,689
Amortization of deferred stock and stock
compensation
expense........................................ -- -- 1,468
------- -------- --------
Total operating expenses...................... 4,449 7,714 21,600
------- -------- --------
Operating loss.................................... (501) (701) (10,196)
Interest income................................... -- -- 172
------- -------- --------
Loss before income taxes.......................... (501) (701) (10,024)
Income tax provision (benefit).................... (191) 427 (386)
------- -------- --------
Net loss.......................................... $ (310) $ (1,128) $ (9,638)
======= ======== ========
Basic and diluted net loss per share.............. $ (0.02) $ (0.09) $ (0.75)
======= ======== ========
Weighted average shares outstanding............... 12,800 12,800 12,861
======= ======== ========
Unaudited pro forma information:
Historical loss before income taxes............. $(10,024)
Pro forma income tax benefit.................... (292)
--------
Pro forma net loss.............................. $ (9,732)
========
Pro forma basic and diluted net loss per share.. $ (0.76)
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
pcOrder.com, Inc.
Statements of Stockholders' Equity (Deficit)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Additional Deferred Retained
-------------- ----------------- Paid-In Stock Earnings
Shares Amount Shares Amount Capital Compensation (Deficit) Total
------- ------ ---------- ------ ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 43,000 $ -- 12,757,000 $128 $ 210 $ -- $ 104 $ 442
Net loss................ -- -- -- -- -- -- (310) (310)
------- ---- ---------- ---- ------ -------- --------- --------
Balance at December 31,
1996................... 43,000 -- 12,757,000 128 210 -- (206) 132
Exercise of stock
options................ 225 -- -- -- 1 -- -- 1
Net loss................ -- -- -- -- -- -- (1,128) (1,128)
------- ---- ---------- ---- ------ -------- --------- --------
Balance at December 31,
1997................... 43,225 -- 12,757,000 128 211 -- (1,334) (995)
Exercise of stock
options................ 148,377 1 -- -- 444 -- -- 445
Income tax benefit from
stock options
exercised.............. -- -- -- -- 175 -- -- 175
Deferred stock
compensation related to
stock options.......... -- -- -- -- 2,811 (2,811) -- --
Amortization of deferred
stock and stock
compensation expense... -- -- -- -- 383 1,085 -- 1,468
Net loss................ -- -- -- -- -- -- (9,638) (9,638)
------- ---- ---------- ---- ------ -------- --------- --------
Balance at December 31,
1998................... 191,602 $ 1 12,757,000 $128 $4,024 $ (1,726) $ (10,972) $ (8,545)
======= ==== ========== ==== ====== ======== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
pcOrder.com, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Operating activities
Net loss........................................... $ (310) $(1,128) $(9,638)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation..................................... 346 459 1,189
Amortization of deferred stock and stock
compensation expense............................ -- -- 1,468
Changes in operating assets and liabilities:
Accounts receivable............................. (2,194) 172 (2,498)
Other assets.................................... (4) 4 (815)
Deferred tax assets............................. (483) 691 --
Accounts payable................................ 226 (36) 575
Accrued expenses................................ 392 86 1,479
Accrued payroll and related liabilities......... 268 393 379
Payable to Trilogy.............................. -- 432 4,249
Deferred revenue................................ 1,112 2,050 8,319
------- ------- -------
Net cash provided by (used in) operating
activities........................................ (647) 3,123 4,707
Investing activities
Purchase of property and equipment................. (359) (662) (2,633)
------- ------- -------
Net cash used in investing activities.............. (359) (662) (2,633)
Financing activities
Change in payable to Trilogy....................... 1,006 (255) --
Proceeds from exercise of stock options............ -- 1 445
------- ------- -------
Net cash provided by (used in) financing
activities........................................ 1,006 (254) 445
------- ------- -------
Increase in cash and cash equivalents.............. -- 2,207 2,519
Cash and cash equivalents at beginning of year..... -- -- 2,207
------- ------- -------
Cash and cash equivalents at end of year........... $ -- $ 2,207 $ 4,726
======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements
December 31, 1998
1. Business
pcOrder.com, Inc., (the "Company") is a substantially wholly-owned
subsidiary of Trilogy Software, Inc. and its predecessor entities including
Trilogy Development Group, Inc. ("parent" or "Trilogy"). The Company commenced
operations as a separate business unit within Trilogy on July 1, 1993 and was
incorporated as a separate entity on July 18, 1994. The Company provides
electronic commerce technology and tailored solutions to the manufacturers,
distributors and resellers of computer products primarily in the U.S. The
Company's products include software applications and support for those
applications. The software applications consist of an integrated application
suite that includes cataloging, quoting, pricing, availability, and product
configuration. Content for these applications in the form of detailed product
databases containing configuration, pricing, availability and specifications
are also provided and updated by the Company. Customers can choose to have the
Company host the software applications or install them at their site. In
addition, the Company provides consulting services to help customers build and
integrate electronic commerce capabilities to meet their specified needs.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences may be material to the financial statements.
Revenue Recognition
The Company adopted Statement of Position ("SOP") 97-2, Software Revenue
Recognition, and SOP 98-4, Deferral of the Effective Date of a Provision of
SOP 97-2 as of January 1, 1998. SOP 97-2 and 98-4 provide guidance for
recognizing revenue on software transactions and supersede SOP 91-1, Software
Revenue Recognition. The adoption of SOP 97-2 and 98-4 did not have a material
impact on the Company's financial results.
Software and subscription revenues consist of subscription based or
perpetual licensing fees under arrangements which provide customers with the
right to use the respective product(s) and software maintenance fees. The
Company generally sells the right to use its products under subscription based
license arrangements which provide the customer with unlimited access to any
new versions or releases and technical support at no additional charge over
the term of the arrangement. Revenue for subscription based arrangements is
recognized ratably over the term of the agreement and recognition commences
when persuasive evidence of an agreement exists, delivery of the product has
occurred, the fee is fixed and determinable and collectibility is probable.
The Company may also sell the right to use its products under a perpetual
license arrangement. Revenue from perpetual licenses is recognized when
persuasive evidence of an arrangement exists, delivery of the product has
occurred, the fee is fixed and determinable, and collectibility is probable.
Revenue recognized from perpetual license arrangements represented 33%, 7% and
15% of total revenues in 1996, 1997 and 1998, respectively. The Company also
sells software maintenance which provides technical support and the right to
unspecified upgrades on an if-and-when available basis. Revenue from software
maintenance arrangements is recognized ratably over the term of the agreement
and commences once implementation of the product has occurred.
F-7
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
Content revenues consist of fees charged for content access, entry, updates
and maintenance services (collectively, "content maintenance"). Content
maintenance provides the customer with constantly updated information within
the catalog database, especially information that is specific to the
customer's product offerings. Content fees are recognized ratably over the
term of the arrangement generally commencing upon initial content entry.
Service fees consist of integration, customization and training and are
generally recognized as the services are performed, upon completion of
specific contractual events or based on an estimated percentage of completion
as work progresses. Services generally occur at the inception of a
subscription or license arrangement to provide installation, integration,
and/or customization to deploy the software products as well as training of
customer personnel.
Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue. Amounts recorded as deferred
revenue that are not expected to be recognized as revenue within the following
twelve months are classified as long-term.
Effective December 15, 1998, the American Institute of Certified Public
Accountants ("AICPA") issued SOP 98-9, Modification of SOP 97-2, "Software
Revenue Recognition", With Respect to Certain Transactions. SOP 98-9 amends
SOP 97-2 and 98-4 extending the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company does not believe that the adoption of SOP 98-9 will have a material
effect on the Company's financial condition or results of operations.
Product Development and Database Maintenance Cost
The Company's policy is to capitalize eligible computer software costs upon
achievement of technological feasibility, which the Company has defined as
completion of a working model, subject to net realizable value considerations.
As of December 31, 1998, no significant costs have met this criteria and,
accordingly, the Company has charged all software development costs to expense
as incurred in the accompanying statements of operations.
Research and development expenses are expensed as incurred.
Costs to maintain the Company's proprietary database are expensed as
incurred and are included as a cost of content and service revenues.
Net Loss per Share
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") 128, Earnings Per Share. Basic net loss per share is
computed by dividing net loss available to Common Stockholders by the weighted
average number of common shares outstanding during the period. Diluted net
loss per share is calculated using the weighted average number of outstanding
shares of Common Stock plus dilutive common stock equivalents. For the years
ended December 31, 1996, 1997, and 1998, there was no impact from common stock
equivalents under the treasury stock method. For the year ended December 31,
1998, approximately 1,200,000 common equivalent shares are excluded from the
diluted calculation as they are anti-dilutive. Accordingly, basic and diluted
net loss per share are the same for all periods presented.
In February 1998, the SEC issued Staff Accounting Bulletin ("SAB") 98 which
requires issuances of common stock, options and warrants for nominal
consideration in periods preceding an initial public offering to be included
in the calculations of earnings per share as if they were outstanding
F-8
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
for all periods presented. To date, the Company has had no issuances of common
stock, options or warrants for nominal consideration.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, Reporting Comprehensive Income. The Company adopted SFAS 130 during the
year ended December 31, 1998. There was no impact to the Company as a result
of the adoption of SFAS 130, as there were no differences between net loss and
comprehensive loss for all periods presented.
Cash and Cash Equivalents
Cash equivalents consist primarily of cash deposits and money market
investments with original maturities of ninety days or less when purchased.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives of 18 months to 5 years.
Segments
In June 1997, the FASB issued SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. The Company adopted SFAS 131 during the
year ended December 31, 1998. Such adoption did not have a material effect on
the Company's financial disclosures as the Company continues to consider its
business activities as a single segment.
Internally Used Computer Software
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company is required to implement SOP 98-1
for the year ending December 31, 1999. Adoption of SOP 98-1 is not expected to
have a material impact on the Company's financial condition or results of
operations.
Income Taxes
The liability method is used for accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
The Company has entered into a tax allocation agreement with Trilogy.
Accordingly, the Company's operations are included in the consolidated income
tax returns filed by Trilogy. The current income tax provision (benefit) in
the accompanying financial statements has been computed as follows:
In the case of a current income tax provision, the Company recognizes the
amount of expense as if the Company had filed separate income tax returns
with the liability shown as a payable to Trilogy.
In the case of a current income tax benefit, the Company recognizes the
amount of benefit the consolidated group obtained through utilization of
net operating losses and other tax attributes, resulting in a reduction in
the payable to Trilogy.
Deferred tax expense (benefit) is computed as if the Company had not been
included in the consolidated tax group of Trilogy.
The pro forma disclosure on the statements of operations reflects adjustments
to the 1998 income tax benefit as if the Company had filed a separate income
tax return.
F-9
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
Financial Presentation
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
3. Concentration of Credit Risk and Significant Customers
Cash and accounts receivable potentially expose the Company to
concentrations of credit risk, as defined by SFAS 105, Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk. Excess cash is
placed with highly rated financial institutions. The Company provides credit,
in the normal course of business, to a number of customers geographically
dispersed throughout the U.S. The Company performs ongoing credit evaluations
of its customers and maintains allowances for potential credit losses. The
Company generally requires certain up-front payments from customers, and
customers can be denied access to the product in the event of non-payment.
The following table summarizes the changes in the allowance for doubtful
accounts for 1996, 1997, and 1998 (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1995........................................... $ 40
Additions charged to costs and expenses.............................. 165
Write-off of uncollectible accounts.................................. (92)
----
Balance at December 31, 1996........................................... 113
Additions charged to costs and expenses.............................. 315
Write-off of uncollectible accounts.................................. (147)
----
Balance at December 31, 1997........................................... 281
Additions charged to costs and expenses.............................. 112
Write-off of uncollectible accounts.................................. (43)
----
Balance at December 31, 1998........................................... $350
====
</TABLE>
Sales to individual customers constituting 10% or more of total revenues for
each year were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
Customer No. 1..................................... $ 958 $ -- $ --
Customer No. 2..................................... 935 -- --
Customer No. 3..................................... 1,397 4,070 3,833
Customer No. 4..................................... 1,588 -- --
Customer No. 5..................................... -- -- 3,523
Customer No. 6..................................... -- -- 2,975
</TABLE>
4. Related Party Transactions
Effective September 1, 1998, the Company and Trilogy entered into a
technology, services and license agreement that amended a master license
agreement signed in 1994. Under the new agreement, each party granted the
other a nonexclusive, irrevocable, perpetual, worldwide, fully paid-up license
to internally use, make, reproduce and/or prepare derivative works of the
products of the other party, or to sublicense any non-party to do so, subject
to certain confidentiality restrictions. The Company and Trilogy are each
obligated to pay to the other monthly royalties on (i) license fees derived
from sales of products that incorporate, and/or data maintenance services
related to, the other
F-10
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
party's technology; (ii) software maintenance fees other than data maintenance
services in connection with products that incorporate the other party's
technology; and (iii) on-line subscription service fees from products that
incorporate the other party's technology. The rights granted to Trilogy by the
Company are subject to change of control provisions as described in the
agreement. For each of the three years in the period ended December 31, 1998,
the Company committed to pay royalties annually to Trilogy pursuant to the
applicable agreements in effect at that time, as follows:
. 20% of the license fees derived from sales of the Company's products.
. 9% of software maintenance fees related to the Company's products.
. 6% of subscription fees from sales of the Company's products.
Such royalties amounted to approximately $312,000, $583,000 and $1,072,000
in the years ended December 31, 1996 and 1997 and 1998, respectively.
The Company operates under a services agreement with Trilogy whereby Trilogy
provides certain services on behalf of the Company as follows:
. Management services in the form of on-going support in business
operations.
. Financial services support in the form of insurance and risk management,
tax reporting assistance and payroll processing.
. Human resources support in the form of advice and assistance with respect
to compensation, employee benefits and other employee matters.
. Certain administrative services.
The above services agreement may be modified as deemed necessary, upon
mutual consent between Trilogy and the Company.
Prior to 1998, the Company subleased its office space from Trilogy in
accordance with a facility agreement.
In consideration of receipt of the above services and facilities, the
Company must reimburse Trilogy for its pro rata share of the total cost of
such services and facilities based upon its pro rata share of total full-time
equivalent employees and its pro rata share of total space occupied,
respectively. The Company was charged by Trilogy for such services and
facilities approximately $455,000, $443,000 and $294,000 in the years ended
December 31, 1996, 1997 and 1998, respectively.
In addition to the above fees and services, during 1998 the Company also
committed to pay Trilogy approximately $1,240,000 for technical new hire
recruiting and training services performed by Trilogy on behalf of the
Company. Such amount has been allocated to various departments within the
Company that have directly benefited from these services.
See also Notes 2, 6 and 8.
F-11
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
5. Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------ -------
<S> <C> <C>
Furniture and fixtures...................................... $ -- $ 275
Equipment................................................... 1,375 3,306
Software.................................................... -- 135
Leasehold improvements...................................... -- 292
------ -------
1,375 4,008
Accumulated depreciation.................................... (881) (2,070)
------ -------
Net property and equipment.................................. $ 494 $ 1,938
====== =======
</TABLE>
6. Income Taxes
Significant components of the provision for income tax expense (benefit)
attributable to continuing operations are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Current:
Federal............................................... $ 269 $(239) $(361)
State................................................. 23 (25) (25)
----- ----- -----
292 (264) (386)
Deferred:
Federal............................................... (427) 627 --
State................................................. (56) 64 --
----- ----- -----
(483) 691 --
----- ----- -----
$(191) $ 427 $(386)
===== ===== =====
</TABLE>
A current tax benefit has been recorded for the years ended December 31,
1997 and 1998, resulting from utilization of the Company's net operating
losses and tax credits within the Trilogy consolidated income tax return. The
recorded benefits are reimbursed to the Company under the provisions of the
intercompany tax allocation agreement.
F-12
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying values of assets and liabilities for financial reporting
purposes and the values used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
----- ------
<S> <C> <C>
Deferred tax assets:
Deferred revenue............................................ $ 257 $3,084
Stock option compensation, net of exercises................. -- 564
Accrued wages and other..................................... 128 136
Depreciation and related amounts............................ 98 195
Bad debt and other non-deductible allowances................ 201 250
----- ------
Total deferred tax assets..................................... 684 4,229
Valuation allowance for deferred tax assets................... (684) (4,229)
----- ------
Net deferred taxes............................................ $ -- $ --
===== ======
</TABLE>
A valuation allowance has been provided to offset the deferred tax assets at
December 31, 1998 due to uncertainties regarding the future realization of
such deferred tax assets. The valuation allowance increased by $684,000 in the
year ended December 31, 1997. A deferred tax asset has not been recorded for
any net operating losses and other tax attributes as they have been utilized
in the Trilogy consolidated tax return, as previously discussed.
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense
(benefit) is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory
rate................... (34.0)% (35.0)% (35.0)%
State taxes--net of
federal benefit........ (2.8) (3.0) (3.6)
Non-deductible expenses
and other.............. 2.4 5.6 0.4
Change in valuation
allowance.............. -- 97.7 35.5
Other................... (3.7) (4.3) (1.2)
----- ----- -----
(38.1)% 61.0 % (3.9)%
===== ===== =====
</TABLE>
The exercise of certain stock options which have been granted under the
Company's stock option plan resulted in compensation which is includable in
the taxable income of the applicable option holder and deductible by the
Company for federal and state income tax purposes.
7. Employee Benefit Plan
Trilogy sponsors a defined contribution plan in accordance with Section
401(k) of the Internal Revenue Code. The Plan is available to all full-time
employees of the Company on the first day of the month following employment.
The Plan is funded through employee contributions. The Company's only expenses
relating to the Plan are administrative costs, which are not significant.
F-13
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
8. Stockholders' Equity
On February 2, 1999, the authorized capital stock of the Company was
reclassified as set forth in the Amendment to the Certificate of Incorporation
and consists of 37,243,000 shares of Class A Common Stock, par value of $.01
per share, 12,757,000 shares of Class B Common Stock, par value of $.01 per
share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.
Each share of common stock of the Company not owned by Trilogy was
reclassified into one share of Class A Common Stock and each share of Common
Stock owned by Trilogy was reclassified into one share of Class B Common
Stock. The Class A Common Stock and Class B Common Stock have substantially
identical rights other than as described below.
The Class B Common Stock entitles its holders to eight votes per share while
the Class A Common Stock entitles its holders to one vote per share on all
matters submitted to a vote or for the consent of stockholders. The shares of
Class B Common Stock are convertible at any time prior to a tax free spin-off
at the option of the holder into shares of Class A Common Stock on a share-
for-share basis. Each outstanding share of Class B Common Stock will
automatically be converted into a share of Class A Common Stock upon any
transfer of such share, if after the transfer, such share is not owned by
Trilogy, an affiliate of Trilogy, or a non-affiliate of Trilogy which acquires
more than 50% of the then outstanding Class B Common Stock in a single
transaction. In addition, subject to certain conditions, then outstanding
shares of Class B Common Stock will automatically convert, after the fifth
anniversary of the first transfer of Class B Common Stock in a tax free spin-
off. The effect of this reclassification has been reflected for all periods
presented in the accompanying financial statements.
Asset Transfer Agreement
Effective June 1, 1996, the Company entered into an asset transfer agreement
with Trilogy whereby the Company received title to certain property and
equipment in consideration for the issuance of 11,520,000 shares of the
Company's Class B Common Stock to Trilogy. In connection with the agreement,
Trilogy effectively forgave all amounts owed by the Company to Trilogy for the
purchase of such property and equipment, resulting in contributed capital of
approximately $337,000. The effect of this transaction has been reflected as
of December 31, 1995. See also Note 4.
Stock Option Plans
The Company's 1996 Stock Option Plan ("1996 Plan") provides for the grant
for up to 3,500,000 shares of Class A Common Stock of incentive and
nonqualified options to employees. The stock options vest over various terms,
generally with 0% to 25% exercisable immediately, and an additional 18.75% to
40% exercisable each year thereafter until the option is fully exercisable.
The term of each option is 10 years from the date of grant.
The Company has elected to follow the Accounting Principles Board Opinion
("APB") 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee stock options. Under APB 25,
when the exercise price of the Company's employee stock options equals the
estimated market price of the underlying stock on the date of grant, no
compensation expense is recognized. In connection with certain options granted
during 1998, the Company is recognizing compensation expense totaling
approximately $2,811,000 over the vesting period. This amount represents the
difference between the exercise prices and the deemed fair values of stock
option grants for 941,142 shares of Class A Common Stock. The exercise prices
and the deemed fair values for such grants ranged from $3.00 to $10.00 per
share and $6.40 to $11.00 per share, respectively, during the period in which
such options were granted. At December 31, 1998, the
F-14
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
Company had a total of approximately $1,726,000 remaining to be amortized over
the corresponding vesting period of each respective option, generally four
years. A deferred tax benefit is recorded for the amortized compensation
expense if and when the Company realizes the associated tax benefits of the
options. As of December 31, 1998, such deferred tax benefits have been fully
reserved by a valuation allowance due to their uncertain future utilization.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, Accounting for Stock Based Compensation, which also requires that
the information be determined as if the Company had accounted for its employee
stock options granted under the fair value method prescribed by SFAS 123. The
fair value for these options was estimated at the date of grant using a
minimum value option pricing model (0% volatility) for options granted prior
to the Company's initial filing on Form S-1 dated September 4, 1998. The fair
value for options granted subsequent to the initial filing date were estimated
at the date of grant using the Black-Scholes pricing model and a volatility of
40%. The fair value of options was estimated under both pricing models with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate.............................. 5.8% 6.4% 5.0%
Dividend yield....................................... 0% 0% 0%
Weighted-average expected life of options............ 5 years 5 years 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma compensation expense and net loss for 1996, 1997 and 1998
are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Net loss (in thousands):
As reported.................................... $ (310) $(1,128) $ (9,638)
Pro forma...................................... $ (351) $(1,401) $(10,408)
Basic and diluted net loss per share:
As reported.................................... $(0.02) $ (0.09) $ (0.75)
Pro forma...................................... $(0.03) $ (0.11) $ (0.81)
</TABLE>
During 1998, the Company granted a total of 160,000 options to certain non-
employees which vested immediately. In connection with such grants, the
Company recorded stock compensation expense of $383,000 in 1998 based on the
Black-Scholes pricing model, using a volatility factor of 40%, a risk-free
interest rate of 5.6% and a dividend yield of 0%.
F-15
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
A summary of changes in common stock options is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Price Price
Shares Per Share Per Share
---------- ------------ ---------
<S> <C> <C> <C>
Options outstanding December 31, 1995
Granted................................. 2,040,300 $ 3.00 $3.00
Exercised............................... -- -- --
Surrendered............................. -- -- --
---------- ------------ -----
Options outstanding December 31, 1996..... 2,040,300 $ 3.00 $3.00
Granted................................. 158,500 $ 3.00 $3.00
Exercised............................... (225) $ 3.00 $3.00
Surrendered............................. (7,750) $ 3.00 $3.00
---------- ------------ -----
Options outstanding December 31, 1997..... 2,190,825 $ 3.00 $3.00
Granted................................. 2,590,076 $3.00-$10.00 $4.31
Exercised............................... (148,377) $ 3.00 $3.00
Surrendered............................. (1,425,450) $3.00-$ 8.00 $3.13
---------- ------------ -----
Options outstanding December 31, 1998..... 3,207,074 $3.00-$10.00 $4.00
========== ============ =====
</TABLE>
At December 31, 1998, there were 144,324 options available for grant under
the 1996 Plan. At December 31, 1998, the Company had reserved 3,351,398 shares
of common stock for issuance in connection with the exercise of stock options
granted pursuant to the 1996 Plan.
The following table summarizes information concerning outstanding options as
of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------- ------------------------
Range of Weighted- Weighted-
Exercise Weighted-Average Average Average
Prices Number Remaining Contractual Life Exercise Price Number Exercise Price
- ------------ --------- -------------------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.00 2,604,190 8.90 years $3.00 1,043,263 $3.00
$6.40-$10.00 602,884 9.70 years $8.34 160,000 $8.00
--------- ---------
$3.00-$10.00 3,207,074 9.05 years $4.00 1,203,263 $3.66
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average deemed fair value of stock
options granted during the year:
Exercise price equal to fair value of stock
on date of grant.......................... $0.76 $0.82 $1.22
Exercise price less than fair value of
stock on date of grant.................... -- -- $4.73
Weighted-average remaining contractual life
of options.................................. 9.83 years 8.88 years 8.73 years
</TABLE>
In March 1997, under the terms of an applications subscription arrangement,
the Company gave the right to require the Company to grant to a customer an
option to purchase up to 320,000 shares of common stock of the Company if one
of certain specified events occurs, including an initial public offering. As
of December 31, 1998, no specified event had occurred and the option was not
F-16
<PAGE>
pcOrder.com, Inc.
Notes to Financial Statements--(Continued)
outstanding. At the time the option is issued, the exercise price will be set
as the fair market value of the underlying stock. The number of shares subject
to the option shall be adjusted for any dilutive event which occurs between
March 1997 and the date of issuance of the option.
On February 3, 1999, the Company adopted the 1999 Stock Incentive Plan
("1999 Plan"). Under the 1999 Plan, the eligible individuals are: employees,
non-employee members of the Board of Directors and consultants. The types of
awards that may be made under the 1999 Plan include, but are not limited to,
options to purchase shares of the Company's Class A Common Stock, stock
appreciation rights, restricted shares, dividend equivalent rights,
performance units and performance shares. The Company has reserved 1,500,000
shares for issuance under the 1999 Plan, plus an annual increase beginning
January 1, 2000 equal to five percent (5%) of the total number of shares of
Class A Common Stock and Class B Common Stock outstanding on the first day of
each fiscal year of the Company.
9. Commitments and Contingencies
Lease Arrangements
The Company leases office facilities under various operating leases expiring
from 1999 to 2003. Future lease commitments for office facilities as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................... 484
2000................................................................... 44
2001................................................................... 36
2002................................................................... 35
2003................................................................... 8
</TABLE>
Rent expense for the year ended December 31, 1998 was approximately
$563,000. Prior to 1998, the Company leased its office facilities from
Trilogy. See Note 4.
Litigation
The Company has filed a lawsuit against a former employee, and the former
employee has filed a separate lawsuit regarding commissions owed to the former
employee by the Company. While the ultimate result of this matter cannot be
currently predicted, management does not expect it to have a material adverse
effect on the financial position of the Company.
The Company is involved in various other lawsuits and legal proceedings
which have arisen in the normal course of business. While the ultimate results
of these other matters cannot be predicted with certainty, management does not
expect them to have a material adverse effect on the financial position of the
Company.
F-17
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom Goldman, Sachs & Co., Credit Suisse First
Boston Corporation and SG Cowen Securities Corporation are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Shares of
Underwriter Common Stock
----------- ------------
<S> <C>
Goldman, Sachs & Co.............................................
Credit Suisse First Boston Corporation..........................
SG Cowen Securities Corporation.................................
---------
Total......................................................... 2,200,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Class A Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of the Prospectus to purchase up to an aggregate of 330,000
additional shares of Class A Common Stock solely to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,200,000 shares of Class A Common Stock offered.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the
date of this Prospectus, it will not offer, sell, contract to sell or
otherwise dispose of any securities of the Company (other than pursuant to
employee stock option plans existing on the date of this Prospectus) which are
substantially similar to the shares of Class A Common Stock or which are
convertible into or exchangeable for securities which are substantially
similar to the shares of Class A Common Stock, without the prior written
consent of the representatives, except for the shares of Class A Common Stock
offered in connection with the offering.
In connection with the offering, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in the market price of the Class A Common Stock; and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Class A Common Stock than they are required to
U-1
<PAGE>
purchase from the Company in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the offering for their
account may be reclaimed by the syndicate if such shares of Class A Common
Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Class A Common Stock which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Class A Common Stock offered by them.
Prior to this offering, there has been no public market for the Company's
Class A Common Stock. The initial public offering price will be negotiated
among the Company and the representatives. Among the factors considered in
determining the initial public offering price of the Class A Common Stock, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of
the above factors in relation to market valuation of companies in related
businesses.
Up to percent of the shares of Class A Common Stock offered hereby may
be reserved for sale at the initial public offering price to the Company's
employees, directors and other individuals with direct business relationships
with the Company. The number of shares available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby.
Application has been made for quotation of the Class A Common Stock on the
Nasdaq National Market under the symbol "PCOR".
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act. In addition,
Trilogy has agreed to indemnify the Underwriters against certain liabilities
including liabilities under the Securities Act, arising from certain
information included in this Prospectus that relates to Trilogy.
U-2
<PAGE>
Inside Back Cover
Company Logo
"Moving the Computer Industry to the Web".
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make any repre-
sentations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the infor-
mation contained herein is correct as of any time subsequent to its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 27
Dividend Policy........................................................... 27
Capitalization............................................................ 28
Dilution.................................................................. 29
Selected Financial Data................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 42
Relationship with Trilogy................................................. 56
Management................................................................ 61
Certain Transactions...................................................... 70
Principal Stockholders.................................................... 74
Description of Capital Stock.............................................. 75
Shares Eligible for Future Sale........................................... 78
Legal Matters............................................................. 79
Experts................................................................... 80
Additional Information.................................................... 80
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
</TABLE>
Through and including , 1999 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the Common Stock, whether
or not participating in this distribution, may be required to deliver a Pro-
spectus. This is in addition to the obligation of dealers to deliver a Pro-
spectus when acting as Underwriters and with respect to their unsold allot-
ments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 Shares
pcOrder.com, Inc.
Class A Common Stock
(par value $0.01 per share)
-------------------------
[pcOrder.com, Inc. Logo]
-------------------------
Goldman, Sachs & Co.
Credit Suisse First Boston
SG Cowen
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
Amount*
----------
<S> <C>
Securities and Exchange Commission Filing Fee.................... $ 10,325
NASD Filing Fee.................................................. 3,750
Nasdaq National Market Listing Fee............................... 48,750
Accounting Fees and Expenses..................................... 475,000
Blue Sky Fees and Expenses....................................... 25,000
Legal Fees and Expenses.......................................... 375,000
Transfer Agent and Registrar Fees and Expenses................... 5,000
Printing Expenses................................................ 200,000
Miscellaneous Expenses........................................... 57,175
----------
Total.......................................................... $1,200,000
==========
</TABLE>
- --------
* All amounts are estimates except the Securities and Exchange Commission
filing fee, the NASD filing fee and the Nasdaq National Market listing fee.
Item 14. Indemnification of Directors and Officers
Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Bylaws (Exhibit 3.4 hereto) also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
The Registrant's Certificate of Incorporation (Exhibit 3.2 hereto) provides
that the liability of its directors for monetary damages shall be eliminated
to the fullest extent permissible under Delaware law. Pursuant to Delaware
law, this includes elimination of liability for monetary damages for breach of
the directors' fiduciary duty of care to the Registrant and its stockholders.
These provisions do not eliminate the directors' duty of care and, in
appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person
may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person
reasonably believed to be in
II-1
<PAGE>
or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities
For the three year period from February 9, 1996 to February 9, 1999, the
Registrant has issued and sold the following unregistered securities:
1. During the period, the Registrant granted stock options to employees,
directors and consultants under its 1996 Plan covering an aggregate of
4,978,351 shares of the Registrant's Class A Common Stock, at exercise
prices ranging from $3.00 to $10.00 with a weighted average price of $3.95.
2. During the period, the Registrant issued and sold an aggregate of
179,945 shares of its Class A Common Stock to 76 employees for cash in the
aggregate amount of $560,663 upon exercise of stock options granted
pursuant to the Registrant's 1996 Plan.
3. During the period, the Registrant issued and sold 11,520,000 shares of
its Class B Common Stock to Trilogy in exchange for certain assets having a
total value of $337,000.
4. During the period, the Registrant entered into an agreement with GE
Capital pursuant to which GE Capital has the right to require the
Registrant to grant to GE Capital an option to purchase up to 320,000
shares of restricted Class A Common Stock upon certain events including an
initial public offering by the Registrant.
The sale and issuance of securities in the transactions described in
paragraphs 1 and 2 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sale and issuance of securities in the transaction described in
paragraph 3 above were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of such Securities Act as a
transaction by an issuer not involving a public offering.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No Underwriters were employed in any
of the above transactions.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
II-2
<PAGE>
Item 17. Undertakings
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of 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,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Austin, state of Texas on the 25th day of February, 1999.
pcOrder.com, Inc.
By: *
-----------------------------------
Ross A. Cooley
Chairman, 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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and Chief February 25, 1999
______________________________________ Executive Officer
Ross A. Cooley (Principal Executive
Officer)
* President and Chief February 25, 1999
______________________________________ Operating Officer
Christina C. Jones (Principal Executive
Officer)
/s/ James J. Luttenbacher Vice President, Chief February 25, 1999
______________________________________ Financial Officer and
James J. Luttenbacher Secretary
(Principal Financial
Officer and Accounting
Officer)
* Director February 25, 1999
______________________________________
Joseph A. Liemandt
* Director February 25, 1999
______________________________________
Peter J. Barris
* Director February 25, 1999
______________________________________
Linwood A. Lacy, Jr.
* Director February 25, 1999
______________________________________
Robert W. Stearns
/s/ James J. Luttenbacher February 25, 1999
*By: _________________________________
James J. Luttenbacher
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Certificate of Amendment to the Certificate of Incorporation of the
Registrant.
3.3* Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1 and 3.2.
5.1 Opinion of Morrison & Foerster, LLP as to the legality of the Common
Stock being registered.
10.2* Cooley Employment Agreement.
10.3* Jones Employment Agreement.
10.4* Luttenbacher Employment Agreement.
10.5* 1996 Stock Option Plan.
10.5.1* 1999 Stock Option Plan.
10.6+ Technology, Services and License Agreement.
10.7+ Management Services Agreement.
10.8* Tax Allocation Agreement.
10.9* Asset Transfer Agreement.
10.10* Amendment to Asset Transfer Agreement.
10.11+ Ingram Micro Agreement.
23.1* Consent of Morrison & Foerster, LLP. Reference is made to Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1* Powers of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- --------
+ Confidential Treatment has been granted with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities
and Exchange Commission.
* Previously filed.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF MORRISON & FOERSTER LLP]
February 25, 1999
pcOrder.com, Inc.
5000 Plaza on the Lake
Austin, TX 78746
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 initially
filed by pcOrder.com, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission on September 4, 1998 (Registration No. 333-
62985) and Amendments Nos. 1, 2 and 3 thereto filed on December 9, 1998,
February 9, 1999 and February 25, 1999, respectively, and any subsequent
amendments thereto (collectively the "Registration Statement"), relating to
the registration under the Securities Act of 1933, as amended, of up to
2,530,000 authorized but unissued shares of the Company's Class A Common
Stock, $0.01 par value per share (the "Shares"), being offered by the Company
(including up to 330,000 shares that may be issued upon exercise of the
underwriters' over-allotment option). The Shares are to be sold to the
underwriters named in the Registration Statement for resale to the public.
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the issuance and sale by the Company of up to
2,530,000 Shares.
We are of the opinion that the Shares to be offered and sold by the
Company have been duly authorized and, when issued and sold by the Company in
the manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
EXHIBIT 10.6
Confidential Treatment has been granted with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities
and Exchange Commission.
TECHNOLOGY, SERVICES AND LICENSE AGREEMENT ("Agreement")
This TECHNOLOGY, SERVICES AND LICENSE AGREEMENT (this "Agreement"),
---------
effective as of September 1, 1998 (the "Effective Date"), is entered into by and
--------------
between pcOrder.com, Inc., a Delaware Corporation, having an address at 5000
Plaza on the Lake, Suite 100, Austin, TX 78746 ("pcOrder") and Trilogy
-------
Software, Inc., a Delaware Corporation, having an address at 6034 West Courtyard
Drive, Austin, Texas 78730 ("Trilogy").
-------
RECITALS
WHEREAS, when used in this Agreement, capitalized terms shall have the
respective meanings set forth in Schedule A (attached hereto) of this Agreement
and elsewhere in this Agreement;
NOW, in consideration of the mutual covenants and promises contained
herein, pcOrder and Trilogy ("the parties") hereby agree as follows.
1.0 Access, Licenses, Royalties & Ownership
1.1 Access by pcOrder. Trilogy shall give pcOrder access to Object Code
forms of (and, with regard to data, database forms of):
(a) no later than October 1, 1998, the Material identified in Schedule D,
in the versions thereof existing on or before the Effective Date;
(b) any and all updates to, changes to, and new releases of the Material
identified in Schedule D, to the extent that such updates, changes, and new
releases are by Trilogy (or any one or more of its Affiliates other than
pcOrder); provided however that such obligation shall automatically expire five
(5) years after a Trigger Event (but in no event shall such obligation expire
before September 1, 2008 after a Trigger Event);
(c) any and all Trilogy Products (except Trilogy Products that satisfy only
subparagraph (c)(iii) in the definition of Trilogy Product in Schedule A);
provided however that such obligation shall automatically expire five (5) years
after a Trigger Event (but in no event shall such obligation expire before
September 1, 2008 after a Trigger Event); and further provided however that,
after a Trigger Event, such obligation shall apply only to the extent that
Trilogy Products are of a same, similar, replacement or equivalent general type
as Pre-Trigger Products; and
(d) during the first five (5) years immediately following a Trigger Event
(but in any event at least until September 1, 2008 following a Trigger Event),
any Computer E-Commerce Product of Trilogy (or any one or more of its Affiliates
other than pcOrder);
provided however that Trilogy shall have no obligation to give access to any
market analysis data (or other Material to the extent embodying such data).
No later than general availability to Trilogy's general customer base of any
such update, change, new release, Trilogy Product, or Computer E-Commerce
Product, Trilogy shall provide a written notice of such availability to pcOrder.
Before or after such notice, Trilogy's accessibility obligations under
paragraphs (b), (c) and (d) above shall be in effect, but only to the extent
that such update, change, new release, Trilogy Product, or Computer E-Commerce
Product is (or is reasonably expected to be) generally available to Trilogy's
general customer base, and subject however to the condition that: (i) pcOrder
provides Trilogy with thirty-one (31) days' advance written notice of pcOrder's
specific (e.g. by product name) request for such access, and (ii) Trilogy has
given at least one non-party customer (other than Trilogy's Affiliates) access
to such requested update, change, new release, Trilogy Product, or Computer E-
Commerce Product. Under this Agreement, pcOrder is permitted to provide Trilogy
with such request no more frequently than once per calendar month. If pcOrder
requests earlier access to any such update, change, new release, Trilogy
Product, or Computer E-Commerce Product, then Trilogy shall negotiate in good
faith with pcOrder on a case-by-case basis to give commercially reasonable as-
needed access.
1
<PAGE>
pcOrder acknowledges that, as between the parties and pcOrder's Affiliates,
predecessors or successors, Trilogy solely owns (a) the Material identified in
Schedule D, in the forms (and versions) thereof existing on or before the
Effective Date, and (b) any and all Intellectual Property Rights that may cover
(or be available in, or result from, or be granted pursuant to) such Material.
1.2 Access by Trilogy. pcOrder shall give Trilogy access to Object Code
forms of (and, with regard to data, database forms of):
(a) no later than October 1, 1998, the Material identified in Schedule E,
in the versions thereof existing on or before the Effective Date;
(b) any and all updates to, changes to, and new releases of the Material
identified in Schedule E, to the extent that such updates, changes, and new
releases are by pcOrder (or any one or more of its Affiliates other than
Trilogy); provided however that such obligation shall automatically expire five
(5) years after a Trigger Event (but in no event shall such obligation expire
before September 1, 2008 after a Trigger Event); and
(c) any and all pcOrder Products (except pcOrder Products that satisfy only
subparagraph (c) in the definition of pcOrder Product in Schedule A); provided
however that such obligation shall automatically expire five (5) years after a
Trigger Event (but in no event shall such obligation expire before September 1,
2008 after a Trigger Event);
provided however that pcOrder shall have no obligation to give access to any
market analysis data (or other Material to the extent embodying such data).
No later than general availability to pcOrder's general customer base of any
such update, change, new release, or pcOrder Product, pcOrder shall provide a
written notice of such availability to Trilogy. Before or after such notice,
pcOrder's accessibility obligations under paragraphs (b) and (c) above shall be
in effect, but only to the extent that such update, change, new release, or
pcOrder Product is (or is reasonably expected to be) generally available to
pcOrder's general customer base, and subject however to the condition that: (i)
Trilogy provides pcOrder with thirty-one (31) days' advance written notice of
Trilogy's specific (e.g. by product name) request for such access, and (ii)
pcOrder has given at least one non-party customer (other than pcOrder's
Affiliates) access to such requested update, change, new release, or pcOrder
Product. Under this Agreement, Trilogy is permitted to provide pcOrder with
such request no more frequently than once per calendar month. If Trilogy
requests earlier access to any such update, change, new release, or pcOrder
Product, then pcOrder shall negotiate in good faith with Trilogy on a case-by-
case basis to give commercially reasonable as-needed access.
Trilogy acknowledges that, as between the parties and Trilogy's Affiliates,
predecessors or successors, pcOrder solely owns (a) the Material identified in
Categories B-1 and B-2 of Schedule E, in the forms (and versions) thereof
existing on or before the Effective Date, and (b) any and all Intellectual
Property Rights that may cover (or be available in, or result from, or be
granted pursuant to) such Material. With regard to the Material identified in
Category A of Schedule E, the parties shall cooperate in good faith to determine
whether specific portions of such Material (and Intellectual Property Rights
that may cover (or be available in, or result from, or be granted pursuant to)
such portions) are: (a) solely-owned by Trilogy with a license under Section
1.4 to pcOrder, (b) solely-owned by pcOrder with a license under Section 1.4 to
Trilogy, or (c) owned jointly by the parties in accordance with Schedule B.
2
<PAGE>
1.3 External license
(a) pcOrder. Subject to Section 1.10 but notwithstanding anything else to
the contrary in this Agreement, to the extent that Material licensed by Trilogy
to pcOrder under Section 1.4 is (or becomes) embodied by pcOrder in any one or
more pcOrder Products:
effective as of the moment when such Material is so embodied, Trilogy
further hereby grants to pcOrder a nonexclusive, irrevocable, perpetual,
worldwide right and license under Trilogy's Intellectual Property Rights
(covering, granted pursuant to, available in, or resulting from such
Material) to do the pcOrder Activities for any purpose;
subject however to the condition that pcOrder completely pays amounts owed to
Trilogy under Sections 2.0 and 3.0 of this Agreement.
Notwithstanding anything to the contrary in this Agreement, to the extent
that pcOrder delivers (or authorizes delivery of) Material to a non-party (other
than pcOrder's Affiliates) before a Trigger Event, such non-party's licenses
(and sublicenses) to such Material (and under Intellectual Property Rights
covering, granted pursuant to, available in, or resulting from such Material)
shall continue in full force and effect in accordance with their terms and
conditions, irrespective of such Trigger Event.
(b) Trilogy. Subject to Section 1.10 but notwithstanding anything else to
the contrary in this Agreement, to the extent that Material licensed by pcOrder
to Trilogy under Section 1.4 is (or becomes) embodied by Trilogy in any one or
more Trilogy Products:
effective as of the moment when such Material is so embodied, pcOrder
further hereby grants to Trilogy a nonexclusive, irrevocable, perpetual,
worldwide right and license under pcOrder's Intellectual Property Rights
(covering, granted pursuant to, available in, or resulting from such
Material) to do the Trilogy Activities for any purpose;
subject however to the condition that Trilogy completely pays amounts owed to
pcOrder under Sections 2.0 and 3.0 of this Agreement.
Notwithstanding anything to the contrary in this Agreement, to the extent
that Trilogy delivers (or authorizes delivery of) Material to a non-party (other
than Trilogy's Affiliates) before a Trigger Event, such non-party's licenses
(and sublicenses) to such Material (and under Intellectual Property Rights
covering, granted pursuant to, available in, or resulting from such Material)
shall continue in full force and effect in accordance with their terms and
conditions, irrespective of such Trigger Event.
To the extent this Section 1.3 provides Licensee (as defined in Section
1.4) with any greater right or license than Section 1.4 and Schedule C of this
Agreement, Licensee shall have such greater right and license provided by this
Section 1.3.
1.4 Internal license. Notwithstanding anything to the contrary in this
Agreement, to the extent that Material solely owned (as between the parties) by
a party ("Licensor") is disclosed or delivered to the other party ("Licensee")
during the term of this Agreement in connection with the performance of
activities under this Agreement or before the term of this Agreement, and to the
extent that Material is owned jointly by Licensor and Licensee:
effective as of the moment when such Material is so disclosed or so
delivered, Licensor hereby grants to Licensee a nonexclusive,
irrevocable, perpetual, worldwide, fully paid-up right and license under
Licensor's Intellectual Property Rights (covering, granted pursuant to,
available in, or resulting from such Material) to do any of the
following, but only on behalf of and for the sole benefit of Licensee
and/or Licensor:
3
<PAGE>
(a) to use, make, reproduce, and/or prepare derivative works based upon,
such Material and/or any one or more of such derivative works, and/or
(b) to sublicense any one or more non-parties to do so;
subject however to the condition that, to the extent such Material is
Confidential Information, Licensee treats such Material as Licensor's
Confidential Information under Schedule C of this Agreement even while
exercising such right and license.
1.5 Ownership. Subject to any right of any non-party, if either party
(through its employees or otherwise) solely creates, invents or discovers
Material before or during the term of this Agreement: (a) such party ("owning
party") shall solely own such Material, notwithstanding disclosure or delivery
to the other party of such Material; (b) the owning party shall have the right
to obtain and hold in its own name any and all Intellectual Property Rights that
may cover, (be available in, or result from, or be granted pursuant to) such
Material; and (c) the other party shall have no license, sublicense, right or
immunity, either directly, indirectly, or by implication, estoppel or otherwise,
under such Intellectual Property Rights, except as might be expressly provided
elsewhere in this Agreement or in a separate written agreement.
Joint ownership, if any, shall be controlled by Schedule B (attached
hereto) of this Agreement.
For future projects in which both parties cooperate toward jointly
creating, inventing or discovering Material, the parties shall negotiate in good
faith on a project-by-project basis to determine the extent to which such
Material (and Intellectual Property Rights that may cover (or be available in,
or result from, or be granted pursuant to) such Material) should be:
(a) solely-owned by one party with a license under Section 1.4 to the other
party; or
(b) owned jointly by the parties in accordance with Schedule B.
In such negotiation, the parties shall fairly consider the extent and
significance of each party's respective contribution to the project, including
for example but not limited to each party's respective level of funding,
resources, pre-existing Material, and origination of initial concept. To the
extent the parties determine that such Material (and Intellectual Property
Rights that may cover (or be available in, or result from, or be granted
pursuant to) such Material) should be owned jointly by the parties in accordance
with Schedule B, the parties shall negotiate in good faith to determine the
extent to which one party's or both parties' rights therein should be:
(a) royalty-bearing in accordance with Section 3.0 and Section B.1 of
Schedule B; or
(b) fully paid-up notwithstanding Section 3.0 and Section B.1 of Schedule
B.
1.6 Proprietary Markings. Licensee represents and warrants that it has
retained, and shall retain (i.e. shall not remove, alter, deface, obscure or
destroy), any and all proprietary and confidential notices and markings (e.g.
including but not limited to Licensor's trademark, service mark, tradename,
patent and copyright notices) on any and all originals and permitted copies of
Licensor's Material.
1.7 Export Laws. Licensee represents, warrants, agrees and certifies that
it (a) has complied with, and shall comply with, the United States Foreign
Corrupt Practices Act (regarding, among other things, payments to government
officials) and all export laws and rules and regulations of the United States
Department of Commerce or other United States or foreign agency or authority,
and (b) has not, directly or indirectly, imported, exported, re-exported, or
transshipped any of Licensor's Material in violation of any such laws, rules or
regulations, and (c) shall not (and has not knowingly permitted any non-party
to, and shall not knowingly permit any non-party to), directly or indirectly,
import, export, re-export, or transship any of Licensor's Material in violation
of any such laws, rules or regulations.
4
<PAGE>
1.8 Freedom of Action. Except as expressly provided to the contrary
elsewhere in this Agreement, this Agreement shall not restrict either party from
(a) entering into or having similar agreements with non-parties, (b) do any
activity in relation to competitive products and services, e.g. including but
not limited to designing, developing, manufacturing, acquiring, advertising,
marketing, selling, distributing, licensing, sublicensing or using competitive
products and services, and (c) conducting its business in any manner it chooses.
1.9 Source Code Escrow. Source Code escrow shall be controlled by Schedule
F (attached hereto) of this Agreement.
1.10 No Reverse Assembly. Notwithstanding anything to the contrary in this
Agreement, to the extent legally permissible, Licensee represents and warrants
that it (a) has not reverse assembled, reverse compiled, decrypted, extracted,
or otherwise attempted to discover any Source Code (or other underlying
Material) of Material licensed by Licensor to Licensee under Section 1.4, (b)
shall not (and has used and shall use commercially reasonable efforts to ensure
that its licensees and sublicensees do not, and has not knowingly caused or
permitted any other non-party to, and shall not knowingly cause or permit any
other non-party to) reverse assemble, reverse compile, decrypt, extract, or
otherwise attempt to discover any Source Code (or other underlying Material) of
Material licensed by Licensor to Licensee under Section 1.4.
2.0 Services
2.1 Terms, Conditions, Fees & Invoices. Upon either party's request, the
parties shall negotiate in good faith regarding terms and conditions for a party
("consulting party") to perform services reasonably requested by the other party
("requesting party"); provided however that such obligation shall automatically
expire seven (7) years after a Trigger Event (but in no event shall such
obligation expire before September 1, 2010). Neither party shall have any
obligation to request any such services. In exchange for such services, the
requesting party shall pay fees to the consulting party, but such fees shall not
exceed the consulting party's then current standard rates for the consulting
party's actual reasonable time expended directly in the consulting party's
performance of such services.
On a monthly basis only, no later than thirty-one (31) days after the end
of a month in which the consulting party performs services for the requesting
party under this Section 2.1, the consulting party shall provide to the
requesting party an invoice that itemizes all hours (in such month) for which
the consulting party has a bona fide reasonable good faith belief that payment
is due under this Section 2.1. Within thirty-one (31) days after the requesting
party's receipt of such invoice, the requesting party shall pay the consulting
party for all fees itemized in such invoice, except to the extent that the
requesting party notifies the consulting party of a bona fide reason for the
requesting party's reasonable good faith belief that such invoice is not
accurate (in which event the parties shall use commercially reasonable efforts
to cooperate in good faith with one another toward investigating and resolving
any such reason and non-payment).
2.2 Non-Parties. Subject to the requirements of Exhibit C (attached
hereto) of this Agreement, each party ("retaining party") may, at its sole and
exclusive discretion, retain one or more non-parties to perform services under
this Agreement. Notwithstanding the immediately preceding sentence, to the
extent that such retained non-parties (other than Affiliates of the retaining
party and their respective employees) are not employees of the retaining party:
(a) the retaining party shall promptly identify, in writing, such retained
non-parties to the other party; and
(b) at any time, such other party shall have the right to object in
writing to the retaining party's retention of any one or more of such
retained non-parties who is not performing in a manner reasonably
satisfactory to such other party and, in such event, the retaining
party shall no longer retain such non-party to perform services under
this Agreement.
The retaining party shall ensure that such retained non-parties are covered
by the minimum state-mandated workers' compensation insurance.
5
<PAGE>
The retaining party shall be responsible for and shall make all payments to
such retained non-parties.
2.3 Progress Reports. To the extent reasonably necessary for enabling
compliance with regulatory requirements of Governmental Authorities, the parties
shall cooperate in good faith to provide one another with progress reports
concerning the performance of activities under this Agreement.
2.4 Inspection. During the term of this Agreement, but only at such times
and under such conditions as reasonably requested in advance, each party
("hosting party") shall permit the other party's representatives to visit and
reasonably inspect the hosting party's properties and computer system (but only
to the extent reasonably relating to this Agreement), and interview the hosting
party's employees on topics reasonably relating to this Agreement. Such visits
are not to unreasonably interfere with the hosting party's normal business
operations.
2.5 Security. To the extent that a party ("accessing party") accesses the
other party's computer systems, the accessing party shall fully and completely
comply with any and all of such other party's standard vendor and employee
security policies, procedures, and requirements existing from time to time, to
the extent that such other party notifies the accessing party reasonably in
advance thereof.
2.6 Expenses. The requesting party shall reimburse the consulting party
for the consulting party's reasonable actual expenses (e.g. costs of travel,
food, and lodging) that the consulting party directly incurs in performing
activities for the requesting party under this Agreement, but only to the extent
that such expenses are preapproved in writing by the requesting party.
On a monthly basis only, no later than thirty-one (31) days after the end
of a month in which the consulting party performs activities for the requesting
party under this Agreement, the consulting party shall provide to the requesting
party (a) an invoice that itemizes all expense reimbursements for such month
that the consulting party believes are due under this Agreement and (b) original
receipts for all such expenses reimbursements. Within thirty-one (31) days
after the requesting party's receipt of such invoice, the requesting party shall
reimburse the consulting party for all the requesting party-approved expenses
itemized in such invoice, except to the extent that the requesting party
notifies the consulting party of a bona fide reason for the requesting party's
reasonable good faith belief that such invoice is not accurate (in which event
the parties shall use commercially reasonable efforts to cooperate in good faith
with one another toward investigating and resolving any such reason and non-
payment).
2.7 Management. The consulting party shall report directly to an
individual designated in writing by the requesting party and shall perform
activities in accordance with reasonable instructions, directions, requests,
rules and regulations issued during the term of this Agreement by such
individual. Each party agrees that the other party shall establish its working
hours and work environment, as well as its specific strategies, actions, and
methodologies for performing required activities under this Agreement. Each
party agrees that any property situated on the other party's premises, including
for example but not limited to material, filing cabinets, desks or other work
areas, is subject to inspection by such other party personnel at any time with
or without notice.
2.8 Cooperation. Using commercially reasonable efforts, the requesting
party shall supply to the consulting party reasonable access to the requesting
party's personnel, resources and information reasonably requested by the
consulting party in connection with the consulting party's activities under this
Agreement, including but not limited to (a) reasonable access to the requesting
party's computing network via ISDN modem in compliance with Section 2.5 and (b)
reasonable access to the requesting party's appropriate personnel and
documentation relating to the consulting party's activities under this
Agreement.
2.9 Maintenance Services. Maintenance Services shall be controlled by
Schedule G (attached hereto) of this Agreement.
6
<PAGE>
3.0 Payment
3.1 Royalty. Within thirty-one (31) days after the end of each month
during the term of this Agreement, Licensee (as defined in Section 1.4) shall
pay the Royalty to Licensor (as defined in Section 1.4), and Licensee shall
deliver to Licensor a monthly written royalty report that details the underlying
facts in support of the Royalty calculation. Such report shall be in a form and
format to be mutually agreed upon by Licensor and Licensee.
3.2 Definitions.
"Royalty" shall mean the product of the Royalty Rate multiplied by NS (i.e.
net sales) owed to Licensee (or any one or more of its Affiliates other than
Licensor).
"Royalty Rate" shall mean:
(a) [*]
(b) [*]
(c) [*]
"NS" shall mean only fees computed according to the following formula:
NS = GS - [DED (GS/(GS+OF))].
"GS" (i.e. gross sales) shall mean only fees owed to Licensee (or any one
or more of its Affiliates other than Licensor) by any non-party (other than
Licensee's Affiliates) during the immediately preceding month for:
(a) a license (or sublicense) to a Licensee Product,
(b) a Data Maintenance service in connection with a Licensee Product,
(c) a software maintenance service in connection with a Licensee Product,
or
(d) an on-line subscription service in connection with a Licensee Product;
provided however that:
* such fees shall be no less than fair and reasonable fees in view of
the fair and reasonable market value of such Licensee Product; and
* GS shall exclude any fee (to the extent reasonable) owed to Licensee
(or any one or more of its Affiliates other than Licensor) solely for
(i) a license (or sublicense) to any Material other than a Licensee
Product or (ii) a service solely in connection with such Material.
"Licensee Product" shall mean:
(a) if Trilogy is Licensee, a product (e.g. Trilogy Product) in which more
than an insignificant amount (as reasonably determined in good faith
by both parties) of Material licensed by pcOrder to Trilogy under
Section 1.4 is (or becomes) embodied; and
7
<PAGE>
(b) if pcOrder is Licensee, a product (e.g. pcOrder Product) in which more
than an insignificant amount (as reasonably determined in good faith
by both parties) of Material licensed by Trilogy to pcOrder under
Section 1.4 is (or becomes) embodied.
"GS Transaction" shall mean any particular transaction in which any GS is
owed to Licensee (or any one or more of its Affiliates other than Licensor).
"GS Transaction Fee" shall mean any fee that is part of any GS Transaction.
"OF" (i.e. other fees) shall mean only GS Transaction Fees, to the extent
reasonable for such GS Transaction, owed during the immediately preceding month
to Licensee (or any one or more of its Affiliates other than Licensor) solely
for (i) a license (or sublicense) to any Material other than a Licensee Product
or (ii) a service solely in connection with such Material
"DED" (i.e. deductions) shall mean (a) any credit, discount, refund or
rebate (to any one or more non-parties other than Licensee's Affiliates)
actually granted during the immediately preceding month as part of a GS
Transaction by Licensee (or by any one or more of its Affiliates other than
Licensor), to the extent reasonable for such GS Transaction, and (b) any sales,
use, value added or other tax (other than franchise tax or income tax) owed
during the immediately preceding month as part of a GS Transaction by Licensee
(or by any one or more of its Affiliates other than Licensor) to a Governmental
Authority.
3.3 Conversion. In calculating the Royalty due for any transaction made
in any foreign currency, conversion to U.S. dollars shall be at a rate of
exchange mutually agreed by the parties.
3.4 Audit. During the term of this Agreement and for a period of two (2)
years thereafter, each party and its Affiliates shall keep full and accurate
books and records relating to Sections 3.1, 3.2 and 3.3, in accordance with
standard business practices in the computer industry.
No more frequently than once per twelve (12) month period (as measured on a
rolling basis), either party ("auditing party") shall have the right to audit
such books and records of the other party ("audited party") and the audited
party's Affiliates), at the auditing party's expense, by providing thirty-one
(31) days' advance written notice to the audited party. The auditing party may
conduct such audit either itself or through a reputable certified public
accounting firm subject to the obligations of Schedule C.
The audited party shall reasonably assist the auditing party in conducting
such audit, without charge, and shall make such books and records available for
inspection and copying and shall make personnel available for interviews as may
be reasonably necessary to allow the auditing party to perform the audit.
If any such audit reveals that the audited party has failed to properly
account for and make at least ninety-five percent (95%) of all payments due
under Section 3.1 to the auditing party, then the audited party shall, in
addition to immediately paying the auditing party such past due payments,
promptly reimburse the auditing party for its actual reasonable expenses
incurred in conducting such audit.
3.5 Freedom. Neither party is obligated to announce or market any product
or service, and neither party guarantees the success of its marketing efforts
(if any). Each party, at its sole and exclusive discretion, (a) shall be
independently free to establish the prices and fees for its products and
services and (b) may offer discounts against such prices and fees.
3.6 Dollar amounts. Under this Agreement, all dollar amounts shall be
paid within the United States in U.S. dollars by check drawn on (or wire
transfer from) a United States bank account.
8
<PAGE>
4.0 Term and Termination
4.1 Term. The term of this Agreement shall begin on the Effective Date
and shall continue in effect until terminated by a party under Section 4.2 of
this Agreement.
4.2 Breach Termination. If a party ("breaching party") breaches this
Agreement (e.g. including but not limited to royalty payment obligations under
Section 3.0, or any other representation, warranty, covenant, obligation or
agreement contained in this Agreement), then the other party ("terminating
party") may unilaterally at its sole and exclusive discretion terminate this
Agreement by providing the breaching party with a written notice of the
termination that describes the breach. Such termination shall become effective
thirty-one (31) days after the breaching party receives such written notice,
unless such breach is cured within such thirty-one (31) days. If such breach
(other than breach of a payment obligation) by its nature cannot be cured within
such thirty-one (31) days, but can be cured within an additional sixty-two (62)
day period thereafter, the breaching party may avoid such termination by taking
reasonable and diligent steps to cure such breach, notifying the terminating
party of such steps, progressing toward completion of such steps, and promptly
completing such cure within such additional sixty-two (62) day period.
Such termination shall be in addition to any other remedies to which the
terminating party may be entitled. Termination of this Agreement shall be
without penalty to the terminating party.
A party who is responsible for any inadvertent unauthorized disclosure or
delivery of the other party's Confidential Information shall not be deemed to
have breached this Agreement if such responsible party satisfies its obligations
under Section C.5.
4.3 Termination Based on Business Status. A party (unilaterally at its
sole and exclusive discretion) may terminate this Agreement by providing the
other party with a written notice of the termination if such other party: (a)
becomes insolvent; (b) makes a general assignment for the benefit of creditors;
(c) is adjudicated bankrupt; (d) admits in writing its insolvency or inability
to pay its debts or perform its obligations in the ordinary course of business
as they mature; or (e) becomes the subject of any voluntary or involuntary
proceeding in bankruptcy, liquidation, dissolution, receivership, attachment or
composition or general assignment for the benefit of creditors, provided however
that such involuntary proceeding was not dismissed within sixty-two (62) days
after it was instituted. Such termination shall become effective as of receipt
by such other party of such written notice. If any of the events described in
this Section 4.3 occur with respect to a party, such party shall promptly notify
(in writing) the other party about the occurrence.
4.4 Survival. Sections 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 3.0, 4.0,
5.0, 6.0, 7.0 and 8.0, and Schedules A, B, C, D, E, F and G shall survive
termination of this Agreement in accordance with their terms and conditions.
With respect to payment obligations that arise before the date of termination of
this Agreement, such payment obligations shall survive termination of this
Agreement. Except for such payment obligations, termination of this Agreement
shall be without payment of any fee. A payment obligation shall be deemed to
arise when such payment is scheduled to be paid under this Agreement.
Irrevocable licenses shall not be affected by termination of this Agreement.
5.0 Warranty
5.1 Representations and Warranties. Notwithstanding anything to the
contrary in this Agreement, each party ("warranting party") represents and
warrants that:
(a) the warranting party has all right, power, and authority to enter
into this Agreement;
(b) there are no liens, encumbrances, or claims pending or threatened
against the warranting party (or anyone else to the warranting
party's knowledge) that relate to the rights and licenses granted by
the warranting party in this Agreement;
(c) the warranting party has access to expertise, knowledge, experience,
ability, and know-how to perform all of its obligations under this
Agreement;
9
<PAGE>
(d) all services performed by the warranting party under this Agreement
shall be performed in a professional and workmanlike manner; and
(e) to the extent that the warranting party delivers Material to the other
party under Section 1.1, Section 1.2 or Section 2.0, and subject to
the condition that such other party completely pays amounts owed to
the warranting party under Sections 2.0 and 3.0, to the warranting
party's knowledge after reasonable inquiry:
(i) the warranting party (1) either owns or has sufficient rights
to deliver such Material to such other party, and (2) either
owns or has sufficient rights to grant the licenses (as granted
elsewhere in this Agreement) under any and all Intellectual
Property Rights that may cover (or be available in, or result
from, or be granted pursuant to) such Material;
(ii) such Material neither infringes nor violates any non-party's
valid Intellectual Property Right;
(iii) such Material does not contain any "back door", "time bomb",
"drop dead device", or other computer software routines
designed to permit access to or use of such Material or such
other party's computer systems by an unauthorized Person, or to
disable or erase at any time such Material or data processed
therewith;
(iv) such Material does not contain any virus or other contaminants
that may corrupt or destroy any data it processes or disable
any of its components;
(v) such Material is free of Bugs in design, materials and
workmanship; provided however that the warranting party and
such other party agree that, due to the nature of such
Material, the warranting party may be unable to detect, locate
and correct all Bugs; and
(vi) all time-and-date related aspects of Object Code will operate
beyond December 31, 1999 ("Millennium Date Change") at the same
level of functionality as would have otherwise existed in the
absence of a Millennium Date Change.
Except as expressly provided in this Section 5.1, anything provided by the
warranting party to the other party in relation to this Agreement is provided
"AS IS", without representation, warranty or covenant of any kind.
5.2 Disclaimers.
(a) EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY ELSEWHERE IN THIS
AGREEMENT, UNDER THIS AGREEMENT, EACH PARTY HEREBY EXPRESSLY DISCLAIMS ANY AND
ALL WARRANTIES, IRRESPECTIVE OF WHETHER EXPRESS, IMPLIED, STATUTORY, ARISING BY
CUSTOM OR TRADE USAGE OR OTHERWISE, INCLUDING FOR EXAMPLE BUT NOT LIMITED TO
WARRANTIES OF NON-INFRINGEMENT (EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY
ELSEWHERE IN THIS AGREEMENT) AND THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
(b) EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY ELSEWHERE IN THIS
AGREEMENT, UNDER THIS AGREEMENT, EACH PARTY HEREBY EXPRESSLY DISCLAIMS ANY AND
ALL WARRANTIES (i) REGARDING THE OTHER PARTY'S OR A NON-PARTY'S MODIFICATION TO
A SERVICE OR MATERIAL OR (ii) THAT A SERVICE OR MATERIAL WILL MEET THE OTHER
PARTY'S REQUIREMENTS OR (iii) THAT A SERVICE OR MATERIAL WILL OPERATE IN THE
COMBINATIONS THAT MAY BE SELECTED BY SUCH OTHER PARTY OR (iv) THAT A SERVICE OR
MATERIAL WILL OPERATE UNINTERRUPTED OR ERROR FREE.
10
<PAGE>
6.0 Limitation of Liability
6.1 Limitation of Liability. SUBJECT TO SECTIONS 6.4 AND 7.0 BUT
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY
SHALL BE LIABLE UNDER THIS AGREEMENT TO THE OTHER PARTY (NOR TO ANY PERSON OR
PERSONS WHOSE CLAIM OR CLAIMS ARE BASED ON OR DERIVED FROM A RIGHT OR RIGHTS
CLAIMED BY SUCH OTHER PARTY) FOR ANY SPECIAL, INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING FOR EXAMPLE
BUT NOT LIMITED TO LOST PROFITS, LOST SAVINGS, LOST REVENUES, OR LOSS OF
BUSINESS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION,
NEITHER PARTY SHALL BE LIABLE FOR ANY NON-PARTY CLAIM EXCEPT AS SET FORTH IN
SECTION 7.0 OF THIS AGREEMENT.
6.2 Force Majeure. Subject to Sections 6.4 and 7.0 but notwithstanding
anything to the contrary in this Agreement, neither party shall be liable under
this Agreement for (or deemed in default of this Agreement by reason of) any
failure, delay or interruption in performing any term or condition of this
Agreement due to cause(s) entirely beyond the control of such party, including,
without limiting the generality of the foregoing, strikes, boycotts, labor
disputes, embargoes, acts of God, acts of public enemy, acts of Governmental
Authority, natural disasters (e.g. fires, floods), riots, rebellion, shortages
of materials or supplies; subject however to the condition that such party gives
the other party written notice thereof promptly and, in any event, within
thirty-one (31) days of discovery thereof and uses its best efforts to cure such
cause. In the event of any such cause, the time for performance shall be
extended for a period equal to the duration of such cause.
6.3 Monetary Limitation. Subject to Sections 6.4 and 7.0 but
notwithstanding anything else to the contrary in this Agreement, IN NO EVENT
SHALL EITHER PARTY'S AGGREGATE LIABILITY TO THE OTHER PARTY (INCLUDING LIABILITY
TO ANY PERSON OR PERSONS WHOSE CLAIM OR CLAIMS ARE BASED ON OR DERIVED FROM A
RIGHT OR RIGHTS CLAIMED BY SUCH OTHER PARTY) UNDER THIS AGREEMENT (EXCEPT
SECTION 7.0) EXCEED THE HIGHER OF:
(a) ALL AMOUNTS PAID (COMPUTED AS OF THE DATE OF ANY FINAL JUDGMENT) BY
pcOrder TO Trilogy UNDER THIS AGREEMENT; or
(b) ALL AMOUNTS PAID (COMPUTED AS OF THE DATE OF ANY FINAL JUDGMENT) BY
Trilogy TO pcOrder UNDER THIS AGREEMENT.
6.4 Exception to Limitations. THE LIMITATIONS OF THIS SECTION 6.0 SHALL
NOT APPLY TO ANY BREACH BY A PARTY OF ITS OBLIGATIONS UNDER SCHEDULE C OF THIS
AGREEMENT.
7.0 Indemnification
Notwithstanding anything to the contrary in this Agreement (e.g. including
but not limited to Section 6.0), each party ("indemnifying party") hereby agrees
to and will defend, indemnify and hold harmless the other party (and its
directors, officers, shareholders, employees and agents) for any claim
(including but not limited to any liability, loss, claim, damage, cause of
action and injury) against such other party (or its directors, officers,
shareholders, employees and agents) by any non-party (other than such other
party's Affiliates) to the extent based on an actual or alleged:
(a) failure by the indemnifying party, to the extent not caused by such
other party (or its directors, officers, shareholders, employees and agents), to
perform any one or more of the indemnifying party's obligations under this
Agreement,
(b) breach of any one or more of the indemnifying party's representations
or warranties,
(c) failure by the indemnifying party to comply with government laws and
regulations,
11
<PAGE>
(d) intentional or grossly negligent act or omission of the
indemnifying party or any one or more of its employees, agents or contractors,
or
(e) to the extent that the indemnifying party delivers Material to such
other party under Section 1.1, Section 1.2 or Section 2.0, (1) failure by the
indemnifying party to either own or have sufficient rights to deliver such
Material to such other party, (2) failure by the indemnifying party to either
own or have sufficient rights to grant the licenses as granted elsewhere in this
Agreement, (3) infringement (or violation) by such Material of a non-party's
Intellectual Property Right, or (4) failure of all time-and-date related aspects
of Object Code to operate beyond December 31, 1999 ("Millennium Date Change") at
the same level of functionality as would have otherwise existed in the absence
of a Millennium Date Change;
subject however to the condition that such other party:
(1) promptly provides effective written notice of any such
claim (e.g. the initial demand or the filing of a lawsuit, whichever is
earlier, by such non-party) to the indemnifying party,
(2) allows the indemnifying party to control the defense of
the claim and settlement negotiations, including but not limited to
selection of legal counsel, and
(3) fully cooperates with the indemnifying party in such
defense and settlement negotiations, including but not limited to
providing the indemnifying party with all available information,
assistance, authority, and cooperation to enable the indemnifying party
to defend and settle the claim.
In defending, indemnifying and holding harmless such other party, the
indemnifying party shall reimburse such other party for all costs and expenses,
including reasonable attorneys' fees, incurred by such other party in connection
with such claim.
Notwithstanding anything to the contrary in this Agreement: (a) neither
party shall have any obligation to defend, indemnify and hold harmless such
other party (or its directors, officers, shareholders, employees and agents) for
any claim against such other party (or its directors, officers, shareholders,
employees and agents) by any non-party based on such other party's or a
non-party's actual or alleged modification to a service or Material; and (b) if
a service or Material becomes or (in the indemnifying party's opinion) is likely
to become, the subject of any claim by any non-party, such other party shall
permit the indemnifying party (at the indemnifying party's sole option and
expense) to modify such service or Material in order to avoid such claim.
8.0 Miscellaneous
8.1 Independent Contractor Status. Each party is and shall remain at
all times an independent contractor, and nothing in this Agreement shall be
deemed to create a joint venture, partnership, employment, franchise,
master-servant, or agency relationship between the parties. Neither party has
the right of authority to assume or to create any obligation or responsibility
on behalf of the other.
8.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of either party. Neither party may,
without the prior written consent of the other party, assign or transfer any
right (other than a right to receive payment) under or obligation incurred under
this Agreement. Such consent shall not be unreasonably withheld. Notwithstanding
anything to the contrary in this Agreement, either party may assign this
Agreement, without the other party's consent, only to any non-party that
succeeds by operation of law to, purchases, or otherwise acquires substantially
all of the assets of such assigning party and expressly assumes in writing such
assigning party's obligations under this Agreement; subject however to the
condition that such assigning party shall continue being subject to such
obligations under this Agreement notwithstanding such assignment.
12
<PAGE>
8.3 Governing Law. Notwithstanding anything to the contrary in this
Agreement, this Agreement shall be deemed entered into in Texas and shall be
governed by and construed and interpreted in accordance with the laws of the
State of Texas that apply to contracts executed in and performed entirely within
the State of Texas, without reference to any rules of conflict of laws. With
respect to any suit, action or other proceeding arising from (or relating to the
relationship created by) this Agreement, the parties hereby agree to
non-exclusive personal jurisdiction and venue of the United States District
Court for the Western District of Texas (and any Texas State Court within Travis
County, Texas).
8.4 Legal Fees. If an action is brought to enforce any provision or
declare a breach of this Agreement, the non-prevailing litigant shall pay (to
the prevailing litigant, in addition to any other amounts awarded) the costs of
such action. Such costs shall include all reasonable fees of the action and all
reasonable costs incurred in obtaining any interim relief if such relief was
granted at the request of the prevailing litigant, all reasonable legal and
other related costs and expenses, including attorneys' fees, expert witness
fees, costs of appeal, and all other reasonable out-of-pocket expenses incurred
by the prevailing litigant in connection with such action.
8.5 Taxes. The requesting party (and the Receiving Party, as
applicable), as such term is used elsewhere in this Agreement, represents and
warrants that it shall directly pay Governmental Authorities all taxes (e.g.
sales and use taxes) where applicable, and any other governmental charges
levied, imposed or assessed on licenses, services and Material supplied to such
party under this Agreement, excluding however ordinary personal property taxes
assessed against or payable by the other party, taxes based upon the other
party's net income and the other party's corporate franchise taxes.
8.6 Notice. Any notice under this Agreement shall be (a) in writing,
(b) addressed to a party's Contact Person at the address set forth below (or as
expressly designated by such party in a subsequent effective written notice
referring specifically to this Agreement), (c) sent in a manner requiring a
signed receipt, such as courier delivery, Federal Express delivery, or
registered (or certified) mail, return receipt requested, and (d) deemed
effective upon receipt.
If to pcOrder:
pcOrder.com, Inc.
5000 Plaza on the Lake, Suite 100
Austin, TX 78746
If to Trilogy:
Trilogy Software, Inc.
6034 West Courtyard Drive
Austin, Texas 78730
8.7 Enforceability. If a portion of this Agreement is determined to be
or becomes unenforceable or illegal, then such portion shall be reformed or
eliminated to the extent necessary for this Agreement to be enforceable and
legal, and the remainder of this Agreement shall remain in effect in accordance
with its provisions as modified by such reformation or elimination.
8.8 Waiver. No breach or provision of this Agreement shall be deemed
waived or excused, unless such waiver or excuse is in writing and signed by an
authorized agent of the waiving or excusing party. The failure by (or delay of)
either party in enforcing (or exercising) any of its rights under this Agreement
shall: (a) not be deemed a waiver or excuse of such right or of any breach of
the same or different provision of this Agreement, and (b) not prevent a
subsequent enforcement (or exercise) of such right.
8.9 Headings. Titles and headings of paragraphs and sections within
this Agreement are provided merely for convenience and shall not be used or
relied upon in construing this Agreement or the parties' intentions with respect
thereto.
13
<PAGE>
8.10 Counterparts This Agreement may be signed in multiple
counterparts, provided however that each party shall receive a counterpart fully
signed by the other party.
8.11 Bankruptcy. If either party suffers an insolvency, and either a
debtor-in-possession or the trustee in a case under the Bankruptcy Code rejects
this Agreement as permitted in the Bankruptcy Code, then the other party may
elect to retain its rights (including all licenses) under this Agreement to the
maximum extent provided in Section 365(n) of the Bankruptcy Code.
8.12 Mutual Negotiations. Each provision of this Agreement shall be
fairly interpreted and construed in accordance with its provisions and without
any strict interpretation or construction in favor of or against either party.
8.13 Expenses. Except as expressly provided to the contrary elsewhere
in this Agreement (e.g. including but not limited to Section 2.0), each party
shall bear all of its own costs and expenses arising from its obligations and
activities under this Agreement, including but not limited to costs and expenses
for Intellectual Property Rights, facilities, work spaces, utilities,
management, employees, supplies and travel.
8.14 Full Agreement. This Agreement, including its Schedules,
constitutes the sole and exclusive terms and conditions between the parties
relating to the subject matter hereof and supersedes all prior discussions,
writings, negotiations, understandings and agreements with respect thereto,
including the June 1, 1996 Reseller Agreement (which is hereby terminated as of
June 1, 1996 in its entirety, notwithstanding anything to the contrary therein)
and the June 1, 1996 Master License Agreement (which is hereby terminated as of
June 1, 1996 in its entirety, notwithstanding anything to the contrary therein),
and (subject to Section 8.7) shall not be amended except by a written amendment
that is completely executed by authorized agents of both parties. Each party
hereby acknowledges its full receipt and satisfaction of all payments scheduled
to be paid (by the other party) on or before the Effective Date, including for
example but not limited to Trilogy's full receipt and satisfaction of (a) a
payment by pcOrder on or about June 1, 1996 of [*] retroactive to July, 1993 and
(b) royalty payments scheduled to be paid (by pcOrder) on or before the
Effective Date. Such payments were partial consideration in exchange for former
obligations. Accordingly, no such payment shall be refunded, and no such payment
shall satisfy or reduce any payment owed by a party to the other party under
this Agreement. By signing below, each of the parties acknowledges that it has
read, understands and agrees to this Agreement as being effective for all
purposes as of the Effective Date, notwithstanding any later date set forth
below.
pcOrder Trilogy
By: /s/ Christina C. Jones By: /s/ Joseph A. Liemandt
__________________________________ ____________________________________
(authorized signature) (authorized signature)
Name: Christina C. Jones Name: Joseph A. Liemandt
Title: President Title: President & Chief Executive
Officer
Date: ____________________________ Date: _____________________________
14
<PAGE>
Schedule A
Definitions
-----------
"Affiliates" shall mean any entity that is required by generally
accepted accounting principles to be consolidated with a party for financial
reporting purposes.
"Bugs" shall mean defects, problems, logical errors, and bugs.
"Computer E-Commerce Product" shall mean any network based electronic
commerce product for enabling sales, purchasing, marketing, or distribution
within the computer products market, including but not limited to the markets
for personal computers, servers, workstations, related software, related storage
devices, related peripherals, and related data communications equipment.
"Confidential Information" shall mean any trade secret or confidential
Material of a party ("Disclosing Party") disclosed or delivered (e.g. including
but not limited to giving access to Material, such as may be contained in a
database) by the Disclosing Party to the other party ("Receiving Party");
provided however that to be deemed Confidential Information, the Material (a) if
in tangible (e.g. including but not limited to electronic) form, must be
prominently designated by the Disclosing Party as being either "proprietary,"
"confidential," "trade secret," or words of similar importance, in writing
provided to the Receiving Party at the time when the Material is initially
disclosed or delivered to the Receiving Party, whichever is earlier, or (b) if
disclosed orally to the Receiving Party, must be identified by the Disclosing
Party to the Receiving Party as being either proprietary, confidential, or trade
secret Material at the time of such disclosure, subject however to the condition
that the Disclosing Party provides to the Receiving Party a written summary of
such orally disclosed Material no later than thirty-one (31) days after such
disclosure. Notwithstanding the immediately preceding sentence, Confidential
Information shall include Source Code, irrespective of whether so designated as
being "proprietary," "confidential," "trade secret," or words of similar
importance, and Confidential Information shall not include:
(a) any Material that is publicly known or available, or becomes
publicly known or available, without the Receiving Party breaching this
Agreement;
(b) any Material that has been publicly disclosed by the Disclosing
Party or is delivered by the Disclosing Party to a non-party without an
obligation of confidence;
(c) any Material already (i.e., prior to receipt by the Receiving
Party) rightfully in the possession of the Receiving Party (or any one or more
of its Affiliates other than the Disclosing Party) without an obligation of
confidence;
(d) any Material that is rightfully received by the Receiving Party (or
any one or more of its Affiliates other than the Disclosing Party) from a
non-party without an obligation of confidence; or
(e) any Material that is independently developed by Receiving Party (or
any one or more of its Affiliates other than the Disclosing Party) without using
Confidential Information of the Disclosing Party.
"Data Maintenance" shall mean updates to, changes to, new releases of,
and other maintenance of data, databases, or any other compilation of data.
"Escrow Agent" shall mean (a) Data Securities International, Inc.
("DSI"), a Delaware Corporation, and (b) any other non-party to the extent
mutually agreed upon by the parties.
"Governmental Authority" shall mean any domestic or foreign
governmental: court, administrative agency, commission, board, bureau, agency,
tribunal, instrumentality, authority, department, or political subdivision.
15
<PAGE>
"Intellectual Property Rights" shall mean any patent, trade secret,
confidential Material, know-how, show-how, maskwork right, copyright (e.g.
including but not limited to any Moral Right), and any other intellectual
property protection and intangible legal rights and interests, of any one or
more countries, including for example but not limited to (a) any Person's
publicity or privacy right, (b) any utility model or application therefor, (c)
any industrial model or application therefor, (d) any certificate of invention
or application therefor, (e) any application for patent, including for example
but not limited to any provisional, divisional, reissue, reexamination or
continuation application, (f) any substitute, renewal or extension of any such
application, and (g) any right of priority resulting from the filing of any such
application.
"Material" shall mean: (a) any work of authorship, idea, procedure,
process, system, method, concept, principle, discovery, invention, art, machine,
manufacture, composition of matter, material, improvement, formula, pattern,
device, compilation, information, list, article, code, matter, program,
technique, apparatus, algorithm, design, circuitry, hardware, firmware,
software, product or data, irrespective of whether patentable or copyrighted,
and (b) any portion, copy and extract of such Material, in tangible or
intangible form, in any media.
"Moral Rights" shall mean (a) any right of paternity or integrity, (b)
any right to claim authorship or require authorship identification, (c) any
right to object to distortion, mutilation or other modification of, or other
derogatory action in relation to, a work of authorship, and (d) any similar
right existing under judicial or statutory law of any country or under any
treaty, irrespective of whether such right is generally referred to as a "moral
right".
"Object Code" shall mean computer software code, in electronic form,
that (a) is executable by a computer system without further processing by a
software compiler, assembler or interpreter and (b) results when Source Code is
processed by a software compiler, assembler or interpreter.
"pcOrder Activities" shall mean (a) to use, make, reproduce, prepare
derivative works based upon, license, offer to license, import, export, publish,
distribute, perform, display, advertise, market, promote, service and/or support
any one or more pcOrder Products in Object Code form (and, with regard to data,
database form) only, and/or to offer to do so, and/or to sublicense any one or
more non-parties to do so, and/or (b) to deposit any one or more pcOrder
Products in Source Code form with an Escrow Agent, exercising the same care and
discretion (but not less than commercially reasonable care and discretion
according to the value of such Source Code) to prevent and restrain any release
of such Source Code to another non-party as pcOrder employs with respect to its
own Source Code of similar importance that it does not wish to have released.
"pcOrder Contact Person" shall mean pcOrder's Chief Financial Officer
or any other individual designated by pcOrder in an effective written notice to
Trilogy.
"pcOrder Product" shall mean:
(a) any product identified in Schedule E, in the forms (and versions)
thereof existing on or before the Effective Date;
(b) any other product of pcOrder (or any one or more of its
Affiliates), but only to the extent that such product is a Computer E-Commerce
Product; and
(c) any other product of pcOrder but only to the extent approved in
writing by Trilogy on a case-by-case basis for a particular customer receiving a
particular product.
"Person" shall mean any individual, firm, corporation, partnership,
group, trust, joint venture, limited liability company or partnership,
Governmental Authority or other entity.
"Pre-Trigger Products" shall mean all products that are generally
available, before a Trigger Event, from Trilogy (or any one or more of its
Affiliates other than pcOrder) to its or their general customer base.
16
<PAGE>
"Source Code" shall mean computer software code, in electronic form,
that is (a) executable by a computer system only with further processing by a
software compiler, assembler or interpreter, and (b) suitable and sufficient to
permit a reasonably skilled software engineer to develop, install, implement,
regenerate, modify, enhance, adapt, change, translate, maintain and support
computer software, and to prepare derivative works based thereupon.
"Trigger Event" shall mean (a) a Trilogy Change of Control or (b) an
event in which pcOrder ceases being an Affiliate of Trilogy.
"Trilogy Activities" shall mean (a) to use, make, reproduce, prepare
derivative works based upon, license, offer to license, import, export, publish,
distribute, perform, display, advertise, market, promote, service and/or support
any one or more Trilogy Products in Object Code form (and, with regard to data,
database form) only, and/or to offer to do so, and/or to sublicense any one or
more non-parties to do so, and/or (b) to deposit any one or more Trilogy
Products in Source Code form with an Escrow Agent, exercising the same care and
discretion (but not less than commercially reasonable care and discretion
according to the value of such Source Code) to prevent and restrain any release
of such Source Code to another non-party as Trilogy employs with respect to its
own Source Code of similar importance that it does not wish to have released.
"Trilogy Change of Control" shall mean only a merger, consolidation,
acquisition or similar business combination, irrespective of whether Trilogy is
the surviving or ultimate entity, in which more than fifty percent (50%) of the
issued and outstanding voting power of Trilogy becomes controlled, directly or
indirectly through proxy or through one or more subsidiaries, by a non-party who
did not have such control before the Effective Date.
"Trilogy Contact Person" shall mean Trilogy's Chief Financial Officer
or any other individual designated by Trilogy in an effective written notice to
pcOrder.
"Trilogy Product" shall mean:
(a) any product identified in Schedule D, in the forms (and versions)
thereof existing on or before the Effective Date;
(b) before a Trigger Event, and after expiration of the first
five (5) years immediately following a Trigger Event (but in
no event shall such expiration occur before September 1, 2008
after a Trigger Event), any other product of Trilogy (or any
one or more of its Affiliates); and
(c) during the first five (5) years immediately following a
Trigger Event (but in any event at least until September 1,
2008 following a Trigger Event), any other product of Trilogy
(or any one or more of its Affiliates), but only to the extent
that such product is: (i) not a Computer E-Commerce Product,
or (ii) a Computer E-Commerce Product without any portion of
the Material identified in Category B-2 of Schedule E (and
updates to, changes to, and new releases of such Material to
the extent owned by pcOrder), or (iii) approved in writing by
pcOrder on a case-by-case basis for a particular customer
receiving a particular product.
17
<PAGE>
Schedule B
Joint Inventions
----------------
"Joint Inventions" shall mean any and all discoveries or inventions
qualifying for patent protection under 35 U.S.C. Section 101 if at least one
employee and/or contractor of pcOrder and at least one employee and/or
contractor of Trilogy are properly named inventors pursuant to 35 U.S.C. ss.
116.
"Joint Copyrights" shall mean any and all original works of authorship
qualifying for copyright protection under 17 U.S.C. ss. 102 if created by at
least one employee and/or contractor of pcOrder and at least one employee and/or
contractor of Trilogy.
"Joint Intellectual Property" shall mean any and all Joint Inventions,
Joint Copyrights, and other Intellectual Property Rights if created, invented or
discovered by at least one employee and/or contractor of pcOrder and at least
one employee and/or contractor of Trilogy.
B.1 Ownership. Subject to any right of any non-party, and subject to
each party's sole ownership of its Intellectual Property Rights which dominate
Joint Intellectual Property, any and all Joint Intellectual Property shall be
owned jointly in equal and undivided interests by the parties in their joint
names. Each party shall (a) execute any and all documents necessary to
effectuate such equal and undivided interests of the parties in Joint
Intellectual Property; and (b) treat Joint Intellectual Property for all
purposes (e.g. including but not limited to Section 3.0) of this Agreement in
the same manner as such party treats the other party's solely-owned Material
delivered under this Agreement (and Intellectual Property Rights that may cover
(or be available in, or result from, or be granted pursuant to) such Material).
B.2 Cooperation. The parties shall reasonably consult with one another
in deciding whether (and to what extent) to enforce or defend Joint Intellectual
Property. Each party ("Cooperating Party") shall (at the request of the other
party, or any of its successors, assigns, nominees, representatives and
designees) cooperate and do everything that such other party (or any one or more
of its successors, assigns, nominees, representatives and designees) may
reasonably consider necessary or appropriate to assist such other party (and its
successors, assigns, nominees, representatives and designees) to prepare and
make filings in any and all countries to apply for, prosecute, register,
evidence, defend, obtain, hold, secure, vest title to, protect, perfect,
maintain, uphold and enforce any and all Joint Intellectual Property.
Such cooperation includes for example but is not limited to: (a)
communicating to such other party (and its successors, assigns, nominees,
representatives and designees) any Material relating to conception or reduction
to practice or prosecution of any or all Joint Intellectual Property; (b)
testifying and rendering prompt assistance and cooperation in any and all legal
proceedings (e.g. including but not limited to any opposition, cancellation
proceeding, interference proceeding, priority contest, public use proceeding,
reexamination proceeding, and court proceeding) involving any or all Joint
Intellectual Property; and (c) executing (or causing to be executed) any and all
assignments, oaths, declarations, powers of attorney, and other instruments and
documents.
B.3 Power of Attorney. If the Cooperating Party fails or refuses to
execute any such assignment, oath, declaration, power of attorney, instrument or
document, the Cooperating Party hereby appoints such other party (and its
successors and assigns) as the Cooperating Party's true and lawful
attorney-in-fact (such power of attorney being irrevocable by the Cooperating
Party and coupled with an interest in favor of such other party and its
successors and assigns), with full power of substitution, to execute such
assignments, oaths, declarations, powers of attorney, and other instruments and
documents in the name and stead of the Cooperating Party but on behalf of and
for the benefit of such other party and its successors and assigns, irrespective
of whether in the name of the Cooperating Party or such other party or
otherwise.
18
<PAGE>
B.4 Expenses. All expenses associated with Joint Intellectual Property,
including for example but not limited to the expenses of preparing and making
filings as described further hereinabove, shall be equally shared between the
parties. Notwithstanding the foregoing, either party may elect not to equally
share in all or a portion of such expenses with the other party, in which case
the other party shall have the right (but no responsibility or obligation) to
prepare and make such filings and shall have full control over such non-shared
portion of such filings, even though title to any and all Joint Intellectual
Property shall be jointly owned by the parties in their joint names.
19
<PAGE>
Schedule C
Confidentiality
---------------
C.1 Order of Precedence. Disclosure, delivery and treatment of
Confidential Information between the parties shall be governed under this
Schedule C of this Agreement.
C.2 Confidentiality of Agreement. Notwithstanding anything to the
contrary in this Agreement, each party shall treat the provisions of this
Agreement (including but not limited to any and all addenda, schedules, exhibits
and amendments thereof) as being the other party's Confidential Information;
provided however that each party unilaterally may publicly disclose to
non-parties the existence of its relationship with the other party.
C.3 Authorized Disclosure. Subject to Section C.4, a party ("Receiving
Party") that receives (before or during the term of this Agreement) Confidential
Information of the other party ("Disclosing Party") is hereby authorized to
disclose and/or deliver such Confidential Information to:
(a) any one or more employees of the Receiving Party (or any one
or more of its Affiliates) having a need to know for the
purposes of this Agreement or for the performance of licensed
activities under this Agreement,
(b) any one or more non-parties having a need to know for the
performance of licensed activities under this Agreement, but
only on behalf of and for the sole benefit of the Receiving
Party and/or the Disclosing Party and/or any one or more
Affiliates thereof, and
(c) any one or more other non-parties after the Receiving Party
obtains prior written consent of an authorized agent of the
Disclosing Party with respect to such non-party;
provided however that: before disclosure or delivery of the Disclosing Party's
Confidential Information to any non-party, the Receiving Party shall have in
place with such non-party an agreement sufficient to require that such non-party
treat such Confidential Information in accordance with the Receiving Party's
obligations under this Agreement.
C.4 Obligations and Rights.
(a) Care and Discretion. The Receiving Party hereby agrees that, for a
period of ten (10) years after the Receiving Party receives the Disclosing
Party's Confidential Information, the Receiving Party shall exercise the same
care and discretion (but not less than commercially reasonable care and
discretion according to the value of such Confidential Information) to prevent
and restrain any unauthorized use, disclosure, delivery, publication,
dissemination, accessibility or reproduction of such Confidential Information
(irrespective of its media or whether in tangible or intangible form) as the
Receiving Party employs with respect to its own Material of similar importance
that it does not wish to have used, disclosed, delivered, published,
disseminated, accessed or reproduced.
(b) Authorized Use. Within the scope of and subject to licenses granted
elsewhere in this Agreement, the Receiving Party may use the Disclosing Party's
Confidential Information for any purpose that does not violate the Receiving
Party's obligations under the immediately preceding paragraph, but the Receiving
Party shall prevent and restrain its other use of such Confidential Information
without prior written consent of an authorized agent of the Disclosing Party.
20
<PAGE>
(c) Return of Confidential Information. In response to written request
by the Disclosing Party, the Receiving Party shall return to the Disclosing
Party (or certify to the Disclosing Party that the Receiving Party has
destroyed) all tangible forms of such Confidential Information, except
Confidential Information accessed by the Receiving Party under Section 1.1 or
Section 1.2; provided however that (i) the Receiving Party may retain one
archival copy of such Confidential Information to be used only for the purposes
set forth in Section C.6 of this Agreement and (ii) this Section C.4(c) shall
not be applied to require the return (to the Disclosing Party) or destruction of
any Confidential Information already (i.e. before the Receiving Party receives
such written request) licensed to the Receiving Party under Section 1.3 of this
Agreement.
(d) Ownership. As between the parties, the Disclosing Party shall
solely own the Disclosing Party's Confidential Information, notwithstanding
disclosure or delivery to the Receiving Party of such Confidential Information.
(e) No Obligation to Disclose. Except as expressly provided to the
contrary elsewhere in this Agreement, this Agreement does not require either
party to disclose, deliver or receive Material.
C.5 Inadvertent Unauthorized Disclosure. If the Receiving Party is
responsible for any inadvertent unauthorized activity in relation to the
Disclosing Party's Confidential Information (e.g. including but not limited to
inadvertent unauthorized use, disclosure, delivery, publication, dissemination,
accessibility or reproduction), then the Receiving Party shall immediately
notify the Disclosing Party in writing and use its best efforts to prevent any
further unauthorized activity and to mitigate the consequences of such
inadvertent unauthorized activity.
C.6 Permitted Disclosure. Notwithstanding anything to the contrary in
this Agreement, disclosure by the Receiving Party of the Disclosing Party's
Confidential Information shall be permitted if such disclosure is:
(a) in response to a request or order of a Governmental Authority;
provided however that the Receiving Party shall first have notified the
Disclosing Party in writing of such request or order, and the Disclosing Party
(at its option) shall have had thirty-one (31) days (or shorter time if required
by such request or order) to obtain a protective order, and the Receiving Party
shall limit its disclosure to only such Confidential Information that is
required to be disclosed by such request or order;
(b) otherwise required by law;
(c) necessary to establish the Receiving Party's rights under this
Agreement; or
(d) pursuant to the prior written consent of an authorized agent of the
Disclosing Party.
C.7 Injunctive Relief. In the event of a breach or threatened breach by
the Receiving Party of any provision of this Schedule C, then the Receiving
Party hereby acknowledges and agrees that the Disclosing Party (a) will suffer
immediate irreparable harm and significant injury and loss which would be
difficult to ascertain and which would not be fully compensable by damages alone
and (b) shall have the right to seek immediate temporary or permanent injunctive
relief, specific performance or other equitable relief, without prejudice to any
other rights and remedies available to the Disclosing Party under this
Agreement.
C.8 Reassignment of Employees. Nothing in this Agreement creates any
obligation in any way limiting or restricting assignment and/or reassignment of
employees within or between either party's departments, divisions and
Affiliates.
21
<PAGE>
Schedule D
Trilogy
-------
SalesBUILDER
Applications:
3D
Attribute Selection Engine (ASE)
Checker
Client Server
Connections Model Pack
Database Bridge
Enterprise Manager
EWC Model Pack
Instaload
Model Bundler
Needs Analysis Model Pack
OrderBUILDER
PriceBUILDER
QuoteBUILDER
Sales BUILDER Engine
SalesBUILDER EWC Interface
SalesBUILDER for Windows
SBW/QB
Selection Sets
Shared Memory
System Specification Language
Upgrades Model Pack
Tools:
ASE Maint
CodeWrite Model Extension
ComponentEDITOR
Engine Macro API
FormBUILDER ModelDebugger (MDE) PCM Manager API SalesBUILDER
Engine API Kit SalesBUILDER Translator Selection Set API Kit
Models:
Trilogy Computer Industry Model
Languages:
Configuration Modeling Language
22
<PAGE>
Selling Chain
Applications:
SC Backbone
SC Catalog
SC Commission
SC Commission Dashboard
SC Config
SC Config PowerPak
SC Contract Manager
SC DiagramServer
SC Explorer
SC FormServer
SC Portfolio
SC Pricebook
SC Pricer
SC Pricer (Engine)
SC Process Manager
SC Promotion Manager
SC Proposal
SC Quote
SC Rating Manager
SC Replicator Engine
SC Report
SC Web Application Server
SC Web Backbone
SC Workspace
Tools:
SC Backbone SDK
SC Catalog Manager
SC Commission Manager
SC Config Manager
SC Config PowerPak Manager
SC Object Studio
SC Pricer Manager
SC Report Toolkit
Trilogy Architecture Products
Applications:
Trilogy Backbone COM
Trilogy Backbone Java
Trilogy FFC-Com
Trilogy FFC-Html
Trilogy FFC-Java
Trilogy Object Manager
Trilogy Replicator
Trilogy Report
Trilogy Workspace
Tools:
Trilogy Backbone SDK
Trilogy Replicator Manager
Trilogy Report Manager
23
<PAGE>
ERP Integration Products
Applications:
Trilogy Checker Server for SAP
Trilogy Order Entry for Oracle Applications
Trilogy Order Entry for SAP
Trilogy Pricer Bridge
Trilogy Pricer Bridge for Oracle Applications
Trilogy Pricer Bridge for SAP
IBM Java Products
Applications:
Catalog
Customer Browser
Lotus Notes Backbone
Proposal
Quote
Channel Chain
24
<PAGE>
Schedule E
pcOrder
-------
Category A
----------
pcOrder Online Client (TechBuyer)
pcOrder Online Client Class/Category/Vendor Search
pcOrder Online Client Keyword Product Search
pcOrder Online Client SKU Based Product Lookup
pcOrder Online Client Attribute Based Search
pcOrder Online Client Quoter
pcOrder Online Client Needs Analysis Wizard
pcOrder Online Client Search and Replace
pcOrder Online Client Configuration Checker
pcOrder Online Client Pricing Profile Maintenance
pcOrder Online Client Pricing and Availability Alerts
pcOrder Online Client Lease Pricing Module
pcOrder Online Client Credit Application Maintenance
pcOrder Online Client Datasheets
pcOrder Online Client Product Comparison
pcOrder Web Storefront
pcOrder Web Storefront Quote
pcOrder Web Storefront Build Wizard
pcOrder Web Storefront Search and Replace
pcOrder Web Storefront Configuration Checker
pcOrder Web Storefront Class/Category/Vendor Search
pcOrder Web Storefront Keyword Product Search
pcOrder Web Storefront SKU Based Product Lookup
pcOrder Web Storefront Standards Management
pcOrder Web Storefront Catalog Subsetting
pcOrder Web Storefront Cross Sell/Upsell
pcOrderAPI Client Communication Module
25
<PAGE>
pcOrder Application Server Suite
pcOrder Application Server Class/Category/Vendor Search
pcOrder Application Server Keyword Product Search
pcOrder Application Server SKU Based Product Lookup
pcOrder Application Server Attribute Based Search
pcOrder Application Server Pricing
pcOrder Application Server Needs Analysis (Configuration)
pcOrder Application Server Search and Replace
pcOrder Application Server Configuration Checker
pcOrder Application Server Pricing Profiles
pcOrder Application Server Pricing and Availability Alerts
pcOrder Application Server Lease Pricing Module
pcOrder Application Server Datasheets
pcOrder Application Server Product Comparison
pcOrder Application Server Catalog Subsetting
pcOrder Application Server Cross Sell/ Upsell
pcOrder Application Server Enterprise Manager
pcOrder Application Server Client/Server
pcOrder Application Server Little Sister Process Monitor
pcOrder Application Server Model Update Process (MUP)
pcOrder Application Server Model Control Process (MCP)
pcOrder Models
pcOrder Computer Industry Model
pcOrder IBM AAP Model
pcOrder Compaq CTO Model
pcOrder Customer Desktop
CommerceStation Suite
CommerceStation Catalog
CommerceStation Quote
CommerceStation Referral
CommerceStation Locator
CommerceStation Order
CommerceStation Config
CommerceStation Price
CommerceStation SAP Bridge
CommerceStation User Maintenance
CommerceStation Partner Maintenance
CommerceStation Catalog Maintenance
CommerceStation Price Maintenance
26
<PAGE>
Category B-1
------------
pcOrder Online Client Customer Profiles
pcOrder Online Client Lease Documentation Maintenance
pcOrder Application Server Monitoring and Control Suite
pcOrder Alert Monitor
pcOrder Keyword Search Data Update Process
pcOrder Server Registry Monitor
` pcOrder Server Registry Propagator
pcOrder Server Event Notification Module
ChannelTrack Market Analysis Tool
pcOrder Realtime Pricing Modules
Techdata
Ingram Micro
MicroAge
GE
pcOrder User Administration Tool
pcOrder Catalog Subsetting Tool
pcOrder Web Storefront Setup Tool
pcOrder Leasing Maintenance Tool Suite
pcOrder Leasing Reseller Defaults Maintenance
pcOrder Leasing Residual Maintenance
pcOrder Leasing Tier Maintenance
pcOrder Leasing Yield Maintenance
pcOrder Leasing Usury Limit Maintenance
pcOrder Consulting Products
pcOrder Kingston Memory Advisor
pcOrder MCI Tax and Freight Module
pcOrder MCI PO Server
pcOrder MCI Customer Search Module
pcOrder MCI Order Entry Module
pcOrder Avnet Order Entry Module
pcOrder Web StoreFront Template Set
pcOrder Customizable Template Set
pcOrder HP ESPP Template Set
pcOrder Customer Search Tool Template Set
pcOrder Web Storefront Template Parser/HTML generator
27
<PAGE>
Category B-2
------------
VIPER (Valued Information Partner Entry Resource)
VIPER Metadata Maintenance Tool
pcOrder Data Capture
pcOrder Data Model Test Suite
Test Case Database
Test Case Generation Tools
Test Track
pcOrder Workflow Management Tools
SKU Tracker
Catulator
pcOrder Pricebook Import Process Suite
Murphy's Lawyer
Pricebook Specific Import Scripts
pcOrder product content database
28
<PAGE>
Schedule F
Source Code Escrow
------------------
"Deposited Code" shall mean:
(a) reasonably commented Source Code (but only to the extent owned
by or sufficiently licensed to Licensor) of Material that
Licensor has delivered to Licensee under Section 1.1, Section
1.2 or Section 2.0; and
(b) non-commercially available documentation (in hardcopy and, if
available, electronic form) suitable and sufficient to permit
a reasonably skilled software programmer without undue burden
to create, install, test, maintain, support, reproduce and use
such Material and to prepare derivative works based thereupon.
"Release Event" shall be deemed to occur only if Licensor (as defined
in Section 1.4):
(a) becomes insolvent;
(b) makes a general assignment for the benefit of creditors;
(c) is adjudicated bankrupt;
(d) admits in writing its insolvency or inability to pay its debts or
perform its obligations in the ordinary course of business as they mature;
(e) becomes the subject of any voluntary or involuntary proceeding in
bankruptcy, liquidation, dissolution, receivership, attachment or composition or
general assignment for the benefit of creditors, provided however that such
involuntary proceeding was not dismissed within sixty-two (62) days after it was
instituted; or
(f) breaches its obligation under Schedule G to use commercially
reasonable efforts toward supplying a correction in response to a Severity 1 Bug
or a Severity 2 Bug, provided however that Licensee provides Licensor with a
written notice that describes such breach and such breach is not cured within
thirty-one (31) days after Licensor receives such written notice.
F.1 Deposit. In response to a written request by Licensee (as defined
in Section 1.4), and at Licensee's expense: Licensor, Licensee and the Escrow
Agent will enter into a written escrow agreement (the "Escrow Agreement") to be
negotiated by the parties in good faith and pursuant to which Licensor will
deposit the Deposited Code in escrow with the Escrow Agent.
F.2 Release. The Escrow Agreement would instruct the Escrow Agent to
make the Deposited Code available to Licensee only upon occurrence of a Release
Event. Also, the Escrow Agreement would instruct the Escrow Agent to notify
Licensor in writing before delivering the Deposited Code to Licensee. Moreover,
the Escrow Agreement would provide that delivery of the Deposited Code to
Licensee would be subject to the following terms and conditions:
(a) Licensee would have no right to sublicense the Deposited Code;
(b) Licensee would keep the Deposited Code at a single location at
Licensee's corporate headquarters and would have rights to
only one copy of the Deposited Code, plus a backup copy to be
permanently stored as required below;
29
<PAGE>
(c) Licensee would keep the Deposited Code in a highly restricted
access area with access thereto limited to designated Licensee
employees who have a need to access the Deposited Code for the
purposes permitted under this Schedule, for the duration of
time as necessary to achieve such purposes;
(d) Licensee would (i) advise, in writing, all designated Licensee
employees with access to the Deposited Code of the trade
secret and confidential nature of the Deposited Code and
Licensor's proprietary interest therein, and (ii) ensure that
all such designated Licensee employees have previously agreed
to the provisions of this Schedule and have a then currently
effective employment agreement with Licensee providing
equivalent protection to Licensor;
(e) Licensee would immediately return the Deposited Code,
including any and all copies thereof, to Licensor when
Licensee no longer requires the Deposited Code for the
purposes permitted under this Schedule; and
(f) Licensee's rights to the Deposited Code would include the
right to prepare derivative works based upon the Deposited
Code, but such rights would be strictly and solely for the
purpose of maintaining and supporting the Material that
Licensor has delivered to Licensee under Section 1.1, Section
1.2 or Section 2.0, and such rights would be only in
connection with Licensee's exercise of its then existing (i.e.
existing immediately prior to occurrence of the Release Event)
contractual rights under this Agreement or under a separate
agreement between Licensor and Licensee.
30
<PAGE>
Schedule G
Maintenance Services
--------------------
To the extent that Licensor (as defined in Section 1.4) delivers
Material to Licensee (as defined in Section 1.4) under Section 1.1, Section 1.2
or Section 2.0, and subject to the condition that Licensee completely pays
amounts owed to Licensor under Sections 2.0 and 3.0, Licensor shall provide
Maintenance Services to Licensee for such Material in Object Code form, for as
long as Licensor makes Maintenance Services for such Material available to its
general customer base; provided however that (notwithstanding anything to the
contrary in the foregoing), for any given version of such Material, such
obligation shall automatically expire nine (9) months after general availability
of a more recent version thereof from Licensor to its general customer base.
"Maintenance Services" shall mean the following services.
(a) Licensor shall provide 24-hour pager availability for Severity 1
Bugs (as defined below).
(b) Licensor's support specialist shall return Licensee's calls
within the time specified below. Such response times shall be
measured from the time a Licensee contact person requests
support by one of the means set forth below.
(i) Severity 1 Bug
A Severity 1 Bug prevents useful work from being accomplished
or severely impacts Licensee's business as determined by
Licensee Designees. "Designees" shall mean two vice presidents
or other designees if vice presidents are unavailable, whose
names and positions will be provided to Licensor, who are
solely responsible for reporting Severity 1 Bugs to Licensor.
In response to a Severity 1 Bug, Licensor shall assign (within
two (2) hours after Licensor's receipt of the error report) at
least one fully qualified individual to address the Bug and
shall use commercially reasonable efforts toward supplying a
correction, given that time is of the essence for such
Material to operate substantially in accordance with its
specifications within one (1) calendar day after Licensor's
receipt of the error report. Such individual(s) shall work at
the affected location without interruption (i.e., twenty-four
(24) hours per day) at no additional cost to Licensee until
Licensor provides such correction, provided that Licensee
personnel are likewise available at the affected location
without interruption.
(ii) Severity 2 Bug
A Severity 2 Bug substantially impairs Licensee's
ability to use one or more critical functions of such
Material. Licensee shall designate at its discretion
whether a Bug is a Severity 2 Bug but, if Licensor
disagrees upon review, the escalation path set forth
below is activated to resolve a dispute. Until such
dispute is resolved, Licensor will respond to the Bug
as a Severity 2 Bug.
In response to a Severity 2 Bug, Licensor shall use
commercially reasonable efforts toward supplying a
correction, given that time is of the essence for
such Material to operate substantially in accordance
with its specifications within two (2) calendar days
after Licensor's receipt of the error report.
Licensor shall assign fully-qualified technicians to
work at the affected location during Licensee's
regular business hours at no additional cost to
Licensee until Licensor provides such correction.
31
<PAGE>
(iii) Severity 3 Bug
A Severity 3 Bug minimally impairs Licensee's ability
to use the critical functions of such Material.
Licensee shall designate at its discretion whether a
Bug is a Severity 3 Bug but, if Licensor disagrees
upon review, the escalation path set forth below is
activated to resolve a dispute.
In response to a Severity 3 Bug, Licensor shall use
commercially reasonable efforts toward supplying a
correction, given that time is of the essence for
such Material to operate substantially in accordance
with its specifications as soon as reasonably
possible within ten (10) calendar days after
Licensor's receipt of the error report.
(iv) Severity 4 Bug
All other Bugs are Severity 4 Bugs.
In response to a Severity 4 Bug, Licensor shall use
commercially reasonable efforts toward supplying a
correction, given that time is of the essence for
such Material to operate substantially in accordance
with its specifications in the next Minor Release of
such Material.
"Minor Release" means a release containing changes
that correct Bugs or that make minor improvements in
the functionality of such Material which are
generally made available by Licensor to its general
customer base. Typically, Minor Releases are
identified by the second number to the right of the
decimal in the numerical designation of the release.
(v) Dispute regarding severity
If a dispute between Licensee and Licensor regarding
the classification of a Bug is not resolved within 24
hours after Licensor's receipt of the error report,
then such dispute shall be referred to each party's
Director-level management for resolution. If such
Directors cannot resolve the dispute within 24 hours
the referral of the dispute to them, then such
Directors shall escalate the dispute to each party's
respective Vice President having applicable
responsibility. If such Vice Presidents cannot
resolve the dispute within 24 hours after referral of
the dispute to them, then such Vice Presidents shall
escalate the dispute to each party's respective
executive level liaisons (e.g. Licensor's CEO and
Licensee's CIO or his/her designee) for ultimate
resolution.
Limitation. Notwithstanding anything to the contrary in this Schedule
G, Maintenance Services shall include only Second Level Support and shall
exclude First Level Support.
"Second Level Support" means responding to Licensee's requests
for assistance with First Level Support issues only after
Licensee first uses commercially reasonable efforts to resolve
such issues on its own.
"First Level Support" means diagnosis, analysis and provision
of solutions to Bugs encountered by Licensee in connection
with its use of Material.
Breach. The parties agree that, due to the nature of Material, Licensor
may be unable to detect, locate and correct all Bugs. Accordingly, Licensor's
failure to supply a correction shall not by itself constitute a breach of this
Schedule G, so long as Licensor uses commercially reasonable efforts toward
supplying a correction as specified in this Schedule G.
32
<PAGE>
Exhibit 10.7
Confidential Treatment has been granted with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is between Trilogy Software, Inc. (TSI), a
Delaware corporation, and pcOrder.com, Inc. (PCO), a Delaware corporation,
effective July 1, 1998.
BACKGROUND
PCO is a subsidiary of TSI, and TSI has provided management services to PCO or
its predecessors. Because TSI's ownership of PCO may be reduced, the Parties
wish to state formally the terms on which certain management services will
continue to be rendered by TSI to PCO.
AGREEMENT
The Parties agree as follows:
ARTICLE 1 - DEFINITIONS AND INTERPRETATION
Various terms used in this Agreement are defined in the Definitional Appendix;
the defined terms used in this Agreement begin with a capital letter. Various
interpretative matters for this Agreement are also set forth in the Definitional
Appendix. The Definitional Appendix is an integral part of this Agreement.
ARTICLE 2 - TERM
2.1 Stated Term. This Agreement commences on the Effective Date and will
continue in effect until 11:59 p.m. on June 30, 1999 unless terminated
earlier by one or both of the Parties in accordance with Article 13.
2.2 Renewal. The parties may consent to successive one-year renewal terms by
following this procedure: If PCO wishes to renew the term of this
Agreement, it shall Notify TSI of that intention by March 30, 1999 and
the same date of each subsequent year. If TSI wishes to concur with that
renewal, it shall Notify PCO of that concurrence by April 30 of that
year. If no Notice of intent to renew or no concurrence is given, this
Agreement will Expire when the then current term Expires.
2.3 Transition Assistance. For up to 180 days after Expiration, TSI shall
comply with PCO's reasonable requests for assistance in engaging or
training another Person or Persons to provide, and for records and other
information relating to, the Services rendered by TSI immediately
preceding that Expiration. PCO shall reimburse and pay TSI's Transition
Expenses in accordance with invoices submitted to PCO by TSI. Articles 8
and 18 shall apply in this situation as though this Agreement had not
Expired. TSI may cease providing transition assistance, immediately upon
Notice to PCO, if PCO has not paid the amount described in a Nonpayment
Notice by the tenth Business Day after the Nonpayment Notice was given.
If the records or other information provided by TSI are Confidential
Information, Article 10 shall also apply as though this Agreement had not
Expired.
ARTICLE 3 - SERVICES
3.1 Schedules. TSI shall render, and PCO shall pay for, the Mandatory
Services and, to the extent not discontinued in accordance with this
Agreement, the Optional Services during the effectiveness of this
Agreement. The Services are described on the Schedules, which are an
integral part of this Agreement. The Services described on Schedules I
through IV are Mandatory Services; the Services described on the other
Schedules are Optional Services. Neither party may unilaterally change
any Service or separate any one or more of the Tasks that constitute a
Service.
3.2 Standard of Care. TSI shall use the same care in rendering the Services
as it uses in rendering services to TSI itself and the other subsidiaries
of TSI. Further, TSI's care in rendering the Services shall be at least
equal to the care that it has used in providing each Service to PCO or
its predecessors before the Effective Date.
3.3 Manner and Place of Performance. TSI shall render each Service in
accordance with any terms (including any time period) described on the
corresponding Schedule or any applicable SLA, though TSI has full
discretion about how to render each Service as that Service is so
described. TSI is not obligated to render any Service or Task in the same
manner (such as using the same personnel or other assets of TSI) as it
previously rendered that Service or Task, whether before or after the
Effective Date. Each Service will be performed at TSI's offices or the
other place or places it was rendered most recently before the Effective
Date, except as described in the corresponding Schedule or Subcontracted
in accordance with this Agreement. PCO shall afford access to its
premises as necessary or reasonably appropriate to permit a Service or
Task to be rendered.
3.4 Recipients of Services. The Services shall be rendered solely to, or for
the direct benefit of, PCO. PCO may not assign, license, or otherwise
transfer or provide, whether for or without consideration, any right to
any Service, in whole or in party, to any
1
<PAGE>
Person. PCO may, however, provide any other Person (whether for or
without consideration) any product or information of PCO resulting or
derived from any Service or Task, to the extent not prohibited by Article
10.
3.5 Subcontracting Services. TSI has Subcontracted certain of the Services,
in whole or in part, before the Effective Date; the Schedules indicate
those Services that are Subcontracted and the corresponding
Subcontractors as of the Effective Date. PCO consents to that
Subcontracting and those Effective Date Service Subcontracts and
Subcontractors. TSI's subcontracting after the Effective Date, however,
is subject to these terms:
(a) TSI may, without any consent or approval of PCO,
(i) Subcontract any Service, in whole or in part, to any Person,
including any Affiliate of TSI,
(ii) amend any Service Subcontract, or
(iii) cease to Subcontract any Service, in whole or in part.
(b) PCO shall have no indemnification obligation under Section 14.4(b)
regarding any Service Subcontract, other than an Effective Date
Service Subcontract, entered into by TSI without PCO's Reasonable
Consent. Also, if TSI, without PCO's Reasonable Consent, enters into
any amendment to
(i) an Effective Date Service Subcontract, or
(ii) any other Service Subcontract to which PCO had given its
Reasonable Consent,
PCO shall be liable under Section 14.4(b) only for any Damages of
TSI or any of its Indemnified Agents that would have resulted
without that amendment; that is, PCO shall not be liable under
Section 14.4(b) for any increase in Damages that results from an
amendment of that kind.
TSI shall remain responsible for the rendering to PCO of any Service
that is Subcontracted, in whole or in part. Also, except as
described in Section 14.4(b), TSI shall be solely responsible for
its obligations to the Subcontractor (including any applicable
Subcontract Termination Penalty) under each Service Subcontract.
3.6 Information Regarding Services. Each Party shall make available to the
other Party any information required or reasonably requested by that
other Party regarding the performance of any Service and shall be
responsible for timely providing that information and for the accuracy
and completeness of that information. But a Party shall not be liable for
not providing any information that is subject to a confidentiality
obligation owed by it to a Person other than an Affiliate of it or the
other Party. A Party shall not be liable for any impairment of any
Service caused by its not receiving information, either timely or at all,
or by its receiving inaccurate or incomplete information from the other
Party that is required or reasonably requested regarding that Service.
3.7 Legal Services. The Service described in one of the Schedules as "legal
services" consists of TSI's making the Legal Staff available for
engagement by PCO for their legal matters. The engagement, services, or
withdrawal of any of the Legal Staff regarding a particular legal matter
for PCO, as well as certain of the Prices for those legal services, are
governed by and subject to the Legal Staff's professional or ethical
obligations.
3.8 Warranty Disclaimer. TSI MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, REGARDING ANY SERVICE OR TASK OTHER THAN AS STATED IN THIS
AGREEMENT. TSI SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
REGARDING THE SERVICES.
ARTICLE 4 - SERVICE LEVEL
4.1 Continuation of Level. TSI shall provide substantially the same Level of
each Service, and each Task, as it provided to PCO before the Effective
Date, except as otherwise agreed in accordance with this Agreement.
4.2 The Level of any Service may be changed by the Parties' agreement, so long
as that agreement is in writing and includes a mutually acceptable
corresponding Price for the changed Level of Service. A change in the
Level of a Service shall be effective pursuant to such subsequent
agreement.
2
<PAGE>
ARTICLE 5 - DISCONTINUE OF OPTIONAL SERVICES
5.1 Procedure. Either Party may discontinue or terminate any Optional Service
by providing ninety (90) days prior written Notice
A Notice of discontinuance may refer to more than one Optional Service.
Only an entire Optional Service may be discontinued; none of the Tasks
that constitute an Optional Service may be separately discontinued
without the Parties' agreement (which may be stated in the corresponding
Schedule). Any Optional Service that is the subject of a Notice of
discontinuance shall continue to be rendered by TSI until the effective
date of the discontinuance, and PCO shall pay for that Optional Service
rendered until that date. A Party may not unilaterally rescind its Notice
of discontinuance.
5.2 Service Level and Price of Discontinued Services. Until the date of its
discontinuance, an Optional Service that is the subject of a Notice of
discontinuance shall be rendered at the same Level and for the same Price
as in effect immediately preceding the Notice of discontinuance.
5.3 Impossible Optional Services. If either Party reasonably determines that
the discontinuance of any Optional Service would make it functionally
impossible to continue any other Optional Service, in whole or in part,
that Party shall promptly Notify the other of that determination. Any
Optional Service that so becomes functionally impossible to render shall
be deemed discontinued effective upon the date of discontinuance of the
Optional Service or Optional Services that caused that impossibility.
5.4 Transition Assistance. For up to 180 days after the effective date of
discontinuance of an Optional Service, TSI shall comply with PCO's
reasonable requests for assistance in PCO's engaging or training another
Person or Persons to provide, and for records and other information
relating to, that discontinued Optional Service. If TSI discontinues that
Optional Service, it shall comply with those requests at its own expense.
If PCO discontinues that Optional Service, it shall pay for TSI's
compliance with those requests by
(a) reimbursing TSI all of its resulting reasonable out-of-pocket
expenses, and
(b) paying TSI for the resulting time or activities of TSI's personnel as
follows:
(i) if the activities of those personnel are or were part of a Use-
based Service, then at the Price then in effect, or most
recently paid (if that Optional Service has been discontinued),
for that Use-based Service, or
(ii) if the activities of those personnel are or were part of a
Fixed-price Service, then that portion of the Price then in
effect, or most recently paid (if that Optional Service was
discontinued), for that Fixed-price Service corresponding to
the transition activities' portion of all activities that
constituted that Fixed-price Service for the time covered by
that Price.
Invoicing and payment for transition assistance shall be in
accordance with Article 8. TSI may cease providing transition
assistance, immediately upon Notice to PCO, if PCO has not paid the
amount described in a Nonpayment Notice by the tenth Business Day
after the Nonpayment Notice was given.
5.5 Reinstatement of Discontinued Service. Neither Party may unilaterally
reinstate any Optional Service that has been discontinued under this
Agreement.
ARTICLE 6 - SERVICES OBTAINED FROM OTHERS
6.1 Mandatory Services. PCO may not perform itself or obtain from any Person
other than TSI or any Subcontractor any service or services to supplement
or substitute for all or any portion of a Mandatory Service, except as
permitted by the corresponding Schedule. This does not prohibit PCO (or
TSI), however from performing for itself or obtaining from any other
Person all or any portion of a Mandatory Service to the extent permitted
by Section 15.4. Notwithstanding the foregoing, PCO may obtain from any
Person other than TSI or any Subcontractor any service or services to
substitute for all of a Mandatory Service however PCO's obligation to pay
TSI for Service fees associated with such Mandatory Service shall not
terminate until expiration of the applicable term.
6.2 Upon Discontinuance. PCO need not obtain TSI's consent to or approval of
PCO's performing itself or obtaining from any other Person, upon and
after the discontinuance of any Optional Service, any service or services
that substitute for the Optional Service that has been discontinued.
6.3 Before Discontinuance. Before the discontinuance of any Optional Service:
3
<PAGE>
(a) PCO need not obtain TSI's consent to or approval of PCO's performing
itself or obtaining from any other Person any service or services to
supplement or substitute for all or any portion of
(i) a Fixed-price Service, so long as PCO continues to pay for the
Fixed-price Service in accordance with this Agreement,
including the corresponding Schedule,
(ii) a Use-based Service to the extent that the decrease in that
Service obtained from TSI in each month does not exceed 25% of
the average monthly invoiced amount for that Service for the
preceding three months for which TSI has submitted an invoice
for that Service (with the calculation of that average to
exclude any credit given to PCO related to any other Service
in any monthly invoice), or
(iii) any Optional Service to the extent permitted by Section 15.4.
(b) TSI's reasonable Consent shall be required for PCO's performing
itself or obtaining from any other Person any service or services to
supplement all or any portion of any Use-based Service in any
circumstances other than as described in Section 6.3(a)(ii).
ARTICLE 7 - PRICES
7.1 Cost Allocation. In determining Prices, TSI's cost allocations to PCO
shall be determined on a consistent basis with TSI's cost allocations to
TSI's other subsidiaries or Business Units.
7.2 Annual Pricing. The price payable by PCO for each Service shall be
established annually by this procedure:
(a) TSI shall submit to PCO by April 1 a Price Proposal for each Service
then in effect, except for any Significant Optional Service that
will be discontinued in accordance with a Notice of discontinuance.
TSI shall propose the Price for each Service assuming a continuation
of the Level of that Service, unless the Parties have agreed to, a
Level Change for that Service.
(b) PCO shall respond in writing to the Price Proposal for each Service
by May 1.
(c) To the extent that PCO does not accept or agree with a Price
Proposal, the Parties shall negotiate in good faith to reach
agreement on the Price for that Service by June 1. The Parties'
agreement by June 1 on the Price of any Use-based Service shall also
include an estimated annual amount for that Service.
(d) If by June 1 the Parties do not agree on the Price at which any
Optional Service shall continue to be rendered (without any change
in Level) and neither Party gives a Notice of discontinuance of that
Optional Service, the Price for that Optional Service shall continue
to be the Price then in effect.
7.3 Disagreement on Mandatory Service Pricing. If the Parties do not agree by
June 1 on the Price at which any Mandatory Service shall be rendered, the
Dispute shall be resolved by the Dispute Resolution Procedure. Pending
resolution of that Dispute, the Price for that Mandatory Service shall
continue to be the Price in effect on May 30. The Price determined by
resolution of that Dispute shall be deemed effective July 1 as though the
Parties had agreed to it as of the preceding June 1. Accordingly:
(a) Any excess amount paid by PCO shall be credited (without interest)
to the next invoice or invoices for any Service or Services payable
by PCO after the date of resolution, or to the extent full credit
cannot be given to invoiced amounts payable within thirty (30) days
after the date of resolution, paid (without interest) by TSI by wire
transfer of immediately available funds to an account or accounts
designated by PCO; or
(b) any amount due to TSI shall be paid (without interest) within thirty
(30) days after the date of resolution by wire transfer of
immediately available funds to an account or accounts designated by
TSI.
7.4 Annual Price Effectiveness. The Price for each Service agreed or
determined as of June 1 of each year will be effective for that Service
for the succeeding calendar year, unless changed to correspond to a
change in the Level of that Service in accordance with Article 4.
ARTICLE 8 - PAYMENT
8.1 Invoices. TSI shall submit to PCO monthly one or more invoices for the
Services. Each invoice shall indicate for each PCO Business Unit:
4
<PAGE>
(a) The amount charged for each Service covered by that invoice;
(b) if the Service is a Use-based Service, the calculation of the invoiced
amount or the basis on which that amount was determined, and
(c) if that invoice includes any credit or offset for PCO, the amount and
purpose of that credit or offset.
Each invoice should also indicate the sales, use, or similar taxes being
collected on each Service, or part of a Service, that TSI believes to be so
taxable. An invoice may cover more than one Service.
8.2 Payment. PCO shall pay the amount of each invoice within thirty (30) days
after the date of that invoice. PCO shall pay the invoiced amount even if
PCO disputes all or a portion of that amount, unless TSI has agreed on or
before the due date to accept a different amount.
8.3 Method of Payment. PCO shall pay TSI by wire transfer of immediately
available funds to an account or accounts designated by TSI. All payments
shall be made in United States currency.
8.4 Interest. TSI may charge interest on any past due invoiced amount at the
annual rate of 18% (or, if lower, the highest lawful rate) from the due
date until paid in full with accrued interest. Any payment of interest
only is not a cure or TSI's sole remedy for nonpayment of any invoiced
amount that is due.
8.5 Nonpayment Notice. If TSI does not receive the full payment of any invoice
(and has not agreed to accept a different amount), it may give PCO a
Nonpayment Notice. PCO shall pay the amount described in the Nonpayment
Notice by the tenth Business Day after that Nonpayment Notice is given.
8.6 Dispute of Invoice. Except as described in the last sentence of this
Section 8.6, PCO may dispute the amount of any invoice for up to ninety
(90) days after the date of that invoice; if no Notice of that Dispute is
given within those ninety (90) days, the invoiced amount shall be deemed
agreed to by PCO. The Notice of a Dispute of any invoice shall describe
the basis for that Dispute and specify the Service and the PCO Business
Unit to which that Dispute relates. A Dispute of any invoice (except as
described in the last sentence of this Section 8.6) shall be resolved by
the Dispute Resolution Procedure. If it is determined by resolution of
that Dispute that PCO has paid any excess amount in response to the
invoice, that amount shall be credited (without interest) to the next
invoice or invoices payable by PCO after the date of resolution, or to
the extent full credit cannot be given to invoiced amounts payable within
thirty (30) days after the date of resolution, paid (without interest) by
TSI by wire transfer of immediately available funds to an account or
accounts designated by PCO. Under this Section 8.6, PCO may dispute only
the invoiced amount and the particular calculation thereof, and not the
previously established basis for the established Price for any invoiced
Service. Any Dispute regarding the application to any Service (in whole
or in part) of any invoiced sales, use, or similar taxes is subject to
Section 17.2(b) instead of this Section 8.6.
ARTICLE 9 - RECORDS
9.1 Record Keeping. Each party shall create and maintain accurate records
regarding the Services rendered and the amounts charged and paid or
received under this Agreement. TSI's records shall include information
regarding the determination of amounts charged or invoiced to PCO for Use-
based Services and information regarding the determination of the cost or
the cost allocation for each Service rendered. Each Party's records
regarding;
(a) the Services rendered, and at the Level rendered, as of the
Effective Date shall be of substantially the same kinds as that
Party has created and maintained regarding those Services before the
Effective Date, and
(b) the Services, or the Level of Services, as changed after the
Effective Date in accordance with this Agreement shall be of the
kinds that are reasonable, and consistent with the other business
records created and maintained by that Party, regarding services
like those Services at those Levels.
Each Party shall create and maintain those records with the same degree of
completeness and care as it maintains its other similar business records.
Each Party shall maintain those records for the time or times required by
applicable law or regulation, except that a Party shall, upon request of
the other Party, maintain any of those records for a longer time if the
requesting Party pays the additional expenses incurred in complying with
that request.
9.2 Examination. Each Party shall be entitled to examine, through its
authorized representatives or agents and at its own expense, the records
that the other Party is required to maintain under this Agreement. This
examination right may be exercised only by three Business Days' prior
Notice to the other Party, and the examination may be made only during
the other Party's normal business
5
<PAGE>
hours or at any other reasonable time or times to which the other Party
may consent. An examination shall be performed in a manner that does not
unreasonably disrupt the other Party's normal business operations. This
examination right will continue:
(a) for two years after Expiration or the termination of this Agreement;
and
(b) thereafter, as long as necessary to enable a Party to respond to any
Third-Party Claim or to a request or order issued by a court or
another Governmental Authority.
The Party conducting an examination may make and take away copies of any or
all of the other Party's records being examined.
ARTICLE 10 - CONFIDENTIAL INFORMATION
10.1 Confidential Information. Each Party shall keep confidential the
following information which is "Confidential Information" whether
acquired by it under or in connection with this Agreement or obtained in
connection with the relationship of TSI and PCO or its predecessors
regarding management services rendered before the Effective Date:
(a) Information relating to the other Party's business, financial
condition or performance, or operations that the other Party treats
as confidential or proprietary.
(b) Copies of records and other information obtained from a Party's
examination of the other Party's records under Section 9.2.
(c) The terms and performance of, any breach under, or any Dispute
regarding this Agreement.
(d) The Parties' conduct, decisions, documents, and negotiations as
part of, and the status of, any Dispute resolution proceedings
under the Dispute Resolution Procedure.
(e) Any information, business plan, concept, idea, know-how, process,
technique, program, design, formula, algorithm or work-in-process,
any engineering, manufacturing, marketing, technical, financial,
data, or sales information, or any information regarding suppliers,
customers, employees, investors, or business operations, and any
other information or materials, whether in written, or graphic, or
any other form or that is disclosed orally, or electronically, or
otherwise which is learned or disclosed in the course of
discussions, studies, or other work undertaken between the parties.
(f) Without limiting the generality of the foregoing, Confidential
Information shall include all information and materials disclosed
orally or in any other form, regarding TSI's software products or
software product development, including, but not limited to, the
configuration techniques, data classification techniques, user
interface, applications programming interfaces, data modeling and
management techniques, data structures, and other information of or
relating to TSI's software products or derived from testing or other
use thereof.
(g) Any other information, whether in a tangible medium or oral and
whether proprietary to the other Party or not, that is marked or
clearly identified by the other Party as confidential or
proprietary.
Neither Party may use any of the other Party's Confidential Information
other than as required to perform its obligations or exercise its rights
and remedies, including as part of the resolution of any Dispute, under
this Agreement.
10.2 Excluded Information. A Party has no obligation under this Article 10
regarding any information, including information that would otherwise by
Confidential Information, to the extent that the information:
(a) is or becomes publicly available or available in the industry other
than as a result of any breach of this Agreement or any other duty
of that Party;
(b) is or becomes available to that Party from a source that, to that
Party's knowledge, is lawfully in possession of that information and
is not subject to a duty of confidentiality, whether to the other
Party or another Person, violated by that disclosure; or
(c) is independently developed by employees of the receiving Party who
had access to the disclosing Party's Confidential Information.
10.3 Standard of Care. Each Party shall use the same degree of care in
maintaining the confidentiality and restricting the use of the other
Party's Confidential Information as that Party uses with respect to its
own proprietary or confidential information, and in no event less than
reasonable care.
6
<PAGE>
10.4 Permitted Disclosures. A Party may disclose Confidential Information to
its officers, directors, agents, or employees as necessary to give
effect to this Agreement. Each Party shall inform each of these Persons
to whom any Confidential Information is communicated of the obligations
regarding that information under this Article 10 and impose on that
Person, via signed agreement, the obligation to comply with this Article
10 regarding the Confidential Information. Each Party shall be
responsible for any breach of that Party's obligations under this
Article 10 by its officers, directors, agents, or employees.
10.5 Required Disclosures. Each Party may disclose Confidential Information in
response to a request for disclosure by a court or another Governmental
Authority, including a subpoena, court order, or audit-related request
by a taxing authority, if that Party:
(a) promptly notifies the other Party of the terms and the
circumstances of that request;
(b) consults with the other Party, and cooperates with the other Party's
reasonable requests, to resist or narrow that request;
(c) furnishes only information that, according to written advice (which
need not be a legal opinion) of its legal counsel, that Party is
legally compelled to disclose; and
(d) uses its Reasonable Efforts to obtain an order or other reliable
assurance that confidential treatment will be accorded the
information disclosed.
A Party need not comply with these conditions to disclosure, however, to
the extent that the request or order of the Governmental Authority in
effect prohibits that compliance. A Party may also disclose Confidential
Information without complying with these conditions to the extent that
the Party is otherwise legally obligated to do so (for example, to comply
with applicable securities laws), as confirmed by advice of competent and
knowledgeable counsel. Further, a Party may also disclose Confidential
Information, without complying with these conditions, in connection with
a tax audit if the disclosure is to representatives of a taxing
authority, or in connection with a tax contest if that Party uses its
Reasonable Efforts to assure that confidential treatment will be accorded
the information disclosed.
10.6 Title to Information. The Confidential Information of a Party disclosed
by it to the other Party under this Agreement shall remain the property
of the disclosing Party; nothing in this Agreement grants or conveys to
the other Party any ownership or other proprietary rights in any of that
Confidential Information.
10.7 Survival; Return. The obligations under this Article 10 shall continue on
and after Expiration or the termination of this Agreement. Upon request
of the disclosing Party upon or after Expiration or the termination of
this Agreement, the other Party shall return or, if requested by the
disclosing Party, destroy the Confidential Information of the disclosing
Party that it holds. The requested return or destruction shall include
removal or deletion of Confidential Information from all data bases and
magnetic media of the other Party.
ARTICLE 11 - PARTIES' RELATIONSHIP
11.1 Independent. The Parties are independent; each has sole authority and
control of the manner of, and is responsible for, its performance of
this Agreement. This Agreement does not create or evidence a partnership
or joint venture between the Parties. Neither Party may create or incur
any liability or obligation for or on behalf of the other Party, except
as described in this Agreement. This Agreement does not restrict TSI
from providing or rendering any services, including services like the
Services, to any other Person; nothing in this Agreement, however, gives
TSI the right to provide or render any services in violation of any
other agreement entered into by the Parties.
11.2 Employees. Except as described in Section 14.4 (b) or Section 14.4 (c)
or, for the purposes of this Agreement:
(a) each Party is solely responsible for its own employees or agents,
including the actions or omissions and the compensation of those
employees and agents, and
(b) neither Party has any authority with respect to any of the other
Party's employees or agents.
11.3 Authority and Enforceability. Each Party warrants to the other Party
that:
(a) it has the requisite corporate authority to enter into and perform
this Agreement;
(b) its execution, delivery, and performance of this Agreement have
been duly authorized by all requisite corporate action on its
behalf;
7
<PAGE>
(c) this Agreement is enforceable against it; and
(d) it has obtained all consents or approvals of Governmental
Authorities and other Persons that are conditions to its entering
this Agreement.
11.4 Third-Party Consents. Each Party shall be responsible for obtaining and
maintaining any licenses, permits, consents, or approvals of
Governmental Authorities and other Persons necessary or appropriate for
it to perform its obligations under this Agreement.
11.5 Third-Party-Related Arrangements. The Parties also have certain
arrangements and agreements relating to certain of the Services provided
by an Effective Date Service Subcontract or provided directly by TSI but
involving an agreement with a third party. The Parties currently expect
that the matters or issues addressed - by those arrangements or agreements
will need to continue to be addressed whether in the same or in a
different manner - upon Expiration or the termination of this Agreement or
the discontinuance of certain Optional Services. Hence, before and upon
any of those events, each Party shall use its Reasonable Efforts to
change, renegotiate, replace, sever, or assign, as the Parties mutually
agree, those arrangements or agreements as necessary to so address those
matters or issues and to equitable allocate to the respective Parties - in
accordance with their respective assets and businesses - the benefits and
the obligations of those arrangements or agreements upon and after the
occurrence of any of those events.
11.6 Further Assurances. Each Party shall take such actions, upon request of
the other Party and in addition to the actions specified in this
Agreement, as may be necessary or reasonably appropriate to implement or
give effect to this Agreement.
ARTICLE 12 - PARTIES' REPRESENTATIVES
12.1 Representatives' Authority. Each Party has authorized its Representative
to conduct discussions and negotiations, make and communicate decisions,
frame and pose questions or issues, and resolve Disputes on behalf of
that Party relating to this Agreement. Though one Party's employees or
agents other than its Representative may also take actions of the kinds
described in the preceding sentence with the other Party's employees or
agents other than its Representative, matters that require more formal
discussions or negotiations between Parties shall be addressed through
and by the Representatives. Each Party and its Representative are
entitled to rely on the actions and decisions of the other Party's
Representative relating to this Agreement.
12.2 Designation. TSI designates its Controller as TSI's Representative, and
PCO designates its Controller as PCO's Representative, upon and after
the Effective Date until changed by the designating Party. A Party may
change its Representative by Notice to the other Party. A Party may rely
on and deal with the Person who is designated as the other Party's
Representative until any Notice of change is given by the other Party.
ARTICLE 13 - TERMINATION
13.1 Termination Events. This Agreement may be terminated, without liability
to the Party terminating:
(a) By either Party upon thirty (30) days' Notice to the other, at any
time upon or after the Parties cease to be Affiliates.
(b) By a Party, immediately upon Notice to the other Party, if:
(i) that other Party makes a general assignment of all or
substantially all of its assets for the benefit of its
creditors;
(ii) that other Party applies for, consents to, or acquiesces in
the appointment of a receiver, trustee, custodian, or
liquidator for its business or all or substantially all of its
assets.
(iii) that other Party files, or consents to or acquiesces in, a
petition seeking relief or reorganization under any
bankruptcy or insolvency laws; or
(iv) a petition seeking relief or reorganization under any
bankruptcy or insolvency laws is filed against that other
Party and is not dismissed within ninety (90) days after it
was filed.
(c) By a Party, immediately upon Notice to the other Party, if that
other Party's material breach of this Agreement continues uncured or
uncorrected for thirty (30) days after both the nature of that
breach and the necessary cure or correction has been agreed upon by
the Parties or otherwise determined by the Dispute Resolution
Procedure. But if:
8
<PAGE>
(i) the Parties agree or it is determined by the Dispute Resolution
Procedure that the material breach is not capable of being
cured or corrected, the termination shall be effective
immediately upon Notice, without any cure period; or
(ii) the breaching Party (A) reasonably requires longer than thirty
(30) days to cure or correct - such as when the applicable
Service Subcontract permits the Subcontractor longer than
thirty (30) days to cure or correct - and (B) Notifies the non-
breaching Party of the circumstances, then the cure period
shall be extended for the reasonable time so required, so long
as during that time the breaching Party diligently acts to
effect that cure or correction. Unless otherwise agreed in
writing by the Parties, no cure period extension shall exceed
ninety (90) days.
A non-breaching Party's exercise of the remedy described in this
Section 13.1(c) shall be conditioned upon its giving a Breach Notice
to the other Party.
(d) By TSI, immediately upon Notice to PCO, if PCO has not paid the amount
described in a Nonpayment Notice by the tenth Business Day after that
Nonpayment Notice was given.
A Party may not terminate this Agreement if the event or circumstance
described above in this Section 13.1, upon which that Party would rely in
so terminating, was caused by that Party's breach of this Agreement.
13.2 Nonexclusive. The termination rights under Section 13.1(c) and 13.1(d)
are not exclusive of any other right or remedy of a non-breaching Party
granted in this Agreement.
13.3 Consequences of Termination. Upon termination of this Agreement:
(a) Under Section 13.1(a) or Section 13.1(e) or by PCO under Section
13.1(c)
(i) During the Transition Period TSI shall continue to render, and
PCO shall pay for, each Service reasonably requested by PCO
until terminated by either Party in accordance with Sections
13.3(a)(ii) and 13.3(a)(iii). Except as stated in Section
13.3(a)(ii), the terms of this Agreement shall continue to
apply during the Transition Period as though no termination of
this Agreement had occurred.
(ii) The Level of each Service rendered, and the Price for each
Service, during the Transition Period shall be the same as in
effect immediately preceding the Termination Date. Article 5
shall not apply during the Transition Period. During the
Transition Period, any Service (including a Mandatory
Service), but not any one or more of the Tasks separately,
may be terminated by (A) PCO, for any reason, by sixty (60)
days' Notice to TSI, or (B) TSI, if PCO has not paid the
amount described in a Nonpayment Notice by the tenth Business
Day after the Nonpayment Notice was given. Any Service that
is the subject of a Notice of termination shall continue to
be rendered by TSI until the effective date of that
termination, and PCO shall pay for that Service rendered
through that date. Neither Party may unilaterally rescind a
Notice of termination.
(iii) If either Party reasonably determines that the termination of
any Service during the Transition Period would make it
functionally impossible to continue any other Service during
the Transition Period, that Party shall promptly Notify the
other Party of that determination; any Service that so becomes
functionally impossible to render shall be deemed terminated
effective upon the date of termination of the Service that
caused that impossibility. Neither Party may unilaterally
reinstate any Service that has been terminated as of the
Termination Date or during the Transition Period.
(b) Under Section 13.1(b), then during the Transition Period, TSI shall
comply with PCO's reasonable requests for assistance in PCO's
engaging or training another Person or Persons to provide, and for
records and other information relating to, each Service in effect
immediately preceding the Termination Date. If TSI terminates this
Agreement, PCO shall reimburse and pay TSI's Transition Expenses in
accordance with invoices submitted to PCO by TSI. Articles 8 and 18
shall not apply in this situation as though this Agreement had not
been terminated. When PCO is obligated to reimburse and pay TSI's
Transition Expenses, TSI may cease providing transition assistance,
immediately upon Notice to PCO, if PCO has not paid the amount
described in a Nonpayment Notice by the tenth Business Day after the
Nonpayment Notice was given. If the records or other information
provided by TSI are Confidential Information, Article 10 shall also
apply as though this Agreement had not been terminated.
(c) Under Section 13.1(d) or by TSI under Section 13.1(c), then TSI
shall have no obligation to provide any continued Services or
transition assistance as described above in this Section 13.3.
9
<PAGE>
13.4 Survival of Rights and Obligations. No rights or obligations of either
Party that expressly or implied are to remain in effect in order to
give effect to this Agreement shall be impaired by Expiration or the
termination of this Agreement, and those rights and obligations shall
remain in effect.
ARTICLE 14 - LIABILITY AND REMEDIES
14.1 Warranties. Each Party's warranties in this Agreement are made solely to
and for the benefit of the other Party and, to the extent described in
this Agreement, PCO. No Person other than a Party may make a claim based
on the other Party's warranties under this Agreement; any claim by PCO
shall be made by PCO.
14.2 Nonconforming Services. PCO shall promptly Notify TSI of any Deficiency
in any Service or Task, whether rendered by TSI or a subcontractor. To the
extent TSI agrees, or it is otherwise determined by the Dispute
Resolution procedure, that a Service or Task was or is a Nonconforming
Service, TSI shall use its Reasonable Efforts promptly to cure or
correct, or cause its Subcontractor to cure or correct, the Deficiency to
the extent it may then be cured or corrected.
(a) If the Deficiency was, or was the result of, TSI's or a
Subcontractor's negligence or PCO's negligence, TSI shall not be
responsible or liable for any resulting Damages of PCO.
(b) If the Deficiency was, or was the result of, TSI's or a
Subcontractor's gross negligence (including recklessness) or willful
misconduct, TSI shall be responsible or liable for PCO's resulting
Damages in an amount up to:
(i) if TSI's liability is determined (by the Parties' agreement or
the Dispute Resolution Procedure) after the calendar year in
which the Deficiency occurred, the aggregate amount received by
TSI for the Nonconforming Service for the calendar year in
which the Deficiency occurred;
(ii) if TSI's liability is determined during the calendar year in
which the Deficiency occurred and the Nonconforming Service is
a Fixed-price Service, the annual Price for the Nonconforming
Service for that calendar year; or
(iii) if TSI's liability is determined during the calendar year in
which the Deficiency occurred and the Nonconforming Service is
a Use-based Service, the greater of (A) the estimated annual
amount for that Service for that calendar year and (B) the
aggregate amount received by TSI to the date the liability is
determined, annualized for that calendar year.
The annual limit on TSI's liability described above in this Section
14.2(b) is not cumulative from year to year. If there is more than
one Deficiency in a single Service for which TSI is responsible or
liable for Damages and TSI's liability for those Deficiencies is
determined in the same calendar year, TSI's responsibility or
liability for Damages resulting from all of those Deficiencies shall
be subject to the applicable annual limit on liability described
above in this Section 14.2(b).
14.3 Actual Damages. Neither Party shall be liable under or relating in any
manner to this Agreement for any losses or damages other than Damages,
even if a Party has been advised of the possibility of losses or damages
of that kind and regardless of the form of the Proceedings or the theory
of liability, whether based on contract, warranty, tort (including
negligence and strict liability), infringement, or misappropriation.
14.4 Indemnities for Certain Breaches and Other Matters. The following shall
apply to any breach of, and certain other Damages relating to, this
Agreement, other than a Deficiency for which TSI has no liability for
Damages under Section 14.2(a) or a nonpayment by PCO of any amount
relating to an invoice:
(a) Subject to the limits on liability described in Section 14.2(b), if
that Section is applicable, each Party shall indemnify the other
Party against all Damages of the Indemnified Party, or any of its
Indemnified Agents, resulting from or relating to:
(i) any breach of this Agreement, including breach of nay warranty
in this Agreement, by the Indemnifying Party;
(ii) any Proceedings relating to a breach of this Agreement by the
Indemnifying Party; and
(iii) the actions or omissions of the Indemnifying Party's employees
or agents under or in connection with this Agreement, except
as described in Sections 14.4(b) and 14.4(c).
(b) PCO shall also indemnify TSI against all Damages of TSI or any of
its Indemnified Agents, including any Subcontract Termination
Penalty, under or relating to any Service Subcontract - other than as
described in Section 3.5(b) - resulting from:
10
<PAGE>
(i) any violation by PCO of any obligation imposed on it under that
Service Subcontract;
(ii) the actions or omissions of PCO's employees or agents under or
in connection with that Service Subcontract;
(iii) PCO's discontinuance of any Optional Service that TSI renders,
in whole or in part, by that Service Subcontract, even if
permitted by Article 5; or
(iv) PCO's performing itself or obtaining from any Person other
than TSI or its Subcontractor any service or services to
supplement or substitute for any Optional Service that TSI
renders, in whole or in part, by that Service Subcontract,
even if permitted by Section 6.3.
(c) PCO shall also indemnify TSI against all Damages of TSI or any of its
Indemnified Agents resulting from or relating to:
(i) the actions or omissions of any of the Legal Staff that are
directed by PCO within the scope of that lawyer's or
paralegal's engagement for any legal matter of PCO; or
(ii) any sales, use, or similar taxes (however described)
applicable to any of the Services, in whole or in part, that
are assessed or levied against or paid by TSI.
(d) The indemnification obligations in Sections 14.4(a), 14.4(b) and
14.4(c) shall be extinguished to the extent that the Damages of the
other Party, or any of its Indemnified Agents for whom or which the
other Party is seeking indemnification, were caused by the gross
negligence (including recklessness) or willful misconduct of the
Person for whom or which indemnification is sought. THE ORDINARY
NEGLIGENCE OF A PERSON OR THE JOINT OR CONCURRENT ORDINARY
NEGLIGENCE OF PERSONS SHALL NOT PRECLUDE THAT PERSON OR ANY OF THOSE
PERSONS FROM RECEIVING THE BENEFITS OF INDEMNIFICATION UNDER THIS
AGREEMENT.
(e) If an Indemnification Claim is not based on a Third-Party Claim, the
Indemnified Party shall give an Indemnification Claim Notice
promptly after the event constituting the basis for the
Indemnification Claim; its failure to do so, however, shall relieve
the Indemnifying Party of its indemnification obligations only to
the extent the Indemnifying Party is actually prejudiced by that
failure. If the Indemnified Party gives an Indemnification Claim
Notice regarding an Indemnification Claim not based on a Third-Party
Claim, the Indemnifying Party shall Notify the Indemnified Party
within the Indemnification Response Period whether the Indemnifying
Party disputes all or any portion of the Indemnification Claim. If
the Indemnifying Party does not give that dispute Notice or agrees
to accept liability for all or a portion of the Indemnification
Claim, the Indemnification Claim, or the agreed portion of that
Indemnification Claim, shall be the Indemnifying Party's liability.
Otherwise, the Indemnification Claim shall be deemed a Dispute to be
resolved by the Dispute Resolution Procedure.
(f) If an Indemnification Claim is based on a Third-party Claim:
(i) The Indemnified Party shall give an Indemnification Claim
Notice promptly after it receives the Third-Party Claim.
(ii) The Indemnifying Party shall be entitle to defend the Third-
Party Claim, with its chosen counsel and at its own expense,
if (A) the Third-Party Claim seeks only monetary relief,
against the Indemnified Party, and (B) the Indemnifying Party
elects to assume, and diligently conducts, that defense. The
Indemnifying Party's election to defend shall be given by
Notice to the Indemnified Party within the Indemnification
Response Period. If the Indemnifying Party conducts the
defense, the Indemnified Party may participate in that defense
with its own counsel and at its own expense.
(iii) If the Indemnifying Party does not elect to defend the Third-
Party Claim by Notice within the Indemnification Response
Period, or if the Indemnifying Party does not diligently
conduct the defense, the Indemnified Party shall be entitled,
upon further Notice to the Indemnifying Party, to defend the
Third-Party Claim on behalf of, and for the account and risk
of, the Indemnifying Party (if it is determined that the
Indemnifying Party has an indemnification obligation regarding
that Indemnification Claim). In this circumstance, the
Indemnifying Party may participate in the defense with its own
counsel and at its own expense.
(iv) If there is a conflict of interest that makes it inappropriate
for the same counsel to represent the Indemnifying Party and
the Indemnified Party in defending the Third-Party Claim, the
Indemnifying Party shall pay for separate counsel for the
Indemnified Party.
11
<PAGE>
(v) The Indemnifying Party defending a Third-Party Claim may
compromise, settle, or resolve that Third-Party Claim without
the Indemnified Party's consent if the compromise, settlement,
or resolution involves only the payment of money by the
Indemnifying Party (whether on its own behalf or behalf of the
Indemnified Party) and the third-party claimant provides the
Indemnified Party a release from all liability regarding the
Third-Party Claim. Otherwise, the Indemnifying Party may not
compromise, settle, or resolve the Third-Party Claim without
the Indemnified Party's Reasonable Consent.
(vi) The Indemnifying Party and the Indemnified Party shall
cooperate with all reasonable requests of the other in
defending any Third-Party Claim.
14.5 Time for Claims. PCO may make a claim against TSI for the cure or
correction of any Deficiency only within two years after the Deficiency
occurred; any Deficiency shall be deemed to have occurred when the
particular Nonconforming Service was rendered. A Party may make an
Indemnification Claim
(a) not based on a Third-Party Claim, only within 2 years after the
breach o other event constituting the basis for that Indemnification
Claim occurred, even if not discovered until after that second
anniversary, or
(b) based on a Third-Party Claim, at any time.
14.6 Offset. A Party entitled to any payment due from the other Party under
this Agreement may offset all or any portion of the amount of that
payment against any payment that is due from it to the other Party under
this Agreement.
14.7 Equitable Relief. To the extent that monetary relief is not of sufficient
remedy for any breach of this Agreement, or upon any breach or impending
breach of Article 10, the non-breaching Party shall be entitled to
injunctive relief as a remedy for that breach or impending breach by the
other Party, in addition to any other remedies granted to the non-
breaching Party in this Agreement. That injunctive relief shall be sought
through arbitration in accordance with the Dispute Resolution Procedure,
except as permitted by Section B.4(b) of the Dispute Resolution Appendix.
14.8 Exclusive Remedies. Except for the termination right stated in Article 13
and the relief described in Sections 15.4 and 17.2(b) and in the Dispute
Resolution Procedure, the remedies described in this Article 14 are the
exclusive rights and remedies of a Party regarding any breach of this
Agreement or any other matter that may be the subject of an
Indemnification Claim.
14.9 Waiver of Remedies. No forbearance, delay, or indulgence by either Party
in enforcing this Agreement - within the applicable time limits stated in
this Agreement - shall prejudice the rights or remedies of that Party. No
waiver of a Party's rights or remedies regarding a particular breach of
this Agreement constitutes a waiver of those rights or remedies, or any
other rights or remedies, regarding any other or any subsequent breach of
this Agreement.
14.10 Cumulative Remedies. A Party's election to pursue a right or remedy
granted in this Agreement upon the other Party's breach of this
Agreement shall not preclude the non-breaching Party from pursuing other
rights or remedies granted to that Party in this Agreement that are
applicable to that breach under this Agreement.
14.11 Survival. The rights, remedies, and obligations under this Article 14
shall continue on and after Expiration or the termination of this
Agreement.
ARTICLE 15 - FORCE MAJEURE
15.1 No Breach or Liability. No delay or failure of a Party to perform any of
its obligations, other than payment obligations, under this Agreement
due to causes beyond its reasonable control shall constitute a breach of
this Agreement or render that Party liable for that delay or failure.
Causes beyond a Party's reasonable control include:
(a) events or circumstances that the Party, using its Reasonable
Efforts, is unable to prevent or overcome;
(b) as to TSI, causes also beyond the reasonable control of the Person
to whom or which TSI has Subcontracted the affected Service or Task
in accordance with this Agreement; and
(c) labor disputes, strikes, or other similar disturbances; acts of
God; utilities or communications failures; acts of the public
enemy; and riots, insurrections, sabotage, or vandalism.
12
<PAGE>
15.2 Notice of Excusable Delay or Failure. If a Party anticipates any
excusable delay or failure under Section 15.1, it shall promptly Notify
the other Party of the anticipated delay or failure, the anticipated
effect of that delay or failure, and any actions that are being or are
to be taken to alleviate or overcome the cause of the delay or failure.
15.3 Efforts to Overcome. If a Party is claiming an excusable delay or failure
under Section 15.1, it shall use its Reasonable Efforts to alleviate or
overcome the cause of the delay or failure as soon as practicable.
15.4 Extended Delay or Failure. If an excusable delay or failure continues for
more than thirty (30) consecutive days, the Party entitled to the
benefit of the affected obligation may perform itself or obtain from any
other Person the obligation to which that Party is entitled (and that
Party shall Notify the other Party of this election). In the event TSI
is the party unable to perform hereunder, PCO's Notification to TSI may,
if clearly provided therein, serve as termination notice for the Service
which TSI has been unable to perform. Such termination shall relieve TSI
from all further duties to perform such terminated Service and shall
relieve PCO from the obligation to pay for any such Services performed
after such Notice of termination.
ARTICLE 16 - DISPUTE RESOLUTION MATTERS
16.1 General Procedures. Except as otherwise stated in this Agreement, the
Parties shall resolve all Disputes in accordance with the Dispute
Resolution Procedure. Nevertheless, if any Person other than the Parties
(a) has initiated a lawsuit or other Proceedings against or involving
either or both of the Parties in which a Dispute will be resolved,
or
(b) is a necessary participant in any Proceedings to resolve a Dispute
and cannot be joined by either or both of the Parties in an
arbitration of that Dispute under Section B.3 of the Dispute
Resolution Appendix,
so that (in either case) the Dispute Resolution Procedure is or will be
ineffective, then the Parties need not use or follow the Dispute
Resolution Procedure to resolve that Dispute - though the submission to
jurisdiction in Section B.5 of the Dispute Resolution Appendix shall
apply if necessary.
16.2 Continued Performance. The Parties shall continue performing their
respective obligations under this Agreement while a Dispute is being
resolved.
16.3 Parties' Agreement. Nothing in this Article 16 or the Dispute Resolution
Procedure prevents the Parties from resolving any Dispute by mutual
agreement at any time.
ARTICLE 17 - EXPENSES AND TAXES
17.1 Expenses. Each Party shall be solely responsible for its costs and
expenses incurred in performing its obligations and exercising its
rights and remedies under this Agreement, except as otherwise provided
in this Agreement.
17.2 Taxes. The Parties shall be responsible for tax payments or liabilities
relating to this Agreement as follows:
(a) Each Party shall be responsible for its income and franchise taxes
and for all other taxes (however described) based on its own income
or earnings.
(b) PCO shall be responsible for all sales, use, and similar taxes
(however described) applicable to the Services, in whole or in
part. This obligation includes PCO's paying the sales taxes
identified in TSI's invoices submitted to PCO for the Services.
(i) If PCO claims an exemption or exclusion from taxes of this
kind, it shall deliver to TSI a certificate or letter stating
PCO's good-faith belief that a Service is not, in whole or in
part, subject to those taxes. Whether or nor PCO delivers that
certificate or letter, however, it shall indemnify TSI, in
accordance with Section 14.4(c)(iv), against any taxes of this
kind assessed or levied against, or paid by, TSI and any other
related Damages of TSI.
(ii) if TSI receives an assessment from a taxing authority
covering taxes for which PCO is responsible under this
Section 17.2(b), TSI shall Notify PCO of the assessment and,
at PCO's request, timely contest the assessment. If payment
to the taxing authority is required by law as a condition to
protest, PCO shall timely furnish TSI the required amount for
that payment.
(iii) If PCO believes it has overpaid taxes to TSI for any of the
Services (in whole or in part), PCO may require TSI to file a
claim for a refund at PCO's expense. If permitted by law, TSI
may assign any right to a refund directly to
13
<PAGE>
PCO instead of filing a refund claim. Any refund of taxes
(including any interest) received by TSI under this Section
17.2(b)(iii) shall be promptly forwarded to PCO.
(iv) Before TSI is required to pursue any action requested by PCO
under this Section 17.2(b), TSI may at any time require PCO
to deliver a letter of advice from outside counsel (selected
by PCO) stating that PCO's tax position is reasonable.
(v) Except as stated in the next sentence, any Dispute between
the Parties regarding the application of any taxes of this
kind to any Service (in whole or in part) shall be resolved
by the Dispute Resolution Procedure. Any Dispute as to the
amount of tax (if any) owed to a taxing authority, including
a Dispute between a Party and the taxing authority, need not
be resolved by the Dispute Resolution Procedure, but may be
resolved by any appropriate administrative or legal procedure
available to a Party or the Parties under this Agreement
apart from the Dispute Resolution Procedure.
(c) Each Party shall be responsible for all real property, personal
property, and other taxes (however described) based on its owned or
leased property, whether real or personal.
(d) Each Party shall be responsible for all employment-related taxes
(however described) regarding its own employees.
Each Party shall cooperate with any reasonable request of the other Party
to restructure any Service, in whole or in part, or to take any other
reasonable action to avoid or minimize any duplicate taxes that might be
imposed; the requesting Party shall bear in the expenses of the other
Party's compliance.
ARTICLE 18 - COMMUNICATIONS
18.1 Form. Each notice (including a Nonpayment Notice, an Indemnification
Claim Notice, and a Breach Notice), request, response, demand, claim,
and other communication required or permitted under this Agreement shall
be in writing and shall be transmitted, delivered, or sent by:
(a) personal delivery,
(b) courier or messenger service, whether overnight or same-day,
(c) prepaid telecopy or facsimile, or
(d) certified United States mail, with postage prepaid and return receipt
requested,
in any case addressed to the other Party at the address or number for that
Party set forth in Section 18.2, or at such other address or number as the
recipient has designated by Notice to the other Party in accordance with
this Article 18.
18.2 Addresses. The Parties shall transmit, deliver, or send communications as
follows.
(a) If to TSI: Trilogy Software, Inc.
6034 West Courtyard Dr.
Austin, TX 78730
512/425-3100
Attention: Controller
(b) If to PCO: pcOrder.com, Inc.
5000 Plaza on the Lake
Austin, TX 78746
512/684-1100
Attention: Controller
18.3 Effectiveness. Each communication transmitted, delivered, or sent:
(a) in person, by courier or messenger service, or by certified United
States mail, postage prepaid and return receipt requested, shall be
deemed given, received, and effective on the date delivered to or
refused by the intended recipient (with the return receipt or the
equivalent record of the courier or messenger being deemed
conclusive evidence of delivery or refusal); or
14
<PAGE>
(b) by telecopy or facsimile transmission shall be deemed given,
received, and effective on the date of actual receipt (with the
confirmation of transmission being deemed conclusive evidence of
such receipt, except where the intended recipient has promptly
notified the other Party that the transmission is illegible).
Nevertheless, if the date of delivery or transmission is not a Business
Day, or if the delivery or transmission is after 5:00 p.m. on a Business
Day, the communication shall be deemed given, received, and effective on
the next Business Day.
ARTICLE 19 - ASSIGNMENT
Neither Party may assign any of its rights or delegate any of its duties or
obligations under this Agreement without the other Party's Consent; this
prohibition of assignment and delegation shall include any assignment and
delegation by operation of law (such as merger or consolidation). Any attempted
assignment or delegation without the other Party's Consent shall be void and
without effect. The two preceding sentences do not, however, preclude TSI from
Subcontracting.
ARTICLE 20 - AMENDMENT AND WAIVER
This Agreement may be amended or modified, and any provision of this Agreement
may be discharged or waived, only by a document signed by the Party against
which the amendment, modification, discharge, or waiver is sought to be
enforced.
ARTICLE 21 - INTEGRATION
This Agreement constitutes the Parties' entire agreement on this subject; it
replaces and supersedes any prior agreement or understanding of the Parties,
whether written or oral, on this subject not expressed or referred to in this
Agreement.
ARTICLE 22 - SEVERABILITY
If any part of this Agreement is for any reason found to be unenforceable, all
other parts of this Agreement nevertheless remain enforceable.
ARTICLE 23 - SUCCESSORS
This Agreement binds and inures to the benefit of the Parties and their
respective legal representatives, permitted successors, and permitted assigns.
ARTICLE 24 - GOVERNING LAW
This Agreement shall be interpreted or construed under Texas law. Likewise, the
validity and performance of this Agreement shall be enforced, and all issues
relating to this Agreement shall be resolved, under Texas law. Each Party
consents to the exclusive personal jurisdiction and venue of the courts, state
and federal, located in Travis County, Texas.
ARTICLE 25 - COUNTERPARTS
This Agreement may be signed in any number of counterparts, with the same effect
as if all signatories had signed the same document. All counterparts shall be
construed together to constitute one, and the same, document.
Agreed to By:
TRILOGY SOFTWARE, INC. PCORDER.COM, INC.
By: /s/ Joseph A. Liemandt By: /s/ Christina C. Jones
----------------------------- -----------------------------
(Signature) (Signature)
Joseph A. Liemandt Christina C. Jones
- -------------------------------- --------------------------------
(Name typed or printed) (Name typed or printed)
- -------------------------------- --------------------------------
(Title) (Title)
- -------------------------------- --------------------------------
(Date) (Date)
15
<PAGE>
DEFINITIONAL APPENDIX
TO MANAGEMENT SERVICES AGREEMENT
A. Defined Terms. In the Agreement, the following terms have the corresponding
meanings:
"AFFILIATE": A Person that directly or indirectly through one or more
intermediaries' Controls, is Controlled by, or is under common Control with
another Person.
"AGREEMENT": The Management Services Agreement between TSI and PCO
(including the Definitional Appendix, the Dispute Resolution Appendix, and
the Schedules), as may be amended or supplemented from time to time in
accordance with its terms.
"ARBITRATION RULES": The Rules for Commercial Arbitration of the American
Arbitration Association in effect at the time of an arbitration in
accordance with the Dispute Resolution Procedure.
"BREACH NOTICE": A Party's Notice to the other Party alleging a breach of
the Agreement (other than PCO's nonpayment of any amount related to an
invoice) by the other Party, which describes the alleged breach, to the
extent known by the notifying Party, and any particular cure or correction
requested by the notifying Party.
"BUSINESS DAY": Any Monday through Friday, excluding the holidays observed
by TSI.
"CONFIDENTIAL INFORMATION": Information subject to a duty of confidence
and a restriction on use imposed on one or both Parties under Article 10.
"CONTROL": The right to exercise, directly or indirectly, more than 50% of
the voting power attributable to the equity interests in an entity.
("controlling" and "Controlled" have correlative meanings.)
"CONSENT": The prior written consent of a Party (in any capacity) in its
sole discretion.
"DAMAGES": Losses, claims, obligations, demands, assessments, fines and
penalties (whether civil or criminal), liabilities, expenses and costs
(including reasonable fees and disbursements of legal counsel and
accountants), bodily and other personal injuries, damage to tangible
property, and other damages, of any kind or nature, actually suffered or
incurred by a Person. "Damages":
1. consists only of actual damages;
2. excludes any lost profits, lost income, or lost savings and any
punitive, exemplary, consequential, indirect, special, or incidental
damages (however described), even if the possibility of those losses
or damages was known; and
3. includes (except as may be reduced in accordance with the next
sentence) all fines, penalties, and interest paid or payable to any
Governmental Authority.
If PCO has Damages, for which TSI is liable, consisting of fines,
penalties, and interest paid or payable to a Governmental Authority
corresponding to any tax not timely paid, then those "Damages" shall be
reduced by an amount equal to interest, at the annual rate of 5%, accrued
on that tax from the due date until that tax is paid; for the avoidance of
doubt, in this situation "Damages" shall not include any tax for which PCO
would otherwise be liable to the Governmental Authority. Also for the
avoidance of doubt, the "Damages" of a Person shall include any lost
profits, lost income, or lost savings and any punitive, exemplary,
consequential, indirect, special, or incidental damages (however described)
awarded against that Person in favor or another Person asserting a Third-
Party Claim against that Person.
16
<PAGE>
"DEFICIENCY": TSI's failure in rendering a Service or Task to satisfy the
applicable standard of care stated in the Agreement or to render it at the
applicable Level established under the Agreement. ("Deficient" has the
correlative meaning).
"DEFINITIONAL APPENDIX": This Definitional Appendix to Management Services
Agreement, containing definitions and interpretive matters for, as an
integral part of, the Agreement.
"DISPUTE": Any dispute, disagreement, claim, or controversy arising in
connection with or relating to the Agreement, or the validity,
interpretation, performance, breach, or termination of the Agreement,
including any claim of breach of representation or warranty or of
nonperformance and any claim regarding bodily or other personal injury
damage to tangible property.
"DISPUTE RESOLUTION APPENDIX": The Dispute Resolution Appendix to
Management Services Agreement, containing the Dispute Resolution Procedure
for, as an integral party of, the Agreement.
"DISPUTE RESOLUTION PROCEDURE": The procedure or process by which a
Dispute shall be resolved in the Dispute Resolution Appendix.
"EFFECTIVE DATE": July 1, 1998, the date on which the Agreement becomes
effective.
"EFFECTIVE DATE SERVICE SUBCONTRACT": A Service Subcontract in effect on
the Effective Date.
"EXPIRATION": The expiration of the term of the Agreement as stated in,
and as may be renewed under, Article 2, without regard to any period of
transition assistance. For the avoidance of doubt, "Expiration" does not
include a termination of the Agreement under Section 13.1. ("Expire" and
"Expired" have correlative meanings.)
"FIXED-PRICE SERVICE": A Service the Price for which is a fixed or
nonvariable amount, other than a fixed rate.
"GOVERNMENTAL AUTHORITY": Any federal, state, local, or foreign government
or governmental, quasi-governmental, administrative, or regulatory
authority, agency, body, or entity, including any court of other tribunal.
"INDEMNIFICATION CLAIM": A claim or demand of a Party, on its behalf or on
behalf of one or more of its Indemnified Agents, for Indemnification under
Section 14.4.
"INDEMNIFICATION CLAIM NOTICE": A Notice from the Indemnified Party
describing an Indemnification Claim and the amount or the estimated amount
of that Indemnification Claim to the extent then feasible (though that
estimate shall not be determinative of the final amount of that
Indemnification Claim).
"INDEMNIFICATION RESPONSE PERIOD": The 30 days after an Indemnification
Claim Notice is given during which the Indemnifying Party may investigate
and determine its responsibility or liability for an Indemnification Claim
and, if relating to a Third-Party Claim, Notify the Indemnified Party of
the Indemnifying party's election to defend that Third-Party Claim.
"INDEMNIFIED AGENTS": Collectively, the officers, directors, employees,
and agents of a Party.
17
<PAGE>
"INDEMNIFIED PARTY": A Party entitled to or seeking indemnification, on
its own behalf or on behalf of one or more of its Indemnified Agents, under
Section 14.4.
"INDEMNIFYING PARTY": A Party that has or is alleged to have an obligation
to indemnify the other Party in response to an Indemnification Claim.
"LEGAL STAFF": Legal personnel that TSI employs or otherwise engages.
"LEVEL": The scope, timelines, or quantity of a Service of Task or the
location, intensity, or frequency at or with which a Service or Task is or
is to be rendered.
"MANDATORY SERVICE": A Service that shall be rendered and paid for, and
may not be unilaterally discontinued under Article 5 by either Party,
during the effectiveness of the Agreement.
"NONCONFORMING SERVICE:" A Service or Task that, as agreed by the Parties
or otherwise determined by the Dispute Resolution Procedure, was or is
Deficient.
"NONPAYMENT NOTICE": A Notice from TSI to PCO that describes an amount
related to an invoice to PCO that TSI has not received when due, which
shall:
1. constitute a demand for payment of the described amount; and
2. state that either termination of the Agreement or cessation of
transition assistance, whichever is applicable, by TSI may result of
the described amount is not paid by the tenth Business Day after that
Notice is given.
"NOTICE": A written communication complying with Article 18. ("Notify"
has the correlative meaning.)
"OPTIONAL SERVICE": A Service that may be unilaterally discontinued by
either Party in accordance with the Agreement.
"PARTIES": Collectively, TSI and PCO. ("Party" means either TSI or PCO.)
"PERSON": An individual; a corporation, partnership, trust, association,
or entity of any kind or nature; or a Governmental Authority.
"PCO": pcOrder.com, Inc., a Delaware Corporation, offices at 5000 Plaza on
the Lake, Austin, TX 78746.
"PCO BUSINESS UNIT": A segment or part of PCO's business that PCO treats,
for purposes of its business and not solely for the Agreement, as a
separate unit.
"PCO'S REPRESENTATIVE": The individual agent or representative designated
by PCO to be PCO's formal liaison with or representative to TSI for matters
relating to the Agreement, having the (non-exclusive) authority and
responsibility described in the Agreement.
"PRICE": The amount or rate, in either case whether fixed or variable and
however measured, charged to PCO for a Service, as agreed by the Parties.
"PRICE PROPOSAL": A written proposal or estimate of the Price for a
Service at a particular Level (or, if applicable, at each Level), together
with a description of the basis on which the proposed or estimated Price
was determined or calculated by TSI (including, to the extent applicable,
the allocation methodology, allocation drivers, and margin).
18
<PAGE>
"PROCEEDINGS": Any action, suit, claim, investigation, demand, audit, or
other proceedings by or before any Governmental Authority or any
arbitration proceedings.
"REASONABLE CONSENT": The prior written consent of a Party (in any
capacity), which may not be unreasonably withheld or delayed.
"REASONABLE EFFORTS": The efforts of a Party that are commercially
reasonable under the circumstances, which do not require a Party to
institute or prosecute any Proceedings or to pay any Person other than that
Party's representatives or agents, including (only as to TSI)
Subcontractors.
"REPRESENTATIVES": Collectively, TSI's Representative and PCO's
Representative.
"SLA": A written agreement or understanding between TSI and PCO
describing, or otherwise stating terms regarding, the Level at which a
Service, in whole or in party, will be rendered. An SLA regarding a
Service, in whole or in part, may be entered into by or directly with one
or more of TSI's departments rendering that Service or that part of the
Service. An SLA entered into on or after the Effective Date
1. may be a separate document or part of another document, such as a Price
Proposal that is accepted by PCO,
2. may be a Schedule or part of a Schedule, and
3. shall be signed by TSI and PCO.
"SCHEDULE": A Schedule to the Agreement that describes a Service, the
basis of the Price for that Service, the annual Price for that Service for
all of 1998, any Subcontractor performing all or a portion of that Service,
and the location or locations at which that Service is to be rendered if
not at TSI's offices or Subcontracted.
"SERVICE": An individual management service, to be rendered by TSI under
the Agreement, that is described as a "Service" in a Schedule. A Service
may also be described in a Schedule by all or a portion of its constituent
Tasks.
"SERVICE SUBCONTRACT": An agreement or arrangement, oral or written, under
which a Subcontractor is to render or perform any Service or Task on TSI's
behalf or in TSI's stead.
"SIGNIFICANT OPTIONAL SERVICE": An Optional Service the Price for which
exceeds, or the Parties agree will exceed, $1 million in any calendar year
(assuming no discontinuance of that Service).
"SUBCONTRACT": TSI's entering into a Service Subcontract.
("Subcontracted" and "Subcontracting" have correlative meanings).
"SUBCONTRACT TERMINATION PENALTY": An obligation described in, as part of
the terms of, a Service Subcontract to pay the Subcontractor a charge,
fine, penalty, or other amount upon the termination or partial termination
of that Service Subcontract, including any return to the Subcontractor of
any equipment or goods held under that Service Subcontract.
"SUBCONTRACTOR": A Person, other than an employee of TSI, who or which
enters into a Service Subcontract with TSI.
"TASK": Any one of the group of processes, procedures, or services that is
described in a Schedule as constituting, or included in, a Service.
19
<PAGE>
"TERMINATION DATE": The date on which the Agreement is terminated in
accordance with Section 13.1, without regard to any Transition Period.
"THIRD-PARTY CLAIM": A claim of liability asserted against either Party by
a Person other than the other Party or either Party's Indemnified Agents.
"TRANSITION PERIOD": The maximum 180-day period after the Termination Date
during which TSI shall, as PCO reasonably requests, render one or more
Services in accordance with Section 13.3(a) or provide transition
assistance in accordance with Section 13.3(b).
"TSI": Trilogy Software, Inc., a Delaware Corporation, offices at 6034
West Courtyard Dr., Austin, TX 78730.
"TSI BUSINESS UNIT": A segment or part of TSI's business that TSI treats,
for purposes of its business and not solely for the Agreement, as a
separate unit.
"TSI's REPRESENTATIVE": The individual agent or representative designated
by TSI to be TSI's formal liaison with or representative to PCO for matters
relating to the Agreement, having the (non-exclusive) authority and
responsibility described in the Agreement.
"TSI's TRANSITION EXPENSES": The sum of the following, incurred in or
resulting from TSI's compliance with requests for transition assistance for
up to 180 days after Expiration or during the Transition period (as the
case may be):
1. All of TSI's reasonable out-of-pocket expenses, and
2. the time or activities of TSI's personnel as follows: (a) if the
activities of those personnel were part of a Use-based Service before
Expiration or the termination of the Agreement, at the Price most
recently paid for that Use-based Service before Expiration or
termination, or (b) if the activities of those personnel were part of
a Fixed-price Service before Expiration or the termination of the
Agreement, an amount equal to that portion of the Price most recently
paid for that Fixed-price Service before Expiration or termination
corresponding to the transition activities' portion of all activities
that constituted that Fixed-price Service, for the time covered by
that Price, before Expiration or termination.
"USE-BASED SERVICE": A Service the Price for which is variable; or a
Service the Price for which is a fixed rate, but the amount due for that
Service is determined by or based upon, at least in part, the extent of the
actual use of TSI's personnel or other assets.
B. Interpretative Matters. The Agreement is the result of the Parties'
negotiations, and no provision of the Agreement shall be construed for or
against either Party because of the authorship of that provision. In the
interpretation of the Agreement, except where the context otherwise
requires:
1. "including" or "include" does not denote or apply any limitation;
2. "or" has the inclusive meaning "and/or";
3. "$" refers to United States dollars;
4. the singular includes the plural, and vice versa, and each gender
includes each of the others;
5. captions or headings are only for reference and are not to be
considered in interpreting the Agreement;
20
<PAGE>
6. "Article" and "Section" refer to an Article and Section,
respectively, or the Agreement, unless otherwise stated in the
Agreement;
7. an event to occur, an action to be performed, or a condition to be
satisfied "by" or "as of" a stated date in the Agreement shall occur
or be effective or satisfied no later than 5:00 p.m. on that date;
and
8. each reference to a time of day in the Agreement is to local time in
Austin, Texas, and "midnight" begins a day.
21
<PAGE>
DISPUTE RESOLUTION APPENDIX
TO MANAGEMENT SERVICES AGREEMENT
A. Defined Terms. Various terms used in this Dispute Resolution Appendix,
which begin with a capital letter, are defined in the Definitional
Appendix to Management Services Agreement. In addition, the following
terms used only in this Dispute Resolution Appendix have the corresponding
meanings:
"COMPLEX DISPUTE LIST": The "Complex Dispute List," or if that list is not
then maintained by the American Arbitration Association, another list of
individuals having similar qualifications maintained by the American
Arbitration Association.
"INITIAL EXECUTIVE REVIEW COMMITTEE": A committee consisting of the
Managing Director of Financial Planning of TSI, the Vice President and
Controller of PCO, and the Managing Director of Corporation Development of
Trilogy, Inc.
"SECOND EXECUTIVE REVIEW COMMITTEE": A committee consisting of the Vice
President and Controller of TSI and the Senior Vice President and Chief
Financial Officer of PCO.
"QUALIFICATIONS": Inclusion in the Complex Dispute List of having
extensive knowledge or experience, or both, regarding management services
similar to the Service or Services that are the subject of the Dispute.
The interpretative matters set forth in the Definitional Appendix also
apply to this Dispute Resolution Appendix.
B. Dispute Resolution Procedure.
1. General Procedure. Except as otherwise stated in the Agreement, the
Parties shall resolve all Disputes in accordance with this procedure:
(a) Each Party shall instruct its Representative to promptly
negotiate in good faith with the other Party's Representative to
resolve the Dispute.
(b) If the Representatives do not resolve the Dispute within ten
Business Days (or such longer period as the Representatives may
agree) after the date of referral of the Dispute to them, the
Dispute shall be referred (by either or both of the
Representatives) to the Initial Executive Review Committee for
resolution.
(c) If the Initial Executive Review Committee does not resolve the
Dispute within ten Business Days (or such longer period as that
Committee may agree) from the date of referral to it, the Dispute
shall be referred (by that Committee or any of its members) to
the Second Executive Review Committee for resolution.
(d) If the Second Executive Review Committee does not resolve the
Dispute within ten Business Days (or such longer period as that
Committee may agree) after the date of referral to it, either
Party may submit the Dispute for resolution by the Parties'
Presidents, who may submit the Dispute to non-binding mediation
in accordance with Section B.2 of this Dispute Resolution
Appendix.
(e) If the Dispute is not resolved by the parties' Presidents (if
submitted to them) and is not submitted to or resolved by
mediation, then either Party may submit the Dispute to binding
arbitration in accordance with Section B.3 of this Dispute
Resolution Appendix.
22
<PAGE>
A referral under any of Sections B.1(a), B.1(b), and B.1(c) of this
Dispute Resolution Appendix shall be made by written notice to the
Persons designated in the applicable Section or Sections. That notice
shall be in a form described in the Agreement or an electronic mail
message and addressed to each Person at his office address or
electronic mail address; each notice shall be given and effective as
described in the Agreement or, in the case of electronic mail, upon
actual receipt. The date of referral is the last date that notice is
given to all of the Persons to whom the Dispute must have been
referred.
2. Mediation. The mediation of an unresolved Dispute shall be conducted in
this manner:
(a) Either Party may submit the Dispute to mediation by giving notice
of mediation to the other Party. The Parties shall attempt to
agree upon and appoint a sole mediator who has the Qualifications
promptly after that notice is given.
(b) If the Parties are unable to agree upon a mediator within ten
days after the date the Dispute is submitted to mediation, either
Party may request the Dallas office of the American Arbitration
Association to appoint a mediator who has the Qualifications. The
mediator so appointed shall be deemed to have the Qualifications
and to be accepted by the Parties.
(c) The mediation shall be conducted in the Austin metropolitan area
at a place and a time agreed by the Parties with the mediator, or
if the Parties cannot agree, as designated by the mediator. The
mediation shall be held within 20 days after the mediator is
appointed.
(d) If either Party has substantial need for information from the
other Party in order to prepare for the mediation, the Parties
shall attempt to agree on procedures for the formal exchange of
information; if the Parties cannot agree, the mediator's
determination shall be effective.
(e) Each Party shall be represented in the mediation by at least its
Representative or another natural Person with authority to settle
the Dispute on behalf of that Party and, if desired by that
Party, by counsel for that Party. The parties' representatives in
the mediation shall continue with the mediation as long as the
mediator requests.
(f) The mediation shall be subject to Chapter 154 of Title 7 of the
Texas Civil Practice and Remedies Code.
(g) Unless otherwise agreed by the parties, each Party shall pay one-
half of the mediator's fees and expenses and shall bear all of
its own expenses in connection with the mediation. Neither Party
may employ or use the mediator as a witness, consultant, expert,
or counsel regarding the Dispute or any related matters.
3. Arbitration. The arbitration of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may begin arbitration by filing a demand for
arbitration in accordance with the Arbitration Rules. The Parties
shall attempt to agree upon and appoint a panel of three
arbitrators promptly after that demand is filed. Each of those
arbitrators must have the Qualifications, and at least one of
those arbitrators must be included in the Complex Dispute List
(unless no list of that kind is then maintained).
(b) If the parties are unable to agree upon any or all of the
arbitrators within ten days after the demand for arbitration was
filed (and do not agree to an extension
23
<PAGE>
of that ten-day period), either Party may request the Austin
office of the American Arbitration Association to appoint the
arbitrator or arbitrators, who have the Qualifications (and at
least one of whom must be included in the Complex Dispute List,
unless no list of that kind is then maintained), necessary to
complete the panel in accordance with the Arbitration Rules. Each
arbitrator so appointed shall be deemed to have the
Qualifications and to be accepted by the parties as part of the
panel.
(c) The arbitration shall be conducted in the Austin metropolitan
area at a place and a time agreed by the Parties with the panel,
or if the Parties cannot agree, as designated by the panel. The
panel may, however, call and conduct hearings and meetings at
such other places as the Parties may agree or as the panel may,
on the motion of one Party, determine to be necessary to obtain
significant testimony or evidence.
(d) The Parties shall attempt to agree upon the scope and nature of
any discovery for the arbitration. If the Parties do not agree,
the panel may authorize any and all forms of discovery, including
depositions, interrogatories, and document production, upon a
showing of particularized need that the requested discovery is
likely to lead to material evidence needed to resolve the Dispute
and is not excessive in scope, timing, or cost.
(e) The arbitration shall be subject to the Federal Arbitration Act
and conducted in accordance with the Arbitration Rules to the
extent they do not conflict with this Section B.3 of this Dispute
Resolution Appendix. The Parties and the panel may, however,
agree to vary the provisions of this Section B.3 of this Dispute
Resolution Appendix or the matters otherwise governed by the
Arbitration Rules.
(f) The panel has no power to:
(i) rule upon or grant any extension, renewal, or continuance of
the Agreement;
(ii) award remedies or relief either expressly prohibited by the
Agreement or under circumstances not permitted by the
Agreement; or
(iii) grant provisional or temporary injunctive relief before
rendering the final decision or award.
(g) Unless the Parties otherwise agree, all Disputes regarding or
related to the same topic or event that are subject to
arbitration at one time shall be consolidated in a single
arbitration proceeding.
(h) A Party or other Person involved in an arbitration under this
Section B.3 may join in that arbitration any Person other than a
Party if
(i) the Person to be joined agrees to resolve the particular
dispute or controversy in accordance with this Section B.3
and the other provisions of this Dispute Resolution
Appendix applicable to arbitration; and
(ii) the panel determines, upon application of the Person
seeking joinder, that the joinder of that other person will
promote the efficiency, expedition, and consistency of the
result of the arbitration and will not unfairly prejudice
any other party to the arbitration.
24
<PAGE>
(i) The arbitration hearing shall be held within thirty (30) days
after the appointment of the panel. Upon request of either Party,
the panel shall arrange for a transcribed record of the
arbitration hearing, to be made available to both Parties.
(j) The panel's final decision or award shall be made within thirty
(30) days after the hearing. That final decision or award shall
be made by unanimous or majority vote or consent of the
arbitrators constituting the panel, and shall be deemed issued at
the place of arbitration. The panel shall issue a reasoned
written final decision or award based on the Agreement and Texas
law; the panel may not act according to equity and conscience or
as an amicable compounder or apply the law merchant.
(k) The panel's final decision or award may include:
(i) recovery of Damages to the extent permitted by the
Agreement; or
(ii) injunctive relief in response to any actual or threatened
breach of the Agreement or any other actual or threatened
action or omission of a Party under or in connection with
the Agreement.
(l) The panel's final decision or award shall be final and binding
upon the Parties, and judgment upon that decision or award may be
entered in any court having jurisdiction over either or both of
the Parties or their respective assets. The Parties specifically
waive any right they may have to apply or appeal to any court for
relief from the preceding sentence or from any decision of the
panel made, or any question of law arising, before the final
decision or award. If any decision by the panel is vacated for
any reason, the Parties shall submit that Dispute to a new
arbitration in accordance with this Section B.3.
(m) Each Party shall pay one-half of the arbitrators' fees and
expenses, and shall bear all of its own expenses in connection
with the arbitration. The panel has the authority, however, to
award recovery of all costs and fees (including attorneys' fees,
administrative fees and the panel's fees and expenses) to the
prevailing Party in the arbitration.
4. Recourse to Courts. Nothing in the Dispute Resolution Procedure
limits the right of either Party to apply to a court or other tribunal
having jurisdiction to:
(a) enforce the Dispute Resolution Procedure, including the agreement
to arbitrate in this Dispute Resolution Appendix;
(b) seek provisional or temporary injunctive relief, in response to
an actual or impending breach of Article 10 of the Agreement or
otherwise so as to avoid irreparable damage or maintain the
status quo, until a final arbitration decision or award is
rendered or the Dispute is otherwise resolved; or
(c) challenge or vacate any final arbitration decision or award that
does not comport with Section B.3 of this Dispute Resolution
Appendix.
5. Submission to Jurisdiction. Each Party irrevocably submits to the
jurisdiction of the federal courts of the United States and the state
courts of Texas located in Tarrant County, Texas. Each Party waives
any defense or challenge to that jurisdiction based on lack of
personal jurisdiction, improper venue, or inconvenience of forum.
25
<PAGE>
6. Confidentiality. The proceedings of all negotiations, mediations, and
arbitrations as part of the Dispute Resolution Procedure shall be
privately conducted. The Parties shall keep confidential all conduct,
negotiations, documents, decisions, and awards in connection with
those proceedings under the Dispute Resolution Procedure.
26
<PAGE>
SCHEDULE 1 ACCOUNTING/FINANCE/ADMINISTRATIVE
1. TAX SERVICES (MANDATORY)
A) Tax Administration Service (Mandatory)
DESCRIPTION OF SERVICE: Tax Administration is defined as tax research and
planning and tax return preparation in compliance with tax statutes and
regulations. Tax Administration related to US federal and state income tax
planning and compliance will be a Mandatory Service. All other Tax
Administration Services will be Optional Services and are described below.
The Tasks to be performed under Tax Administration Service (Mandatory)
include, without limitation:
1) U.S. federal and state income tax compliance
(i) tax return preparation and tax payment processing
(ii) representation on audits and contests
(iii) management of development of tax and accounting systems to
minimize compliance costs
2) U.S. federal and state income tax accounting and reporting
(i) income tax account analysis
(ii) tax provision accounting
3) U.S. federal and state income tax planning and projects
(i) research and planning to assess impact of taxes on operations and
on proposed transactions
(ii) legislative and regulatory monitoring
B) Tax Administration Services (Mandatory)
DESCRIPTION OF SERVICES: Tax Administration other than Tax Administration
(Mandatory) as described above. Tax Administration Services (Mandatory)
includes the following tax Services.
1) Sales/use, excise, property, and other transaction taxes
(i) Tax return preparation and property tax rendition filling
(ii) Tax payment processing
(iii) Audits and contests
(iv) Research and planning
(v) Monitor legislation and regulations effecting the business
(vi) Tax accounting
2) International
(i) Manage tax return preparation and VAT collection calculations
(ii) Foreign audits and contests
(iii) Research and planning
(iv) Monitor legislation and regulations effecting the business
(v) Tax accounting
3) Systems development
(i) Develop design specifications for the new financial and logistics
systems to automate the tax functions
(ii) Assisting in the developments of semi-automated accounting systems.
(iii) Maintenance and modifications of tax systems
BASIS FOR PRICE: [*]
2. ACCOUNTING SERVICES (MANDATORY)
A) Payroll Production Service (Mandatory)
27
<PAGE>
DESCRIPTION OF SERVICE: Responsible for the calculation and distribution of
payroll checks and incentive compensation checks. The Tasks to be performed
consist of:
1) Regular Checks - Processing of regular paychecks on a semi-monthly basis
2) Remote Checks - Processing of remote or supplemental paychecks for
adjustments
3) Gross Pay Adjustments to be completed during the next regular pay period
4) Garnishments
5) Stop Payments for lost or stolen paychecks
6) Bonuses and Special Payments Processing of special payments that
require development changes.
B) Payroll Tax Accounting Service (Mandatory)
DESCRIPTION OF SERVICE: The Tasks to be performed by the TSI Payroll Tax
Accounting Department will consist of:
1) Payroll Taxes - Charges for the collection, remittance and accounting
for payroll taxes and other moneys collected from employee paychecks.
The cost is driven by the number of payroll checks that are processed
in one calendar year.
2) Payroll Tax Reporting - Charges for reporting for Federal and State
withholding and unemployment taxes. The costs are driven by the number
of states worked.
3) Unemployment taxes - Charges for processing all claims for unemployment
accounts in each state, and the rates assigned by the States.
4) Payroll Tax Year End - Charges for the year end production of annual
wage and tax statements. The cost is driven by the number of W-2s
issued in one calendar year, and the number of states worked.
C) Payroll Customer Service (Mandatory)
DESCRIPTION OF SERVICE: The Tasks to be performed by the TSI Payroll
Customer Service Department will consist of:
1) Employment Verification - Completion of the wage and employment
information requested by lending institutions.
2) W-2 Reissues
3) Employment Receivables - The administrative and collection of balances
from employees for advances, uniforms, and salary overpayments, check
distribution special handling.
BASIS FOR PRICE: [*]
3. ADMINISTRATIVE SERVICES (OPTIONAL)
DESCRIPTION OF SERVICES: The Administrative Services to be performed by TSI
will consist of:
1) Hardware Purchasing: TSI performs all of the hardware purchasing for
PCO. The purchasing employee enters all materials in the Purchasing
Order database and orders equipment after approval from PCO
management. The purchase is billed directly to PCO, however, TSI
provides the service.
2) Shipping/Receiving: After equipment is ordered, it is then shipped to
TSI. TSI receives it, matches it to the Purchase Order, tags it and
records in a fixed spreadsheet. TSI then couriers it to PCO. PCO gets
their own mail, however, TSI gets PCO's equipment. TSI provides all
inter-company mail and provides the courier service for getting
equipment to PCO.
28
<PAGE>
3) Fixed Asset Tracking: Currently, TSI is tagging all PCO equipment.
There is a TSI employee that updates all fixed assets and maintains
the database.
4) Software Purchasing and License Tracking: TSI maintains a database to
track all software licenses for employees and machines of PCO.
5) Purchase Order Database Administration: TSI maintains this database.
This involves watching for management approvals and assigning a
purchase order number.
6) Security: TSI owns the host equipment for the access control system.
Access cards were paid for by TSI and are maintained by TSI
7) Travel: TSI houses and pays for travel consultants. PCO gets a
discount based on volume.
8) Facilities: All facilities are handled by PCO.
9) Real Estate Planner: TSI has an exclusive contract with a broker but
PCO utilizes the broker. This has no cost, but it prevents the Planner
from working for TSI.
10) Notes Database Administration: TSI could create the following databases
for PCO by copying what TSI has already paid to have created: purchase
order db, timesheet db, software db, fixed asset db, HR db,
intellectual property db, contract & management dbs.
11) Communications: Specialist spends one day per week at PCO for moves and
changes. Emergencies are handled as necessary.
12) Volume Pricing: PCO is given volume pricing due to TSI's name on many
accounts. A few examples are: Haworth, American Airlines, Continental,
Microage, Computer City, Avnet, AT&T.
13) Shuttle Services: Shuttle service moving employees between TSI space,
PCO space and the church overflow parking is paid by TSI.
14) Network Administration: TSI provides network administration for all of
PCO.
BASIS FOR PRICE: [*]
4. TREASURY/FINANCE SERVICES (MANDATORY)
A) Banking Services (Mandatory)
DESCRIPTION OF SERVICE: The TSI Treasury Department shall provide PCO and
its subsidiaries, and PCO shall use and shall cause its subsidiaries to
use, centralized cash management services provided by the TSI Treasury
Department which are substantially the same as the cash management
services provided by TSI to PCO and its subsidiaries immediately prior to
the Effective Date. The Tasks to be performed by the TSI Treasury
Department will consist of:
1) Cash Management Strategies
(i) optimize the utilization of the daily cash activity
(ii) maintain separate bank accounts for PCO and, in connection
therewith, open and close bank accounts, as required.
(iii) design, develop and implement enhanced, practical, cost-
efficient cash management processes.
(iv) negotiate for new improved bank services
(v) review bank services and fees
2) Cash Mobilization
(i) initiate properly approved wire transfers
(ii) collect all available bank account balances
(iii) fund all disbursements accounts
(iv) coordinate daily with Trilogy, Inc. Investment Services for all
cash excess/shortfalls
(v) generate, as needed, advance to and/or from TSI
3) Coordination of Letters of Credit
4) Pass-Through expense of banking service charges
29
<PAGE>
5) Cash Investment - transfer excess cash to Trilogy, Inc. Investment
Services, which will invest such cash in a manner consistent with the
investment objectives utilized by Trilogy, Inc. Investment Services for
Trilogy, Inc. and its subsidiaries as of the date of this Agreement.
B) Corporate Finance Service (Mandatory)
DESCRIPTION OF SERVICE: The Tasks to be performed by the TSI Treasury
Department will consist of:
1) Coordination of Financing Decisions
2) Risk Assessment and Management
3) Financing Administration
BASIS FOR PRICE: [*]
5) AUDIT SERVICES (OPTIONAL)
DESCRIPTION OF SERVICE: Conducting internal audits and coordinating external
audit functions.
BASIS FOR PRICE: The Audit Services will be provided for a Use-based fee.
30
<PAGE>
SCHEDULE 2 HUMAN RESOURCES SERVICES
HUMAN RESOURCES SERVICES (OPTIONAL)
DESCRIPTION OF SERVICES: TSI Human Resources Department is responsible for
performing the following Services (and not merely Tasks) for PCO.
A) All Benefits
B) Cafeteria Plan
C) 401(K)
D) EAP
E) HRIS
F) Immigration Services
G) New Hire Process
H) Offer letter preparation/Review
I) Managing Employee Information and Documentation
J) Managing Employee Performance and Termination
K) Compensating Employees and Job Leveling
L) Bonus/Commission Programs
M) Providing Retirement Benefits
N) Training Management
O) Stock Option Plan Management
P) Providing and Managing Workers Compensation
Q) Developing Admin/Interpreting Corporate Policy
R) Admin Travel Policy
S) Evaluating Employees and their Performance/Progress
T) Relocating Employees
U) Providing Management Corporate Insurance Programs
BASIS FOR PRICE: [*]
31
<PAGE>
SCHEDULE 3 LEGAL SERVICES
LEGAL SERVICES (OPTIONAL)
DESCRIPTION OF SERVICES: Tasks will consist of the rendering professional
legal services for matters in the following areas:
A) Corporate Law
(i) Contract Review and Preparation
(ii) Mergers and Acquisitions
(iii) Corporate Registrations
(iv) Corporate Securities law compliance
(v) Real Estate
(vi) Bankruptcy
(vii) Intellectual Properties
(viii) Customs
B) Corporate Finance
(i) Public Financing
(ii) Private Financing
(iii) SEC Regulations
C) Litigation Support
BASIS FOR PRICE: [*]
32
<PAGE>
SCHEDULE 4 RECRUITING SERVICES
RECRUITING SERVICES (MANDATORY)
DESCRIPTION OF SERVICES: TSI will conduct all of the campus interviews,
handle all follow up correspondence and will oversee the entire hiring
process. It will be the responsibility of PCO to have necessary personnel
available for onsite interviews once the candidates have been chosen.
BASIS FOR PRICE: [*]
33
<PAGE>
SCHEDULE 5 TRILOGY UNIVERSITY SERVICES
TRILOGY UNIVERSITY SERVICES (MANDATORY)
DESCRIPTION OF SERVICES: TSI will provide employee training through the
Trilogy University (TU) program.
BASIS FOR PRICE: [*]
34
<PAGE>
SCHEDULE 6 PCORDER CUSTOMER TRAINING SERVICES
PCORDER CUSTOMER TRAINING SERVICE (OPTIONAL)
DESCRIPTION OF SERVICES: TSI will provide training for PCO customers
BASIS FOR PRICE: [*]
35
<PAGE>
SCHEDULE 7
TOTAL FEES FOR TERM 7/1/98 THROUGH 6/30/99
Service Person(s)
Tax Services: [*]
Accounting Services: [*]
Administrative Services: [*]
Treasury/Finance Services [*]
Human Resources Services [*]
Legal Services [*]
Total: [*] Persons
Total Billed: [*]
Annual Fee: $[*]
or
Monthly Fee: $[*]
Recruiting Services, Trilogy University Services, and pcOrder Customer Training
Services to be billed separately.
36
<PAGE>
EXHIBIT 10.11
CONFIDENTIAL
------------
Confidential Treatment has been granted with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities
and Exchange Commission.
Agreement between
pcOrder.com, Inc.
and
Ingram Micro Inc.
________________________________________
Table of Contents
Subscription and Services Agreement
Attachment A - Licensed Software and Functional And Data Modules
Attachment B - Customer Desktop(TM) End-User License Agreement
Attachment C - Digitized Access Agreement
Attachment D - Additional Affiliates
Attachment E - Business Processes
Attachment F - Payment Schedule
Attachment G - Implementation Schedule
Attachment H - Maintenance and Support
Attachment I - Software Escrow Agreement
Schedule 1 - Professional Consulting Services Schedule
Schedule 2 - Data and Model Maintenance Services Schedule
Attachment A - List of Configurable Product Types
Schedule 3 - Application Hosting Services Schedule
Attachment A - Hosting Service Level Agreement
Attachment B - Server Farm Configuration
1
<PAGE>
CONFIDENTIAL
------------
SUBSCRIPTION AND SERVICES AGREEMENT
between
pcOrder.com, Inc.
a Delaware Corporation
5000 Plaza on the Lake, Suite 100
Austin, TX 78746
"pcOrder"
and
Ingram Micro Inc.
a Delaware Corporation
1600 St. Andrew Place
Santa Ana, CA 92705
"Ingram"
________________
1. PARTY CONTACTS AND SUMMARY TERMS
- --------------------------------------------------------------------------------
pcOrder Billing Contact (Section 4.6) EFFECTIVE DATE: SEPTEMBER 1, 1998.
Accounts Receivable
5000 Plaza on the Lake, Suite 100 INITIAL TERM: FROM THE EFFECTIVE
Austin, TX 78746 DATE THROUGH DECEMBER 31, 2003.
(512) 684-1100 (Phone Number)
(512) 684-1200 (Fax Number)
pcOrder Contact
[*]
5000 Plaza on the Lake, Suite 100
Austin, TX 78746
(512) 684-[*] (Phone Number)
(512) 684-1200 (Fax Number)
Ingram Contact (Section 4.7):
[*]
P.O. Box 25125
Santa Ana, CA 92799-5125
(714) [*] (Phone Number)
(714) [*] (Fax Number)
- -------------------------------------------------------------------------------
2. GENERAL
2.1. This Subscription and Services Agreement and any mutually negotiated,
incorporated, and separately executed Schedules, Attachments, and
Assignment Orders (collectively, the "Agreement") establish the terms and
conditions under which the parties agree that pcOrder shall license
certain Software and provide certain Services to Ingram.
2.2. The following and derivatives thereof are definitions for certain
capitalized terms that may be used in this Agreement.
2.2.1. "Affiliates" means legal entities controlled by or in common
control with Ingram and who are not competitors of pcOrder.
"Control" means owning more than 50% of the ownership interest
entitled to vote for directors or managers of such entity.
"Affiliates" shall also include those legal entities that are
mutually agreed upon by the parties and identified in Attachment
D hereto. Such agreement shall not be unreasonably withheld.
2.2.2. "Authorized eStation Users" means current and future users who are
authorized by Ingram to access Ingram's www.ingrammicro.com World
Wide Web Internet site.
2
<PAGE>
CONFIDENTIAL
------------
2.2.3. "Authorized Use" means for each Licensed User's own respective
internal business use in support of its sales and order
applications and business processes. Such Authorized Use is
subject to any pcOrder User Documentation and to the terms and
conditions of this Agreement.
2.2.4 "CD Licensed VAR Customer" means a customer of a PA VAR that is
granted a site license to Customer Desktop(TM) software under
Section 3.2.
2.2.5. "Customer" means any business entity or other person that orders,
seeks to order, resells, or gathers purchasing information on any
Ingram Products.
2.2.6. "Customer Desktop(TM) software" means the object code version of
the pcOrder Customer Desktop(TM) with the functionality and data
modules specified in paragraph 1 of Attachment A hereto, and any
available documentation.
2.2.7. "Digitized Access Agreement" means the agreement (a sample printed
copy of which is attached hereto as Attachment C) which contains
the terms and conditions governing each Prime Access Subscribed
User's access to the Prime Access Web Storefront. Notwithstanding
the foregoing, pcOrder reserves the right to modify such Digitized
Access Agreement from time to time.
2.2.8. "Effective Date" means the date of the last signature to this
Subscription and Services Agreement unless otherwise set forth in
Section 1.
2.2.9. "eStation" means a pcOrder Web Storefront site which accesses the
pcOrder Server Software modules specified in paragraph 5 of
Attachment A, hereto.
2.2.10. "eStation Server Modules" means the pcOrder Server Software
modules accessible to the eStation Software as specified in
paragraph 5.2 of Attachment A, hereto.
2.2.11. "Herein" refers to this Agreement.
2.2.12. "Hosting Site" means the installation location of the Server
Software.
2.2.13. [*] means the [*].
2.2.14. "Ingram Catalog Data" means Ingram's U.S. catalog (i) Ingram part
number, (ii) Ingram Customer specific pricing, and (iii) inventory
availability for respective Ingram Products which are maintained
under Schedule 2 Data and Model Maintenance, hereto, and hosted
under Schedule 3 Application Hosting Services, hereto.
2.2.15. "Ingram Products" means products manufactured, marketed, and/or
distributed by Ingram.
2.2.16. "Interface Information" means certain technical pcOrder server
module interface information.
2.2.17. "Licensed User" means a user who is granted a license hereunder.
2.2.18. "Major Release" means a major release of any computer program of
the Software that pcOrder designates with a new whole number. For
example, version 2.0 is a Major Release that succeeds version 1.x.
2.2.19. "Material Defect" means a defect in the Software that materially
prevents conformance of the Software with the functionality in
Attachment A and any applicable User Documentation.
2.2.20. "pcOrder Data" means Product attribute information that pcOrder
maintains in the pcOrder System and licenses to pcOrder customers.
2.2.21. "pcOrder-Ingram Product Data" means pcOrder Data and the Ingram
Catalog Data.
2.2.22. "pcOrder Server Software" means the pcOrder server software
modules specified in paragraph 5 of Attachment A, hereto.
2.2.23. "pcOrder System" means pcOrder's backend systems and software and
collection of product information.
2.2.24. "Prime Access VAR" ("PA VAR") means a VAR whose company name and
logo are displayed on an activated Prime Access Web Storefront in
accordance with Section 3.1.3.
2.2.25. "Prime Access Subscribed User" ("PA Subscribed User") means those
users of a Prime Access Web Storefront that have agreed to the
terms and conditions of the Digitized Access Agreement.
2.2.26. "Prime Access Web Storefront" means each customized Web Site that
appears as a VAR Web Site.
2.2.27. "Prime Access Web Storefront Server Modules" means the pcOrder
Server Software modules accessible to the Prime Access Web
Storefront as specified in paragraph 5.2 of Attachment A hereto.
2.2.28. "Prime Access Subscription" means a Yearly subscription to one (1)
Prime Access Web Storefront.
2.2.29. "Required Hardware" means all hardware and operating software that
pcOrder deems reasonably necessary to support the licensed access
and use of the pcOrder Server Software.
2.2.30. "Sales Desktop(TM) software Server Modules" means the pcOrder
Server Software modules accessible to the pcOrder Sales
Desktop(TM) software as specified in paragraph 5.1 of Attachment A
hereto.
2.2.31. "Sales Desktop Authorized User" means Ingram employees and
employees of Ingram's Affiliates.
2.2.32. "Software" means the object code version only of the computer
programs solely as specified in Attachment A hereto, any related
User Documentation that pcOrder makes generally available to
licensees, and all updates, enhancements, and new releases of the
Software licensed hereunder except that pcOrder may charge
additional fees for any new releases of Customer Desktop(TM)
software.
3
<PAGE>
CONFIDENTIAL
------------
2.2.33. "[*] Server Modules" means the pcOrder Server Software modules
accessible to [*] software as specified in paragraph 5.1 of
Attachment A, hereto.
2.2.34. "Use" means to install, execute, and nonpublicly display.
2.2.35. "VAR" means a value added reseller authorized by Ingram to sell
Ingram Products.
2.2.36. "Web" means the World Wide Web.
2.2.37. "Year" means a calendar year period except for year one which
means the period from September 1, 1998 through December 31,
1999 (sixteen (16) months).
3. LICENSE GRANTS AND RESTRICTIONS
3.1. Prime Access Subscriptions.
3.1.1. Subject to the terms and conditions herein, pcOrder hereby
grants to Ingram and the Affiliates a nonexclusive,
nontransferable, nonassignable, worldwide right and license to
market Prime Access Subscriptions to VARs.
3.1.2. For each Prime Access Subscription, Ingram shall (i) select a
VAR, (ii) obtain all necessary authorization from such VAR to
permit pcOrder to activate the Prime Access Web Storefront under
Section 3.1.3, (iii) and provide pcOrder with the following:
3.1.2.1. a request to activate a Prime Access Web Storefront;
3.1.2.2. pcOrder's standard setup information;
3.1.2.3. a selected [*] Prime Access Web Storefront user
interfaces as made available by pcOrder;
3.1.2.4. the selected VAR's logo and company name to which
Ingram represents that it has obtained sufficient
rights to allow such logo and name to be displayed on
the selected Prime Access Web Storefront user
interface; and
3.1.2.5. pricing levels for the selected VAR for the Prime
Access Web Storefront.
3.1.3. Upon fulfillment of Ingram's obligations specified in Section
3.1.2, pcOrder shall activate a Prime Access Web Storefront by:
3.1.3.1. customizing the Prime Access Web Storefront user
interface in accordance with the selection in Sections
3.1.2.3 and 3.1.2.4 to display a VAR company name and
logo, so that the Prime Access Web Storefront, when
accessed by a PA Subscribed User, appears as the
selected VAR's World Wide Web Internet site;
3.1.3.2. enabling the pricing levels provided in accordance
with Section 3.1.2.5; and
3.1.3.3. providing Ingram with unique Login ID and Password,
and any additional information required to enable
Prime Access Subscribed Users to access the Prime
Access Web Storefront.
3.1.4. pcOrder shall at Ingram's request [*].
3.1.5. Unless otherwise agreed upon in Attachment E Business Processes,
Ingram shall obtain and distribute all respective Login IDs and
Passwords from pcOrder to enable PA Subscribed Users to access
the Prime Access Web Storefront Server Modules via a respective
Prime Access Web Storefront. Ingram shall notify each PA VAR (i)
of the Prime Access Web Storefront access and use provisions
contained in the Digitized Access Agreement, and (ii) that use
of the Prime Access Web Storefront is contingent upon pcOrder's
validation of Login ID and Password and such Users acceptance of
the terms and conditions of such Agreement. Ingram acknowledges
and agrees that a PA Subscribed User's rejection of either
Agreement shall prevent such User from accessing the Prime
Access Web Storefront.
3.1.6. Ingram shall provide each PA VAR with all information required
to enable PA Subscribed Users to access and use the respective
VAR associated Prime Access Web Storefront.
3.1.7. PA Subscribed Users shall access a Prime Access Web Storefront
through their own Internet connection.
3.1.8. A copy of the Digitized Access Agreement shall automatically be
loaded and displayed upon each initial access to each Prime
Access Web Storefront.
3.1.9. Each PA Subscribed User shall comply, at all times, with the
terms and conditions of the Digitized Access Agreement and any
noncompliance may result in termination of such User's access to
the Prime Access Web Storefront.
3.3.10. Ingram shall indemnify and hold pcOrder harmless from and
against any third party claims arising out of pcOrder's
placement on a Prime Access Web Storefront of a VAR logo,
trademark, or other VAR information provided to pcOrder from
Ingram.
3.2. Customer Desktop(TM) software.
3.2.1. Subject to the terms and conditions herein, pcOrder hereby
grants to Ingram and the Affiliates a nonexclusive,
nontransferable, nonassignable, perpetual, worldwide right and
license to:
3.1.1.1. market Customer Desktop(TM) software;
3.2.1.2. distribute a respective copy of Customer Desktop(TM)
software to customers of PA VARs;
3.2.1.3. obtain a unique Login ID and Password from pcOrder for
each distributed copy of the Customer Desktop(TM)
software;
3.2.1.4. grant a [*] license to customers of PA VARs ("CD
Licensed VAR Customer") that grants the Licensed VAR
Customer the right to Use the Customer Desktop(TM)
software to access pcOrder-Ingram Product Data via a
Prime
4
<PAGE>
CONFIDENTIAL
------------
Access Web Storefront. Such [*] license is subject to
the terms and conditions of the Attachment B - Prime
Access Customer Desktop(TM) software End-User License
Agreement and does not include any updates,
enhancement, or new releases of the Customer
Desktop(TM) software;
3.2.1.5. setup each respective copy of Customer Desktop(TM)
software to allow CD Licensed VAR Customers to access
only the Prime Access Web Storefront associated with
the CD Licensed VAR Customer's preferred PA VAR; and
3.2.1.6. allow each PA VAR to market, distribute, grant the
[*] license, and setup Customer Desktop(TM) software
on behalf of Ingram to customers of the respective PA
VAR.
3.2.2. Any right and license granted in Sections 3.2.1.4 and 3.2.1.6
shall be a beta license through December 31, 1999 and shall be a
standard license on January 1, 1999 pursuant to the terms and
conditions in Section 3.2.1.4.
3.2.3. pcOrder shall notify Ingram of each generally available new
release of Customer Desktop(TM) software and shall make such new
release available to Ingram under the terms and conditions
herein including the provisions of this Section 3.2.
3.2.4. A copy of the Digitized Access Agreement shall automatically be
loaded and displayed upon each initial access to each Prime
Access Web Storefront.
3.2.5. Each initial access to the Prime Access Web Storefront via the
Customer Desktop(TM) software shall be contingent upon
acceptance of the terms and conditions contained in the
Digitized Access Agreement, and each such access shall also be
contingent upon pcOrder's validation of Login ID and Password.
3.2.6. Prior to such Use of the Customer Desktop(TM) software by a VAR
Customer, each licensed customer of such VAR must indicate their
agreement to the terms and conditions in the Attachment B -
Prime Access Customer Desktop(TM) software End-User License
Agreement. Notwithstanding the foregoing, pcOrder reserves the
right to modify such Prime Access Customer Desktop(TM) software
End-User License Agreement from time to time.
3.2.7. Each CD Licensed VAR Customer shall comply, at all times, with
the terms and conditions of the Digitized Access Agreement and
the Customer Desktop(TM) software End-User License Agreement,
and any noncompliance may result in termination of such User's
access to the Prime Access Web Storefront.
3.3. eStation [*].
-------------------
3.3.1. Subject to the terms and conditions herein, pcOrder hereby
grants to Ingram a nonexclusive, nontransferable, nonassignable,
worldwide right and license to allow Authorized eStation Users
to access eStation [*] to use the eStation Server Modules for
the Authorized Use.
3.3.2. Ingram represents and warrants that Authorized eStation Users
access and use of the eStation shall be governed by terms and
conditions as extensive and no less restrictive than those terms
and conditions in the Attachment C - Digitized Access Agreement.
3.4. Sales Desktop(TM) software.
3.4.1. Subject to the terms and conditions herein, pcOrder hereby
grants to Ingram and the Affiliates a nonexclusive,
nontransferable, nonassignable, worldwide right and license to
Use pcOrder Sales Desktop(TM) software to access the pcOrder
Sales Desktop(TM) software Server Modules for the Authorized
Use. The pcOrder Sales Desktop(TM) software may only be Used by
Sales Desktop Authorized Users. Such Use of the Sales
Desktop(TM) software is contingent upon pcOrder's validation of
Login ID and Password.
3.4.2. pcOrder shall notify Ingram of each generally available new
release of Sales Desktop(TM) software and shall make such new
release available to Ingram under the terms and conditions
herein including the provisions of this Section 3.4.
3.5. [*] Access to the [*] Server Modules.
3.5.1. Subject to the terms and conditions herein, pcOrder hereby
grants to Ingram and the Affiliates a nonexclusive,
nontransferable, nonassignable, worldwide right and license to:
3.5.1.1. use pcOrder Interface Information as necessary to
allow [*] to access the [*] Server Modules;
3.5.1.2. access the [*] Server Modules [*] for the Authorized
Use; and
3.5.1.3. sublicense such access to the [*] Server Modules [*]
to VARs for the Authorized Use.
3.5.2. Ingram represents and warrants that such VAR access to the
pcOrder Server Software shall be governed by terms and
conditions as extensive and no less restrictive than those terms
and conditions herein.
3.6. [*] Access to pcOrder's Checker (pcOrder's Configuration and
Validation Server Module) and Access to pcOrder's Checker [*].
3.6.1. Subject to the terms and conditions herein, pcOrder hereby
grants to Ingram and the Affiliates a nonexclusive,
nontransferable, nonassignable, worldwide right and license to:
3.6.1.1. use pcOrder Interface Information as necessary to
allow [*] to access only pcOrder's Server
Software Configuration Validation functional module
for the Authorized Use;
3.6.1.2. access pcOrder's Server Software Configuration
Validation module [*] for the Authorized Use;
5
<PAGE>
CONFIDENTIAL
------------
3.6.1.3. sublicense such access to pcOrder's Server Software
Configuration Validation module [*] to VARs for the
Authorized Use; and
3.6.1.4. access pcOrder's Server Software Configuration
Validation module to validate configuration of VAR
orders for Ingram Products received by Ingram [*].
3.6.2. Ingram represents and warrants that such VAR access to the
pcOrder Server Software Configuration Validation module shall be
governed by terms and conditions as extensive and no less
restrictive than those terms and conditions herein.
3.7. The licenses granted hereunder are subject to the following additional
restrictions and limitations:
3.7.1. Ingram and all other Licensed Users shall use the Software
solely for the purposes expressly stated herein.
3.7.2. Unless otherwise expressly permitted herein, neither Ingram nor
any other Licensed User shall rent, lease, loan, sell,
sublicense, assign, or otherwise transfer the Software or any
rights and licenses, in whole or in part, to any third party
including any subsidiaries and affiliates of Ingram.
3.7.3. In no event shall pcOrder be liable for any use of the pcOrder-
Ingram Product Data, for the accuracy of the pcOrder-Ingram
Product Data, or for any indirect, incidental, special, or
consequential damages however caused therefrom (including
negligence), and Ingram shall include such terms in any
agreement with any Licensed User. Ingram further agrees that it
will include any additional appropriate terms and provisions in
such agreement to hold pcOrder harmless from any claims or
actions from such Licensed User.
3.7.4. Unless otherwise expressly permitted herein, Ingram shall not
and shall not allow any third party to: (i) use the Software to
process or permit to be processed data for any third party; (ii)
use the Software to connect to or otherwise access any software
except the pcOrder Server Software; (iii) use the Software in
operation of a service bureau; (iv) disassemble, decompile, or
reverse engineer the Software; (v) modify the Software in any
manner or create any derivative work thereof; or (vi) permit any
subsidiaries, affiliated entities, or third parties to use the
Software.
3.7.5. All access to the pcOrder Server Software shall be pursuant to a
nontransferable Login ID and Password issued by pcOrder.
3.8. Ingram may make one (1) copy of the pcOrder Customer Desktop(TM)
software for archival and backup purposes.
3.9. Ingram may make one (1) copy of the pcOrder Sales Desktop(TM) software
for archival and backup purposes.
3.10. Ingram shall include pcOrder's copyright notice, proprietary legend, any
trademark and service mark attributions, patent marking, and other
indicia of pcOrder's ownership on all authorized copies of the Software,
in the content and format as those which were contained on the copy
originally distributed to Ingram. Ingram shall assume all responsibility
for the quality of any copies made hereunder.
3.11. In the event Ingram acquires actual knowledge of copyright infringement,
trademark infringement, patent infringement, software piracy, or breach
of any provision, license, or right granted hereunder or under
Attachments B and C hereto, Ingram shall immediately notify pcOrder,
and/or if notified by pcOrder, will make commercially reasonable efforts
to cooperate with pcOrder to determine the existence and extent of any
such infringement, piracy, or breach and to remedy same.
3.12. [*]
3.13. Ingram shall be obligated to ensure that all usage of the Software by
the Affiliates and their exercising of any rights and licenses granted
hereunder shall be in accordance with the terms and conditions herein,
and Ingram shall indemnify pcOrder for all damages and costs associated
with any breach thereof.
3.14. Ingram may license other pcOrder Software, [*], not specified in
Attachment A under mutually acceptable terms and conditions.
3.15. pcOrder reserves all rights and licenses not expressly granted herein.
4. RECORDS AND CONTACT INFORMATION
4.1. Ingram shall keep an accurate to-date and complete record of:
4.1.1. the number of Customer Desktop(TM) software copies distributed
pursuant to Section 3.2.1;
4.1.2. the number of CD Licensed VAR Customer users of Customer
Desktop(TM) software [*];
4.1.3. the number of Prime Access Subscription related requests made
pursuant to Section 3.1.2.1;
4.1.4. the number of Sales Desktop Authorized Users [*];
4.1.5. the number of VARs sublicensed under Section 3.5.1; and
4.1.6. the number of VARs sublicensed under Section 3.6.1.3.
4.2. Ingram shall keep an accurate and complete record of the location of any
copies of the Server Software permitted herein.
4.3. Ingram shall provide to pcOrder a monthly report containing the records
of Sections 4.1 and 4.2 within fifteen (15) days after the end of each
month.
4.4. All reports shall be delivered to the pcOrder contact specified in
Section 1.
4.5. Ingram agrees that pcOrder may, upon five (5) business days' prior
written notice, enter Ingram's premises to verify Ingram's compliance
with the provisions of this Agreement. pcOrder's inspections shall be
limited to (i) one annual inspection (unless pcOrder
6
<PAGE>
CONFIDENTIAL
------------
believes that it has just cause for multiple inspections); (ii) Ingram's
normal business hours; (iii) those records pertaining to the Software
and the reports hereunder including copy locations and other information
relevant to fees due under this Agreement; and (iv) those Ingram
agreements required herein to contain certain terms and conditions. If
Ingram is found not to be in substantial compliance with the Agreement,
Ingram shall pay the reasonable expenses incurred by pcOrder associated
with such inspection. pcOrder's rights of inspection shall remain in
effect through the period ending six (6) months from the termination or
expiration of this Agreement and any applicable license hereunder.
4.6. The pcOrder contact specified in Section 1 may change from time to time
upon written notice to Ingram.
4.7. Ingram's contact specified in Section 1 shall provide answers to
pcOrder's payment, reporting, and verification questions. Ingram's may
change such contact from time to time upon written notice to pcOrder.
5. FEES AND PAYMENTS.
The fees and payments terms for products and services provided under this
Agreement. The fees reflect a $[*] discount for previous Ingram payments
to Trilogy Development Group and pcOrder.
5.1. Prime Access Subscriptions
5.1.1. Subject to Section 5.1.4, Ingram agrees to pay:
5.1.1.1. a [*] activation fee of $[*] per activated
Prime Access Subscription; and
5.1.1.2. beginning January 1, 2000, Ingram shall pay pcOrder a
Yearly Renewal Fee for each Prime Access Web
Storefront that is active on the anniversary of such
Prime Access Web Storefront activation. The amount of
such fee shall be $[*] per each active Prime Access
Web Storefronts per Year. The fee shall be calculated
and paid on a quarterly basis ($[*] per each Prime
Access Web Storefronts active at the end of each
calendar quarter).
5.1.2. In addition to any applicable Yearly Renewal Fee, Ingram shall
pay $[*] per Prime Access Subscription [*] pursuant to Section
3.14[*].
5.1.3. Prepayment.
5.1.3.1. Ingram shall prepay pcOrder for [*] subscriptions upon
execution of this Agreement.
5.1.4. Ingram agrees to the following Minimum Commitments:
5.1.4.1. [*] activation fee payment for [*] Prime Access
Subscriptions during Years [*] ([*]-Year [*], [*]-Year
[*]); and
5.1.4.2. payment of Yearly Renewal Fees for a minimum of [*]
subscriptions during Year [*] ($[*]) and [*]
subscriptions during Years [*] and [*] ($[*] per
year). Attachment F hereto contains a schedule for
Minimum Payment amounts for Prime Access Subscription
and Renewal Fees due under this Agreement.
5.2. Data and Model Maintenance Services
5.2.1. The minimum fees for pcOrder's Data and Model Maintenance
Services for Ingram Catalog Data shall be $[*] per Year.
Fees incurred in excess of such minimum fees shall be paid at
the rate set forth in the Data and Model Maintenance Services
Schedule, attached hereto as Schedule 2. Attachment F hereto
contains a schedule for Minimum Payment amounts for Data and
Model Maintenance Services fees due under this Agreement.
5.3. Customer Desktop(TM) software.
5.3.1. Ingram agrees to pay pcOrder for a minimum of [*] Customer
Desktop(TM) software [*] licenses ([*] in Year [*], [*] in Year
[*], and [*] in Year [*]) and agrees to pay the Minimum
Payment set forth in Attachment F hereto.
5.3.2. Ingram shall pay pcOrder $[*] per [*] license granted to a CD
Licensed VAR Customer [*]. [*]
5.3.3. The payment for each of the minimum number of Customer
Desktop(TM) software [*] licenses not granted to a CD Licensed
VAR Customer shall be $[*] and shall be determined at the end of
each period set forth in Attachment F hereto.
5.3.4. Ingram's fee per [*] license for a new generally available
Major Release upgrade of Customer Desktop(TM) software shall be
at pcOrder's standard fee [*].
5.4. Corporate Web Storefront
5.4.1. Ingram shall pay pcOrder $[*] per Year for access to eStation
[*]. Such payment shall be paid pursuant to the schedule
provided in Attachment F hereto.
5.5. Sales Desktop(TM) software
5.5.1. The license fee for Sales Desktop(TM) software shall be $[*]
per Year for the first [*] Sales Desktop Authorized Users
using such software and $[*] per each Sales Desktop Authorized
User in excess of [*]. The number of Sales Desktop Authorized
Users using such software shall be calculated at the end of each
period set forth in Attachment F hereto.
5.6. [*]
5.6.1. The license fee for the [*] access to the [*] Server Modules
shall be $[*] per Year. Such payment shall be paid pursuant to
the schedule provided in Attachment F hereto.
7
<PAGE>
CONFIDENTIAL
------------
5.7. [*] Access to pcOrder's Checker
5.7.1. The license fee for providing [*] access to pcOrder's Server
Software Configuration Module shall be $[*] per Year.
5.8. Minimum Payment. See Attachment F - Payment Schedule hereto.
5.9. Payment Terms:
5.9.1. The entire amount of all amounts required to be paid to pcOrder
under this Agreement shall be paid [*] from receipt of pcOrder's
applicable invoice unless otherwise provided herein.
5.9.2. The fees and other amounts required to be paid hereunder do not
include any amount for taxes, duties, or levies (including
interest and penalties). Ingram shall reimburse pcOrder and hold
pcOrder harmless for all sales, use, excise, property, or other
taxes, levies, or duties pcOrder is required to collect or remit
to applicable tax authorities. Ingram is not responsible for
pcOrder's income or franchise taxes.
5.9.3. All dollar amounts listed in this Agreement are in US Dollars,
and all payments by Ingram to pcOrder shall be made in US
Dollars.
5.9.4. Additional Services, Data Maintenance Services, and Application
Hosting Services (collectively "Services") provided by pcOrder
shall be at the pricing set forth in this Agreement plus
reasonable expenses. In the event this Agreement does not
reference specific pricing for any Service such Service shall be
performed at pcOrder's then current standard time and material
rates and charges plus expenses incurred in accordance with
Ingram's standard expense policies. Expenses are not included in
the fees specified in this Agreement.
6. PROFESSIONAL CONSULTING SERVICES
6.1. pcOrder agrees to provide mutually agreed upon professional consulting
services (the "Consulting Services"), which may include software
development, integration, implementation, customization, data
integration, training, and modeling of Ingram Products. These Consulting
Services shall be provided in accordance with the terms and conditions
applicable herein, including Section 21.10 and Schedule 1.
6.2. pcOrder will provide resources and use qualified employees and/or
consultants as it deems necessary to perform the Consulting Services.
7. DATA AND MODEL MAINTENANCE SERVICES
7.1. In consideration of Ingram's payment to pcOrder of the applicable fees
specified in Schedule 2, pcOrder shall provide the Data and Model
Maintenance Services specified in Schedule 2 in accordance with the
terms and conditions applicable herein including Section 21.10.
7.2. pcOrder shall have no responsibility, whatsoever, for reproducing or
reconstructing pcOrder-Ingram Product Data or for retaining archival
copies of pcOrder-Ingram Product Data. pcOrder may, at any time and in
accordance with pcOrder's operational procedures, destroy files
pertaining to outdated pcOrder-Ingram Product Data in order to maintain
current information.
7.3. The fees applicable to such Data and Model Maintenance Services shall be
specified in Schedule 2.
8. APPLICATION HOSTING SERVICES
8.1. In consideration of Ingram's payment to pcOrder of the applicable fees
specified in Schedule 3, pcOrder shall provide the Application Hosting
Services specified in Schedule 3 under the terms applicable herein
including Section 21.10.
8.2. Hosting Site.
8.2.1. The initial Hosting Site shall be on servers located at
pcOrder's location.
8.2.2. Ingram may change the Hosting Site in accordance with the terms
and conditions of Schedule 3.
8.3. pcOrder shall supplement Schedule 3 with Attachment B-Server Farm
Configuration to specify the Required Hardware. pcOrder is allowed to
modify Attachment B to Schedule 3 as pcOrder deems reasonably necessary
to support such licensed access and use.
8.4. Ingram shall provide the Required Hardware as set forth in Attachment B-
Server Farm Configuration to Schedule 3 as supplemented under Section
8.3 in quantities deemed reasonably necessary by pcOrder to support the
licensed access and use of the pcOrder Server Software. Ingram shall
provide such Required Hardware at no cost to pcOrder.
8.5. [*] to pcOrder, Ingram shall provide or reimburse pcOrder for
upgrades and/or increases in the Required Hardware as deemed necessary
from time to time by pcOrder in accordance with reasonable analysis of
the Required Hardware's ability to support then current and reasonably
expected near term access of the pcOrder Server Software.
9. SOFTWARE MAINTENANCE AND SUPPORT
9.1. In consideration of Ingram's payment to pcOrder of the applicable
License Fees, pcOrder shall provide the maintenance and support services
listed in Attachment H - Maintenance and Support hereto.
10. INGRAM'S RESPONSIBILITIES
10.1. Ingram agrees to:
10.1.1. provide Ingram Catalog Data and any other data necessary to
support the pcOrder Server Software and pcOrder System to ensure
that the highest possible quality of Ingram Product data is
provided to users of pcOrder Server Software and pcOrder System;
8
<PAGE>
CONFIDENTIAL
------------
10.1.2. pursue mutually acceptable joint marketing including issuance of
a joint press release within fifteen (15) days of the Effective
Date which is mutually acceptable to pcOrder and Ingram and
announces the strategic relationship between pcOrder and Ingram;
10.1.3. endorse a mutually acceptable written testimonial after the
Effective Date which outlines the benefits of pcOrder's services
received by Ingram and detailing the relationship between the
parties;
10.1.4. endorse a mutually acceptable written testimonial after the
Effective Date announcing the adoption by Ingram of pcOrder's
VIPER(TM) data entry tool;
10.1.5. have joint meetings with the press after the Effective Date to
promote the benefits of the pcOrder/Ingram partnership; and
10.1.6. provide references/recommendations to other pcOrder prospective
customers.
10.2. Ingram acknowledges that pcOrder's ability to provide the Services under
this Agreement is dependent in part on Ingram's timely supplying a
leased line between Ingram's facilities and pcOrder's facility in
Austin, Texas, and other lines as are mutually deemed necessary for
performance of the Services herein. The preferred line is a T1 type, but
at a minimum, 56K, which shall be set up, paid for, and maintained by
Ingram.
10.3. Ingram shall place a "Powered by pcOrder" logo ("Logo"), to be provided
by pcOrder, in the bottom portion of the first page of each Ingram Web
site and SpeedSource software that contains access to the Server
Software. Ingram shall permit placement of a "Powered by pcOrder" logo
("Logo"), to be provided by pcOrder, in the bottom portion of the first
page of each Prime Access Web Storefront. Ingram agrees to include a
link to pcOrder's home page, either within the Logo or in close
proximity to the Logo. The Logo shall occupy an area approximately 88x31
pixels.
10.4. To the extent reasonably required by pcOrder, Ingram will make available
to pcOrder certain of its facilities, computer resources, software
programs, personnel, and business information as are reasonably required
to perform any Services hereunder. While on Ingram's premises, pcOrder
and its third party contractor(s) agree to comply at all times with
Ingram's rules and regulations regarding safety, security, conduct, and
operational procedures and practices that are communicated to pcOrder.
10.5. Ingram shall make all reasonable efforts to encourage all current and
future manufacturing partners to adopt pcOrder's VIPER(TM) data entry
tool.
10.6. Ingram shall use best efforts to market the Prime Access Subscriptions
and Customer Desktop(TM) software.
11. PCORDER'S RESPONSIBILITIES
11.1. pcOrder shall provide [*] employees during the calendar year 1999 [*]
and pay for reasonable travel expenses.
11.2. pcOrder shall provide a [*] marketing contribution up to $[*] during the
calendar year 1999 [*] Ingram's expenses, excluding the parties'
respective personnel costs, to market the Prime Access Subscriptions.
All expenditures of pcOrder's [*] marketing contribution shall be
mutually agreed upon.
12. OTHER RESPONSIBILITIES
12.1. [*], the parties shall use best efforts to mutually agree to deploy the
pcOrder products by respective dates as set forth in Attachment G -
Implementation Schedule, hereto.
12.2. [*], the parties shall use best efforts to mutually agree upon business
processes as set forth in Attachment E - Business Processes, hereto.
12.3. [*], the parties shall use best efforts to mutually agree on the
Required Hardware.
12.4. [*], the parties shall use best efforts to mutually agree on system
availability contingency issues if availability targets fall below the
targets indicated in Schedule 3 - Attachment A hereto.
13. OWNERSHIP
13.1. As to the Software, this Agreement is a license only, and no transfer of
ownership or title (including any intellectual property) is contemplated
by or will result from this Agreement. By signing this Agreement, Ingram
irrevocably acknowledges that it has no ownership interest in the
Software, including any copies thereof, custom modifications, routines,
or any other changes thereto.
13.2. Unless expressly agreed with regards to any custom programs developed
for Ingram, pcOrder and its third party licensors retain all rights,
title, and interest in and to the Software, all copies thereof, and
other materials provided to Ingram by pcOrder, including, without
limitation, any Software enhancements or modifications, any custom
programs developed, and all copyright, trade secret, patent, and other
rights relating thereto.
13.3. pcOrder retains all rights, title, and interest to current pcOrder Data
and future developed pcOrder Data.
13.4. Unless expressly agreed with regards to any custom programs developed
for Ingram, all suggestions, solutions, improvements, corrections, and
other contributions provided by Ingram regarding the Software, methods,
or any pcOrder software programs used to manipulate data (including any
intellectual property, such as copyrights, related to the foregoing)
shall become the property of pcOrder and are hereby assigned to pcOrder.
13.5. [*]
9
<PAGE>
CONFIDENTIAL
------------
14. CONFIDENTIALITY
14.1. "Confidential Information" includes all information disclosed by the
parties, before or after the Effective Date, and generally not publicly
known, whether tangible or intangible and in whatever form or medium
provided, as well as any information generated by the parties to the
extent that it contains, reflects, or is derived from Confidential
Information. Confidential Information includes, without limitation, the
Software, Interface Information, User Documentation, training materials,
each Login ID and Password, and security procedure information delivered
to Ingram by pcOrder and marked as "confidential" or the like. The terms
and conditions of this Agreement are Confidential Information; however,
the existence of this Agreement is not Confidential Information. All
Confidential Information of pcOrder and Ingram is proprietary to pcOrder
(or its third party licensors) and Ingram, respectively, and includes
trade secrets and the unpublished copyrighted material of pcOrder and
its third party licensors and Ingram. Except as expressly permitted in
this Agreement, neither party may copy, reproduce, or distribute the
Confidential Information of the other party, and neither party shall
sell, lease, license, assign, transfer, or disclose the other party's
Confidential Information to any third party. Each party shall protect
the other party's Confidential Information by using the same degree of
care but no less than a reasonable degree of care as it uses to
safeguard its own confidential or proprietary information of a like
nature from unauthorized use, disclosure, or dissemination. Ingram shall
not reverse engineer the Software, or disassemble, decompile, or apply
any procedure or process to the Software in order to ascertain, derive,
and/or appropriate for any reason or purpose, the source code or source
listings for the Software, any trade secret information, process, or
other Confidential Information contained in the Software.
14.2. The Software and pcOrder's method of representation of modeled data and
"constraint based" configuration approach and concept, as well as that
of any third party licensor are also Confidential Information, including
information relating thereto as given in oral form in pcOrder's training
classes.
14.3. Each party agrees to restrict access to the other party's Confidential
Information to only the Affiliates, and the parties' and Affiliates'
employees and contractors who require such access in the course of their
assigned duties and responsibilities and who have been informed of the
obligations of Section 14. The parties agree that their and the
Affiliates' employees and contractors who may have access to any
Confidential Information of the other party will be legally obligated,
by a written agreement, to preserve the confidentiality of such
information under terms and conditions no less restrictive than those
set forth herein. For purposes of this Agreement, the term "access"
shall exclusively mean access for Authorized Use only and shall not
include the ability to copy or possess the Software or otherwise control
its operation. The parties shall make all reasonable efforts to enforce
such obligations.
14.4. Notwithstanding Section 14.3, no contractor who is a competitor of
pcOrder may have access to pcOrder's Confidential Information.
14.5. Nothing in this Agreement shall be construed to convey any title or
ownership rights to the Software or Confidential Information to Ingram
or to any patent, copyright, trademark, or trade secret or grant any
other right, title, or ownership interest to the Confidential
Information except as may be provided by this Agreement.
14.6. Without granting any right or license, the foregoing obligations not to
disclose Confidential Information shall not apply with respect to a
party's Confidential Information which the other party can document and
that: (i) was in the possession of or known by the other party without
an obligation of confidentiality prior to receipt from the disclosing
party, (ii) is or becomes general public knowledge through no fault or
acts of the other party; (iii) is or becomes lawfully available to the
other party from a third party without an obligation of confidentiality;
(iv) is independently developed by the other party without use of any
Confidential Information; or (v) is required to be disclosed pursuant to
any law, code or regulation, provided the disclosing party is given ten
(10) days written notice prior to such requirement in order that it may
seek a protective order.
15. TERM AND TERMINATION
15.1. This Agreement shall remain in effect from the Effective Date through
December 31, 2003 unless terminated earlier as described below ("Initial
Term"). Upon election by Ingram and pcOrder, the Agreement shall renew
for additional twelve (12) month periods at pcOrder's then-current
standard fees for the Software and Services. Within sixty (60) days
prior to the end of the Initial Term or the then-current renewal term,
pcOrder shall provide Ingram with a written notice of pcOrder's election
to renew and Ingram shall indicate in writing to pcOrder its election to
renew or to terminate the Agreement.
15.2. This Agreement and any license granted hereunder, except for copies of
the Customer Desktop(TM) software actually distributed to a CD Licensed
VAR Customer, and any respective Schedule may be respectively terminated
earlier in accordance with the following:
15.2.1. By pcOrder if Ingram fails to make any payments due hereunder
within thirty (30) days after pcOrder delivers written notice
of such default to Ingram.
15.2.2. By either party on thirty (30) days written notice to the other
party if the other party fails to perform any material
obligation required of it under this Agreement and such failure
is not cured within such thirty (30) day period.
15.2.3. By either party if the other terminates or suspends its
business, files a petition for bankruptcy or insolvency, has an
involuntary petition filed against it, commences an action
providing for relief under bankruptcy laws, files for the
appointment of a receiver, or is adjudicated a bankrupt concern.
15.3. The terms and conditions of this Subscription and Services Agreement
shall remain in effect and applicable to any Schedule that remains in
effect after expiration or termination of this Agreement for the term of
any such Schedule.
10
<PAGE>
CONFIDENTIAL
------------
15.4. pcOrder may immediately terminate this Agreement and any or all licenses
hereunder if Ingram has materially breached its confidentiality
obligations as set forth in Section 14 herein. Ingram may immediately
terminate this Agreement if pcOrder has materially breached its
confidentiality obligations as set forth in Section 14 herein.
15.5. Upon the termination of Ingram's licenses granted hereunder, for
whatever reason, all licenses granted hereunder shall be immediately
terminated, and Ingram and all Licensed Users shall immediately stop
using the Software and shall return to pcOrder, or destroy, all copies
thereof, as well as return or destroy all copies of pcOrder System User
Documentation and related materials provided to Ingram under this
Agreement for the Software. Upon such termination, pcOrder may deny
Ingram and all Licensed Users access to all Software without incurring
any liability. Within thirty (30) days from the termination of Ingram's
licenses granted hereunder and in accordance with this Section 15,
Ingram shall provide pcOrder with a written certification signed by an
officer of Ingram that all copies thereof have been returned or
destroyed and no copies of the Software have been retained by Ingram for
any purpose whatsoever.
15.6. Neither party will be liable to the other party for damages of any sort
solely as a result of terminating this Agreement in accordance with its
terms. Termination of this Agreement will be without prejudice to any
other right or remedy of either party.
15.7. Upon termination of this Agreement, the provisions of Sections 4, 13,
14, 15.7, 16.6, 18, and 19 shall survive termination of this Agreement
and continue in effect and shall inure to the benefit and be binding
upon the parties, including their legal representatives, heirs,
successors, and permitted assigns.
16. WARRANTY AND REMEDIES
16.1. Each party represents and warrants to the other that it has the right to
enter into this Agreement and to perform its obligations under this
Agreement. Without limitation, pcOrder represents and warrants that it
has the right to grant to Ingram licenses as provided herein. Each party
represents and warrants that it has the right to disclose to the other
and grant the other party access to the information disclosed under the
terms of this Agreement. pcOrder represents that, with respect to the
Software, pcOrder shall not knowingly infringe any patent or copyright
or violate any other proprietary rights of a third party.
16.2. Information and data provided by pcOrder to Ingram and Licensed Users
through the Data and Model Maintenance Services is provided "AS IS" and
is not verified or expressly or implicitly warranted by pcOrder. pcOrder
does not represent that the information obtained is error free and shall
not be liable or responsible for any pricing, configuration,
availability, or other errors contained in any information provided to
Ingram or Authorized Users.
16.3. Except as otherwise provided on a Schedule, pcOrder warrants that the
Software will materially conform with the specifications set forth in
any applicable Attachment A and User Documentation until [*]. Should the
Software fail to materially conform to the specifications during the
Warranty Period, Ingram shall promptly notify pcOrder in writing of such
nonconformance. To the extent that the nonconformance exists in a
current, unaltered release of the Software, pcOrder shall, at its own
cost and expense, make every commercially reasonable effort to correct
the nonconformance or, if necessary, to replace the nonconforming
Software.
16.4. pcOrder warrants that the Software is Year 2000 Compliant. "Year 2000
Compliant" as used herein means that the Software will not mishandle
date data, properly entered, as a result of the year change from
December 31, 1999 to January 1, 2000, or due to the year 2000 being a
Leap Year. This warranty is limited to the Software. This statement does
not apply to any products or components of companies other than pcOrder,
including but not limited to any other software, firmware, or hardware
on the system on which the pcOrder products are installed. The Year 2000
Compliance of the Software is subject to and may be dependent on Year
2000 Compliance of such other products and components. pcOrder expressly
disclaims any warranty obligation for any nonconformance with the
foregoing warranty which arises out of a defect in any third party
products or components.
16.5. pcOrder warrants that all services performed hereunder shall be
performed in a workmanlike and professional manner by its employees or
by third party contractors.
16.6. EXCEPT AS OTHERWISE STATED HEREIN, PCORDER MAKES NO OTHER WARRANTIES,
EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT.
16.7. Notwithstanding Sections 16.1, 16.2, and 16.5, any express, implied, or
statutory warranties arising under this Agreement are VOID if Ingram has
made changes to the Software or permitted any changes to be made other
than by or with the express, written approval of pcOrder.
17. INFRINGEMENT
17.1. pcOrder agrees to indemnify and hold Ingram harmless from any and all
claims, damages, costs, expenses (including, but not limited to,
reasonable attorney's fees and costs) or liabilities that may result, in
whole or in part, or arise out of any legal action based on any claim
that any Software licensed by pcOrder to Ingram infringes any copyright,
patent, trade secret, or other proprietary right of a third party. Such
obligation is subject to the following conditions:
17.1.1. Ingram must notify pcOrder in writing promptly after Ingram
becomes aware of a claim or the possibility thereof.
17.1.2. The parties agree to cooperate in good faith in the defense of
any legal action or suit brought by third parties based on any
claim that the Software violates or infringes upon the existing
rights of any third party.
17.1.3. pcOrder has sole control of the settlement, compromise,
negotiation, and defense of any such action. Ingram may elect to
participate in any such action with an attorney of its own
choice and at its own expense; however, with regard to the
infringement claim and the defense and/or litigation thereof,
pcOrder shall remain in sole control.
11
<PAGE>
CONFIDENTIAL
------------
17.1.4. pcOrder may, at its sole option, obtain the right for Ingram to
continue using the Software under this Agreement for the
remaining portion of the then-current term, or replace or modify
the Software so it is no longer infringing and is functionally
equivalent to the infringing Software. If pcOrder is unable to,
or if it is commercially unreasonable for pcOrder to provide
Ingram with non-infringing Software, pcOrder will provide
Ingram, as Ingram's sole remedy, a refund equal to the License
Fees actually paid to pcOrder for such Software less an amount
equal to [*].
17.1.5. The foregoing indemnity shall not apply to any infringement
claim to the extent that the claim arises from (i) Software
which has been modified by Ingram or any third party; (ii)
Ingram's use of the Software in conjunction with Ingram's data
where use with such data gave rise to the infringement claim;
(iii) Ingram's use of the Software with other software or
hardware, where use with such other software or hardware gave
rise to the infringement claim; or (iv) Ingram's unauthorized
use of the Software.
17.2. SECTION 17 STATES THE ENTIRE LIABILITY OF PCORDER WITH RESPECT TO ANY
CLAIM OF ANY TYPE INFRINGEMENT.
18. LIMITATION OF LIABILITY
18.1. EXCEPT FOR THE INFRINGEMENT INDEMNIFICATION SET FORTH IN SECTION 17
HEREIN, IN NO EVENT SHALL EITHER PARTY BE LIABLE, WHETHER IN AN
EQUITABLE, LEGAL, OR COMMON LAW ACTION ARISING HEREUNDER UNDER ANY
THEORY OF LIABILITY INCLUDING CONTRACT, STRICT LIABILITY, INDEMNITY,
TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, FOR DAMAGES WHICH, IN THE
AGGREGATE, EXCEED THE AMOUNT OF THE LICENSE FEES PAID BY INGRAM DURING
THE CALENDAR YEAR IN WHICH SUCH DAMAGES AROSE.
18.2. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES OF ANY KIND AND HOWEVER CAUSED
(INCLUDING NEGLIGENCE), INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR
BUSINESS INTERRUPTION EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGE, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY
REMEDY.
18.3. PCORDER FURTHER DISCLAIMS ANY LIABILITY FOR ANY PRICING, AVAILABILITY,
OR OTHER ERROR CONTAINED IN ANY DATA INCLUDING PCORDER-INGRAM PRODUCT
DATA OR DATA PROVIDED TO LICENSED USERS.
18.4. Neither party shall be liable for any delay or failure to perform its
obligations and Services hereunder for causes that are beyond its
reasonable control except for the payment of monies. For illustration
purposes, and without limiting the generality thereof, such causes shall
include, but are not limited to, acts of nature, floods, fires, loss of
electricity or other utilities, lack of Ingram support necessary for the
timely provision of Services, or delays by Ingram in providing ANY
required information, personnel, or performing any other obligation
hereunder.
19. SOFTWARE ESCROW
19.1. Source Code Escrow. pcOrder agrees to deposit with Data Securities
-------------------
International, Inc. ("DSI"), into an escrow deposit account established
and paid for by Ingram, a copy of the source code for the Software
identified in Attachment A to the Subscription and Services Agreement
("Software Source Code") and pursuant to the terms of the incorporated
Attachment I, Technology Escrow Agreement between DSI, pcOrder, and
Ingram. Within a reasonable time after the Effective Date, pcOrder shall
deposit with DSI such Software Source Code. Thereafter, pcOrder shall
keep within a reasonable amount of time the Software Source Code current
with any updates, enhancements, and new releases licensed hereunder.
19.2. Escrow License. Upon release of the Software Source Code by DSI to
---------------
Ingram pursuant to Attachment I hereto, pcOrder hereby grants to Ingram
a nonexclusive , nontransferable, nonassignable right and license to use
the Software Source Code solely for the purposes of Maintenance and
Support of the Software. Such license shall terminate in accordance with
Section 15. Ingram agrees that the provisions of Section 15.5 shall also
apply to released Software Source Code.
19.3. Conditions of Escrow Use. Software Source Code released to Ingram
-------------------------
pursuant to Attachment I hereto shall be deemed Confidential Information
of pcOrder subject to the requirements of Sections 14.1 and 14.5 and
shall not be disclosed unless Ingram can document that the Software
Source Code meets conditions (i) through (v). Without limiting the
generality of such requirements, Ingram shall maintain such released
Software Source Code at an Ingram site:
19.3.1. Ingram shall designate a manager who shall have responsibility
for preserving the security of the Software Source Code at all
times;
19.3.2. Ingram shall (i) maintain such Software Source Code (including
any media containing such Software Source Code) in a room or
locker to which access may be obtained only through a key or
computerized card-access security device, and (ii) if such
Software Source Code is in machine-readable form on any computer
equipment, Ingram will limit access to such Software Source Code
through a password-based computer control facility;
19.3.3. no person other than such manager and other personnel
specifically designated by such manager (solely on a "need to
know" basis) may have access to such Software Source Code;
19.3.4. no individual shall have such access unless he or she (i) has
been made aware of and acknowledges, in writing, the
confidential and proprietary nature of such Software Source
Code; (ii) has been trained with respect to the procedures
designed to preserve its confidentiality, and (iii) is subject
to a binding and enforceable obligation neither to use such
12
<PAGE>
CONFIDENTIAL
------------
Software Source Code (other than for the purposes expressly
permitted by this Agreement) nor to disclose such Software
Source Code to any person other than Ingram personnel similarly
authorized to access such Software Source Code; and
19.3.5. the manager shall maintain a record of all persons who have
access to such Software Source Code and the location of all
Software Source Code (and shall make such records available to
pcOrder upon pcOrder's written request).
19.4. Failure to Comply with Escrow Provisions. Ingram's failure to comply
-----------------------------------------
with the conditions of escrow use set out in Sections 19.2 and 19.3 of
this Agreement shall constitute an event of default entitling pcOrder to
immediately terminate the Agreement for cause.
19.5. Term of Escrow. The escrow obligations of this Section 19 shall
---------------
terminate upon the termination or expiration of this Agreement. The
deposit renewal obligations only of this Section 19 shall terminate on
the termination or expiration of this Agreement.
19.6. Conditions of Release From Escrow. All Software Source Code deposited
-----------------------------------
by pcOrder shall be released to Ingram only if (i) pcOrder fails to carry
out maintenance or support obligations specified in Section 9 herein or
(ii) pcOrder fails to continue to do business in the ordinary course.
19.7. A mutually acceptable Technology Escrow Agreement, executed by pcOrder,
Ingram, and DSI shall be attached hereto on or about September 15, 1998
and identified as Attachment I to the Subscription and Services
Agreement. The parties shall not unreasonably withhold such acceptance.
20. FOREIGN DATA MAINTENANCE SERVICES
20.1. The parties shall use best efforts to mutually agree by [*] upon an
amendment to Schedule 2 hereto to accommodate Data Maintenance Services
for Ingram's foreign catalog.
21. MISCELLANEOUS
21.1. This Agreement shall not be amended unless in writing signed by each
party. All changes to this Agreement shall be made by written amendment
and any alterations made on the Agreement document itself shall be of no
force or effect.
21.2. Neither party may assign this Agreement or any license created hereunder
by operation of law, change of control, or in any other manner without
the prior written consent of the other.
21.3. In the event an action is brought to enforce any provision or declare a
breach of this Agreement, the prevailing party shall be entitled to
recover, in addition to any other amounts awarded, reasonable legal and
other related costs and expenses, including reasonable attorneys' fees,
incurred thereby.
21.4. Each party acknowledges that the other party shall have the right to take
all reasonable steps to protect its Software, Confidential Information,
and Ingram Confidential Information, including, but not limited to,
injunctive relief and any other remedies as may be available at law or in
equity in the event the other party does not fulfill its obligations
under this Agreement.
21.5. Any notice required under the Agreement shall be given in writing and
shall be deemed effective upon delivery to the party to whom addressed.
All notices shall be sent to the applicable address specified on the face
page hereof or to such other address as the parties may designate in
writing.
21.6. If any term or provision of this Agreement is determined to be invalid or
unenforceable for any reason, it shall be reformed rather than voided, if
possible, to achieve the intent of the parties to the fullest extent
possible. In any event, all other terms and provisions shall be deemed
valid and enforceable to the maximum extent possible.
21.7. The failure of a party to enforce any provision of this Agreement shall
not constitute a waiver of such provision, remedy, or the right of such
party to enforce such provision or any other provision.
21.8. The parties are independent contractors and nothing in the Agreement
shall be deemed to make a party an agent, employee, partner, or joint
venturer of the other. Neither party shall have authority to bind,
commit, or otherwise obligate the other party in any manner whatsoever.
21.9. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all proposals and
prior discussions and writings between the parties with respect thereto.
21.10. pcOrder shall have the right to use third parties in performance of its
obligations and Services hereunder and, for purposes of the Agreement,
all references to pcOrder or its employees shall be deemed to include
such third parties.
21.11. This Agreement may be signed in one or more counterparts, each of which
is an original for all purposes but all of which taken together
constitute only a single instrument.
21.12. Ingram shall comply with all then-current export and import laws and
regulations of the United States and such other governments as are
applicable when using the Software. Ingram hereby certifies that it will
not export, re-export, transship, or transmit the Software, or any
portion thereof, or related information, media, or products in violation
of United States laws and regulations.
21.13. The parties agree to comply with all applicable laws, regulations, and
ordinances relating to their respective performance under this
Agreement.
21.14. The terms and conditions of any purchase order or other instrument
issued by a party in connection with this Agreement which are in
addition to or inconsistent with the terms and conditions of this
Agreement shall not be binding on the other party.
21.15. pcOrder reserves all rights not specifically granted herein.
21.16. During the term of this Agreement and for a period of one (1) year
thereafter, Ingram agrees not to solicit nor attempt to solicit the
services of any employee or contractor of pcOrder or former employee
within six (6) months of employment termination from pcOrder without the
prior written consent of pcOrder.
13
<PAGE>
CONFIDENTIAL
------------
21.17. Headings are for reference purposes only, have no substantive effect,
and shall not enter into the interpretation hereof.
21.18. In the event of a conflict between the terms and conditions of the
Subscription and Services Agreement and any Schedules and Attachments
thereto, the terms and conditions of the Schedules and Attachments shall
prevail in that order.
By signing below, each party acknowledges that it has read, understands,
and agrees to the terms of this Agreement:
pcOrder.com, Inc.: Ingram Micro Inc.:
/s/ Christina Jones 9/3/98 /s/ David M. Carlson 3/2/98
______________________________________ _____________________________________
By: Signature Date By: Signature Date
Christina Jones David M. Carlson
______________________________________ _____________________________________
Name Name
President Senior Vice President
______________________________________ _____________________________________
Title Title
14
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT A
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
LICENSED SOFTWARE and FUNCTIONAL AND DATA MODULES (bulleted)
Software
1. Customer Desktop(TM) software
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
2. Sales Desktop(TM) software
3. eStation [*]
4. Prime Access Web Storefront
5. pcOrder Server Software:
5.1. [*] Sales Desktop(TM) software [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
5.2. [*] eStation and Prime Access Web Storefront
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
. [*]
1
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT B
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
CUSTOMER DESKTOP(TM) software
END-USER LICENSE AGREEMENT
END-USER LICENSE AGREEMENT FOR SOFTWARE
IMPORTANT-READ CAREFULLY: This pcOrder(R) End-User License Agreement ("EULA") is
a legal agreement between you (either an individual or a single entity) and
pcOrder.com, Inc. ("pcOrder") for the pcOrder software product identified above,
which includes computer software and may include associated media, printed
materials, and "online" or electronic documentation ("Software"). By
installing, copying, or otherwise using the Software, you represent and warrant
that you have adequate legal capacity to enter into this binding agreement and
agree to be bound by the terms of this EULA. If you do not or can not agree to
the terms of this EULA, do not install or use the Software; you may however,
return it to your licensor for a full refund of any amounts paid.
The Software is protected by copyright laws and international copyright
treaties, as well as other intellectual property laws and treaties. The
Software is licensed, not sold.
1. GRANT OF LICENSE. This EULA grants you a nonexclusive, nontransferable,
perpetual license to use a single copy of the object code version of the
Software under the terms and conditions of this End User License Agreement.
You may use the Software for internal use in connection with your own
business requirements. This EULA also grants you the following rights:
Installation-The CD-ROM or floppy disk(s) on which the Software reside may
contain several copies of the Software, each of which is compatible with a
different microprocessor architecture (such as the x86 architecture or
various RISC architectures). You may install the Software for use with only
one of those architectures at any given time. You may install one copy of the
Software on a single computer acting as a server ("Server").
Use of the Software-You may use one copy of the Software on one Server, which
may be connected at any point in time to an unlimited number of workstations
or computers operating on one or more network. You may make one copy of the
Software solely for backup or archival purposes. You may not copy the printed
materials accompanying the Software.
Other-Transfer. You may transfer the Software to another computer, provided
that it is removed from the computer from which it is transferred.
Notice to Users. You shall inform all users of the Software of the terms and
conditions of this EULA.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS
Rental. You may not rent, lease, or lend the Software, but you may transfer
the Software and accompanying written materials on a permanent basis,
provided you retain no copies and the recipient agrees to the terms of this
EULA.
Version Limitation. The Software contains a certain version number (such as
version "3.5"). This EULA permits you to install one copy of the Software
with the same (or a lower) version number as the Software version number
listed above on a single Server (for example, if the version number listed
above is "3.5," you may install Software that contains a "3.5" or 2.0"
version number, but not a "3.6" version number).
Termination. Without prejudice to any other rights, pcOrder may terminate
this EULA if you fail to comply with the terms and conditions of this EULA.
In such event, you must destroy all copies of the Software and all of its
component parts.
Maintenance and Support Services. pcOrder may provide you with maintenance
and support services related to the Software ("Support Services"). [*]. The
Initial Support Period shall commence upon your registration of the Software
with pcOrder, or in the event you registered a trial version of the Software
prior to purchasing a license, upon your registration of the trial version.
Support Services are limited to the correction of errors to keep the Software
in conformance with the user documentation. Use of the Support Services is
governed by the pcOrder policies and programs described in the use manual,
"online" documentation, and/or other pcOrder-provided materials. Support
Services may be extended for the fees specified in the policies and program
materials. Any supplemental software code provided to you as part of the
Support Services shall be considered part of the Software and subject to the
terms and conditions of this EULA. With respect to technical information you
provide to pcOrder as part of the Support Services, pcOrder may use such
information for its business purposes, including for product support and
development. pcOrder will not utilize such technical information in a form
that personally identifies you.
1
<PAGE>
CONFIDENTIAL
------------
3. UPGRADES. If the Software is labeled as an upgrade, you must be properly
licensed to use a product identified by pcOrder as being eligible for the
upgrade in order to use the Software. Software labeled as an upgrade
replaces and/or supplements the product that formed the basis for your
eligibility for the upgrade, and following the upgrade you may use the
resulting Software only in accordance with the terms of this EULA.
4. TITLE, CONFIDENTIALITY. You acknowledge that this is a license agreement and
not an agreement for sale. You further acknowledge that the title and
intellectual property rights in and to the Software (including any images,
"applets," photographs, animations, video, audio, music, and text
incorporated into the Software), accompanying printed materials, and any
copies you are permitted to make herein are owned by pcOrder or its
suppliers. You may not disclose, give or transfer the Software to any other
party.
5. IMPORT/EXPORT. You agree to comply with all then-current export and import
laws and regulations of the United States and such other governments as are
applicable when distributing and/or using the Software. You hereby certify
that you will not directly or indirectly export, re-export, transship, or
transmit the Software, or any portion thereof, or related information,
media, or products in violation of United States laws and regulations.
6. NOTE ON JAVA SUPPORT. THE SOFTWARE MAY CONTAIN SUPPORT FOR PROGRAMS WRITTEN
IN JAVA. JAVA TECHNOLOGY IS NOT FAULT TOLERANT AND IS NOT DESIGNED,
MANUFACTURED, OR INTENDED FOR USE OR RESALE AS ONLINE CONTROL EQUIPMENT IN
HAZARDOUS ENVIRONMENTS REQUIRING FAIL-SAFE PERFORMANCE, SUCH AS IN THE
OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR COMMUNICATION
SYSTEMS, AIR TRAFFIC CONTROL, DIRECT LIFE SUPPORT MACHINES, OR WEAPONS
SYSTEMS, IN WHICH THE FAILURE OF JAVA TECHNOLOGY COULD LEAD DIRECTLY TO
DEATH, PERSONAL INJURY, OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE.
7. LIMITED WARRANTY
LIMITED WARRANTY. pcOrder warrants that (a) the Software will perform
substantially in accordance with the accompanying written materials for a
period of [*] from the date of receipt, and (b) any Support Services
provided by pcOrder shall be substantially as described in applicable
written materials provided to you by pcOrder, and pcOrder support engineers
will make commercially reasonable efforts to solve any problem. To the
extent allowed by applicable law, implied warranties on the Software, if
any, are limited to [*]. Some states/jurisdictions do not allow limitations
on duration of an implied warranty, so the above limitation may not apply to
you.
CUSTOMER REMEDIES. pcOrder's and its suppliers' entire liability and your
exclusive remedy shall be, at pcOrder's option, either (a) return of the
price paid, if any, or (b) repair or replacement of the Software that does
not meet pcOrder's Limited Warranty and this is returned to pcOrder with a
copy of your receipt. This Limited Warranty is void if failure of the
Software has resulted from accident, abuse, or misapplication. Any
replacement of the Software will be warranted for the remainder of the
original warranty period or thirty (30) days, whichever is longer. Outside
the United States, neither these remedies nor any product support services
offered by pcOrder are available without proof of purchase from an
authorized international source.
NO OTHER WARRANTIES. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
PCORDER AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES AND CONDITIONS,
WITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-
INFRINGEMENT, WITH REGARD TO THE SOFTWARE PRODUCT, AND THE PROVISION OF OR
FAILURE TO PROVIDE SUPPORT SERVICES. THIS LIMITED WARRANTY GIVES YOU
SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHERS, WHICH VARY FROM
STATE/JURISDICTION TO STATE/JURISDICTION.
8. LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL PCORDER
OR ITS SUPPLIERS BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, 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 THE USE OF OR
INABILITY TO USE THE SOFTWARE OR THE FAILURE TO PROVIDE SUPPORT SERVICES,
EVEN IF PCORDER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY. IN NO EVENT
SHALL PCORDER BE LIABLE ON ANY THEORY OF LIABILITY, WHETHER IN AN EQUITABLE,
LEGAL, OR COMMON LAW ACTION ARISING HEREUNDER FOR CONTRACT, STRICT
LIABILITY, INDEMNITY, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, FOR DAMAGES
WHICH, IN THE AGGREGATE, EXCEED THE GREATER OF THE AMOUNT OF THE LICENSE
FEES PAID BY YOU FOR THE SOFTWARE WHICH GAVE RISE TO SUCH DAMAGES; PROVIDED,
HOWEVER, IF YOU HAVE ENTERED INTO A PCORDER SUPPORT SERVICES AGREEMENT,
PCORDER'S ENTIRE LIABILITY REGARDING SUPPORT SERVICES SHALL BE GOVERNED BY
THE TERMS OF THAT AGREEMENT.
2
<PAGE>
CONFIDENTIAL
------------
BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION
OF LIABILITY, THE ABOVE LIMITATION MAY NOT APPLY TO YOU.
9. U.S. GOVERNMENT RESTRICTED RIGHTS
Any use, duplication, or disclosure by or to the U.S. Government is subject
to Restricted Rights pursuant to subparagraph (c)(I)(ii) of the Rights in
Technical Data and Computer Software clause at 52.227-7013 of the Federal
acquisition Regulations or similar regulations as applicable. Manufacturer
is pcOrder.com, Inc. 5000 Plaza on the Lake, Austin Texas 78746.
10. MISCELLANEOUS:
With respect to non-technical information you transmit to pcOrder through
your use of this product, pcOrder may use such information for its internal
business purposes. pcOrder will not utilize such information in a form that
personally identifies you.
If you acquired this product in the United States, this EULA is governed by
the laws of the State of Texas.
If this product was acquired outside the United States, then local law may
apply.
The United Nations Convention on the International Sale of Goods shall not
apply to any transactions under this Agreement.
This EULA constitutes the entire agreement between the parties regarding the
Software and supercedes all proposals and prior discussions and writings
between the parties with respect thereto. Should you have any questions
concerning this EULA, or if you desire to contact pcOrder for any reason,
please contact the pcOrder subsidiary serving your country, or write:
pcOrder.com, Inc., Attn: Contract Administration, 6034 W. Courtyard Drive,
Austin, Texas 78730.
pcOrder is a registered trademark of pcOrder.com, Inc. Customer Desktop(TM)
is a trademark of pcOrder.com, Inc.
3
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT C
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
DIGITIZED ACCESS AGREEMENT
PLEASE CAREFULLY READ THE TERMS AND CONDITIONS OF THIS AGREEMENT BEFORE
ACCESSING THE SYSTEM. BY ACCESSING THE SYSTEM, YOU AGREE TO BE BOUND BY THE
TERMS OF THIS AGREEMENT. IF THIS AGREEMENT IS NOT ACCEPTABLE TO YOU, DO NOT
ACCESS THE SYSTEM. YOUR USE OF THE SYSTEM IS SUBJECT TO AND CONTINGENT ON YOUR
ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AGREEMENT.
ACCESS AGREEMENT
THIS AGREEMENT (the "Agreement") is hereby entered into between _______,
("Host") and the person executing this Agreement ("You"). The following terms
and conditions apply to your use of this Internet system (the "System")
1. Agreement. This Agreement governs (a) Your relationship with Host, whose PC
hardware and system data information that currently reside on the System
(the "Data") represent a Third Party Provider's(s') products (the
"Products") and (b) Your use of the System, as described more fully in
Section 2 "OnLine Services". The terms and conditions of this Agreement may
be changed by Host upon publication of a notice in the OnLine Services and
any such change will be effective upon publication. If You use the OnLine
Services after the effective date of any such change you will be deemed to
have accepted that change. If You do not agree with a proposed change, You
may terminate this Agreement as specified in Section 11 "Term &
Termination".
2. OnLine Services. The Host and the Third Party Provider (s) (collectively
"Online Service Providers"), on this Internet site, provide a proprietary
System consisting of the enabled features provided herein (the "OnLine
Services"). Online Service Providers may, in their sole discretion change,
add or discontinue features and access privileges available through the
OnLine Services at any time.
3. Ordering Products. Host is not a party to transactions between You and the
Third Party Provider(s), and You agree to look solely to the Third Party
Provider(s) for all claims regarding the Products.
Depending on the functionality provided herein, You may have the option to
purchase Products over the OnLine Services using a credit card and by sending
that information over the Internet to Host. The OnLine Services use the "Secure
Sockets Layer," which is intended to encrypt your communication to protect the
information from access by unauthorized third parties. Neither Host nor any
Online Service Provider, however, can guarantee that the Secure Sockets Layer
will operate as intended or that a third party will not be able to access such
information. If you have any concerns about sending such information over the
Internet, you should use an alternative means of payment. You agree that the
Online Service Providers shall not have any liability for any failure by the
encryption technology to protect your information.
The OnLine Services may contain links to other sites on the Internet which are
owned and operated by Product manufacturers and other third parties (the
"External Sites"). You acknowledge that Online Service Providers are not
responsible for the availability of, or the content located on or through, any
External Site. You should contact the site administrator or Webmaster for those
External Sites if you have any concerns regarding such links or the content
located on such External Sites.
4. Access to OnLine Services. This World Wide Web address may be changed from
time to time. You are responsible, at Your own expense, to obtain, install,
configure and maintain equipment to access and use the OnLine Services. You
assume all risk for ensuring the ongoing compatibility of remote access
equipment with the OnLine Services.
5. Use of OnLine Services. If You have been provided with a User ID and
password, then You are responsible for safeguarding and protecting your User
ID and password from disclosure or use by others. You will promptly change
Your password and notify Host if You have reason to believe Your account is
being accessed or used by others. YOU ARE STRICTLY LIABLE FOR ALL ACTIVITY
USING YOUR USER ID AND ACCOUNT.
You may use the System solely for accessing the Data that is made available in
the System and, if applicable, ordering Products from the Third Party
Provider(s). The information obtained from the System may be used solely in
support of Your internal business or personal activities. In conjunction with
Your use of the System, You may download, store, load and execute any JAVA
applets or other Ingram-side routines (collectively, the "JAVA Applets") made
available by Online Service Providers for such purpose.
You may not use the System or the JAVA Applets except as authorized under this
Agreement. You may not:
i. publicly display, copy, download, store, reproduce, transmit,
distribute, resell or otherwise exploit any part of the OnLine
Services, or JAVA Applets or data or information derived from the
OnLine Services, in any format or through any technology or media
now existing or hereafter developed; or
ii. reverse engineer, disassemble, decompile, or otherwise apply any
procedure or process to the JAVA Applets in order to ascertain,
derive, and/or appropriate for any reason or purpose, the source
code or source listings for the JAVA Applets or any trade secret
information contained in the JAVA Applets; or
iii. disclose the JAVA Applets to any third parties; or
iv. assign, transfer, sublicense, rent, lease or loan any of Your
rights, nor delegate any of Your obligations under this Agreement,
and any attempt to the contrary shall be void and a material breach
of this Agreement.
1
<PAGE>
CONFIDENTIAL
------------
Your obligations hereunder shall survive termination of this Agreement.
6. Warranties. INFORMATION CONTAINED IN THE ONLINE SERVICES REPRESENTS DATA
COMPILED BY ONLINE SERVICE PROVIDERS FROM HARDWARE MANUFACTURERS,
DISTRIBUTORS AND OTHER THIRD PARTIES AND IS MADE AVAILABLE TO YOU ON AN "AS
IS" BASIS. ONLINE SERVICE PROVIDERS MAKE NO WARRANTIES OR REPRESENTATIONS
REGARDING THE INFORMATION. YOU AGREE THAT THE ONLINE SERVICES ARE PROVIDED
STRICTLY ON AN "AS IS" AND "AS AVAILABLE" BASIS WITHOUT ANY EXPRESS OR
IMPLIED WARRANTY, GUARANTEE OR OTHER ASSURANCE OF QUALITY, CONFORMITY WITH
SPECIFICATIONS, RELIABILITY OR FUNCTIONALITY. YOU ACCEPT ALL RISK CONCERNING
SUITABILITY, USE, ERRORS, DELAY, PERFORMANCE, OR NONPERFORMANCE OF THE
ONLINE SERVICES AND ALSO CONCERNING ANY LENDING SERVICES OR SECURITY
BREECHES. ONLINE SERVICE PROVIDERS MAKE NO WARRANTY, EXPRESS, STATUTORY, OR
IMPLIED, AND DISCLAIM ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, AND NONINFRINGEMENT.
7. Ordering and Acceptance. Any prices contained on the System have been
provided to Online Service Providers by third parties and to the best of
Online Service Provider's knowledge, the prices are accurate. If You submit
an order and it is determined that the prices on which the order was based
are in fact, inaccurate, Your Order will be rejected and You will have the
opportunity to submit a new order at the correct pricing.
8. Certain Proprietary Rights. The JAVA Applets provided hereunder may contain
trade secret and other proprietary information belonging to the Online
Service Providers. You agree that all right, title and interest (including
all copyrights and other intellectual property rights) in the JAVA Applets
and the OnLine Services belong exclusively to the Online Service Providers.
9. Force Majeure. Online Service Providers are excused from any failure or
delay in performance of responsibilities otherwise imposed by this Agreement
for any cause beyond its reasonable control.
10. Limitation of Remedies & Liabilities IN NO EVENT SHALL ONLINE SERVICE
PROVIDERS BE LIABLE, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE, FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST SAVINGS OR PROFIT, LOST DATA, BUSINESS INTERRUPTION OR ATTORNEYS FEES
EVEN IF NOTIFIED IN ADVANCE OF SUCH POSSIBILITY) INCURRED BY YOU OR ANY
THIRD PARTY. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE FOREGOING
LIMITATION MAY NOT APPLY TO YOU.
11. Term & Termination. This Agreement shall continue in full force and effect
each time and for as long as You use the System.
Notwithstanding the foregoing, (i) Host may suspend or terminate this
Agreement at any time without notice, and (ii) You may terminate this
Agreement at any time if You do not agree to any amendment published under
the Section entitled "Agreement". Termination of this Agreement will
terminate Your ability to access or use the OnLine Services.
12. Export Regulations. The transfer of technology across national boundaries is
regulated by the U.S. Government. You hereby certify that you are not a
national or resident of any country under current trade embargo by the
United States Government and agree not to export or re-export (including by
way of inbound or outbound electronic transmission) any data or technology
derived from the pcOrder System in violation of United States laws and
regulations. This provision and the certifications made herein shall survive
termination of this Agreement.
13. Miscellaneous. This Agreement is the entire Agreement between the parties
and shall be governed by and construed in accordance with the laws of the
State of Texas, without giving effect to any principles of conflicts of law,
and the United States, including U.S. Copyright Law. If any provision of
this Agreement shall be unlawful, void, or for any reason unenforceable,
then that provision shall be reformed, if possible, to the minimum extent
necessary to otherwise remain in full force and effect and shall not affect
the validity and enforceability of any remaining provisions. This Agreement
may only be amended as provided in Section 1 "Agreement". This document and
Your signature in electronic form, or a hardcopy duplicate in good form,
shall be considered an original document with authenticated signature
admissible into evidence unless the document's authenticity is genuinely
placed in question.
NOTICE
********************************************************************************
Your use of these OnLine Services is governed by and conditioned on your consent
to this Web Storefront Access Agreement. You agree that You have reviewed this
Agreement to your satisfaction. By entering your name below, you agree to be
bound by this Agreement, just as if you had signed it in pen and ink.
Enter Signature: _______________________________________________
2
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT D
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
ADDITIONAL AFFILIATES
The following legal entities shall be deemed Affiliates for purposes of this
Agreement:
1. [*].
1
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT E
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
BUSINESS PROCESSES
Pursuant to Section 12.2 herein, the parties shall use best efforts to mutually
agree upon business processes to implement the provisions herein including those
business processes by which Ingram shall:
1. [*];
2. [*].
3. obtain and distribute applicable Passwords and Logon IDs for licensed access
to the pcOrder Server Software;
4. [*];
5. [*];
6. obtain record information set forth in Section 4;
7. [*]:
7.1. [*];
7.2. [*];
7.3. [*]; and
7.4. [*].
8. [*]; and
9. [*].
1
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT F
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
PAYMENT SCHEDULE
Notwithstanding any provision to the contrary, Ingram shall pay the Minimum
Payment amounts listed in accordance with the payment schedule set forth in
Table 1-Payment. Shortfalls for one item shall not be credited by other items
exceeding such minimum amounts for the same period. In addition, amounts
exceeding the minimum amount for any item listed above shall be applied as a
credit for succeeding periods for that same item. If, at the end of any period
defined above, the fees due or paid for each item listed above does not meet or
exceed the minimum payment amount listed for the then-current period, Ingram
shall pay pcOrder the minimum amount listed above for such item during such
period within 30 days of the end of such period.
<TABLE>
<CAPTION>
<S> <C>
[*]
</TABLE>
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT G
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
IMPLEMENTATION SCHEDULE
Pursuant to Section 12.1, the parties agree to use best efforts to mutually
agree upon respective dates by which pcOrder and Ingram shall use commercially
reasonable efforts to deploy the following products:
PRODUCT DATE
------- ----
1. The first Prime Access Web Storefront activated under Section 3.1.3.
2. The first Customer Desktop(TM) software distributed under Section 3.2.
3. The initial capability to access eStation [*] under Section 3.3.
4. The first Sales Desktop(TM) software provided to Ingram for Use under
Section 3.4.
5. Providing pcOrder Interface Information under Section 3.5.
6. The initial capability to access pcOrder's Checker [*] under Section 3.6.
and
7. [*]
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT H
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
MAINTENANCE AND SUPPORT
In consideration of Ingram's payment to pcOrder of the applicable License Fees,
pcOrder shall provide the maintenance and support services listed in this
Attachment for the period commencing on the Effective Date and terminating upon
termination of the Agreement.
1. pcOrder shall provide Ingram with the following Maintenance and Support
Services [*]:
1.1. Use all commercially reasonable efforts to provide Ingram with
available solutions and corrections for reported problems, which are
replicated and diagnosed by pcOrder as Material Defects in the Software,
so that the Software materially conforms with the functionality in
Attachment A and any applicable User Documentation. [*];
1.2. [*] Holidays currently observed by pcOrder, which may
change from time to time at the sole discretion of pcOrder, are New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the
day after Thanksgiving, Christmas Eve, and Christmas Day. [*]; and
1.3. [*]
2. To assist pcOrder in performance of its maintenance and support
obligations, Ingram shall provide pcOrder with the following:
2.1. [*]; and
2.2. [*]
3. pcOrder shall not be obligated to provide Maintenance and Support
Services for any software other than pcOrder's standard Software, which
is released, for the use of pcOrder's general client base. Unless
expressly and mutually agreed, pcOrder will not maintain and support any
software, which has been customized or modified by any third party other
than by or with the express, written approval of pcOrder.
1
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT I
TO THE SUBSCRIPTION AND SERVICES AGREEMENT
TECHNOLOGY ESCROW AGREEMENT
1
<PAGE>
CONFIDENTIAL
SCHEDULE 1
PROFESSIONAL CONSULTING SERVICES SCHEDULE
TO SUBSCRIPTION AND SERVICES AGREEMENT
between
pcOrder.com, Inc.
a Delaware Corporation
5000 Plaza on the Lake, Suite 100
Austin, TX 78746
"pcOrder"
and
Ingram Micro Inc.
a Delaware Corporation
1600 St. Andrew Place
Santa Ana, CA 92705
"Ingram"
_______________
This Professional Consulting Services Schedule amends Subscription and Services
Agreement between the parties, having an Effective Date of September 1, 1998.
1. Software Consulting Services:
1.1. [*]
1.1.1. pcOrder and Ingram shall mutually cooperate with Ingram to
integrate the pcOrder System into Ingram's [*]
1.1.2. Ingram hereby grants pcOrder a nonexclusive, world-wide, royalty
free, fully paid-up right and license to:
1.1.2.1. access and use Ingram's Impulse System [*]
1.1.2.2. access and use Ingram's [*] System; and
1.1.2.3. sublicense the rights and licenses granted in Sections
1.1.2.1 and 1.1.2.2 to [*] customers.
1.1.3. Ingram represents that they have the right to allow the pcOrder
System to integrate to, access, and use [*]
1.2. Any additional Consulting Services shall be outlined in a mutually
agreed upon and jointly executed Assignment Order.
2. Fees:
2.1. The fee for any additional Consulting Services not set forth in this
Professional Consulting Services Schedule or the Subscription and
Services Agreement shall be calculated on a time and materials basis at
the hourly rates set forth in Section 3 of this Schedule.
2.2. Ingram agrees to pay the below-specified fees for additional Consulting
Services, which are priced on a time and materials basis, and, in
accordance with Ingram's standard expense policies, Ingram agrees to pay
all reasonably incurred out-of-pocket expenses for Consulting Services.
2.3. Termination of the Subscription and Services Agreement shall not, under
any circumstances, relieve Ingram from the obligation to pay for all
additional Consulting Services provided under this Schedule on a time
and materials basis, prior to such termination.
3. Pricing for Consulting Services:
pcOrder shall make Consulting Services available to Ingram, during the term
of the Agreement, at the following rates:
3.1. Section 1.1 [*]
Consulting Services: [*]/hr with a [*] cap.
3.2. Other Technical Consulting Services: [*]/hr.
3.3. Deployment Consulting Services [*]/hr.
4. Indemnity
4.1. pcOrder shall indemnify, defend and hold harmless Ingram, its officers,
directors, employees, associates, subcontractors, agents and
representatives, from and against any and all claims, causes of action,
losses, liability, damages (including any punitive or exemplary damages)
and all incidental costs and expenses thereto (including without
limitation counsel fees and legal expenses), which any or all of them may
incur, suffer or be required to pay resulting from or arising out of or
relating to a pcOrder consultant's services on
1
<PAGE>
Ingram's site that result in any loss, damage or destruction of
tangible property and/or illness, injury (including but not limited
to sexual harassment, defamation, and intentional tort claims) or
death to any person.
5. Insurance
5.1. pcOrder shall maintain through the term of this Agreement:
5.1.1. Worker's compensation as required by applicable worker's
compensation laws.
5.1.2. Employer's liability insurance with a limit of not less than
$[*] for each accident and $[*] per employee for
bodily injury by illness, with an illness policy aggregate of
$[*].
5.1.3. Commercial general liability insurance covering all operations
of pcOrder. Coverage shall include products/completed
operations, plus broad form endorsement (including independent
contractors, broad form contractual, broad form property damage,
personal injury, etc.) with a combined single limit of not less
than $[*] per occurrence/ $[*] general aggregate
applying per Consulting Services outlined in each respective
Assignment Order.
5.1.4. Business Automobile insurance to cover liability arising out of
the use or ownership of licensed motor vehicles (whether owned,
rented or borrowed) with a limit of liability of $[*]
combined single limit.
By signing below, each party acknowledges that it has read, understands,
and agrees to the terms of this Professional Consulting Services Schedule.
pcOrder.com, Inc.: Ingram Micro Inc.:
/s/ Christina Jones 9/3/98 /s/ David M. Carlson 3/2/98
_________________________________ ________________________________
By: Signature Date By: Signature Date
Christina Jones David M. Carlson
_________________________________ ________________________________
Name Name
President Senior Vice President
_________________________________ ________________________________
Title Title
2
<PAGE>
CONFIDENTIAL
------------
SCHEDULE 2
DATA AND MODEL MAINTENANCE SERVICES SCHEDULE
TO SUBSCRIPTION AND SERVICES AGREEMENT
between
pcOrder.com, Inc.
5000 Plaza on the Lake, Suite 100
Austin, TX 78746
"pcOrder"
and
Ingram Micro Inc.
a Delaware Corporation
1600 St. Andrew Place
Santa Ana, CA 92705
"Ingram"
_______________
This Data and Model Maintenance Services Schedule amends the Subscription and
Services Agreement having an Effective date of September 1, 1998. For purposes
of the Subscription and Services Agreement and this Schedule, "Data and Model
Maintenance Services" are defined as: (i) data compilation services to provide
Ingram with information and data regarding Ingram Products; (ii) services
required to maintain Ingram Product pricing and availability information; (iii)
services required to change attributes of the Ingram Products; and (iv) the
activities specified herein.
1. DEFINITIONS
1.1. A "SKU" represents a computer component or peripheral product for which
pcOrder provides Data Maintenance. For purposes of this Agreement, "SKU"
shall mean a part number representing a specific Ingram Product.
1.2. A "Data Sheet SKU" is a SKU which requires population of Extended
Attributes so as to enable Data Sheet generation for that SKU.
1.3. A "Configurable SKU" is a SKU which requires population of Configuration
Attributes so as to enable Configuration for that SKU. By definition,
Configurable SKUs are those SKUs that correspond to one of the
configurable product types listed in Attachment A to this Schedule and
made a part hereof.
1.4. A "Complex SKU" is a SKU which is either a Configurable SKU, a Datasheet
SKU, or both.
1.5. "Class" is a grouping of products by type, as used by pcOrder in the
pcOrder system. Class examples are: Desktops, Printers, Scanners, and
Modems.
1.6. "Category" is a grouping of products within a Class, as used by pcOrder
in the pcOrder system. Category examples for the Class "Printers"
include, for example: B&W Laser, Color Laser, Dot Matrix, and Ink Jet.
1.7. "Class/Categorization" is the process of assigning the relevant pcOrder
Class and Category definitions to a specific SKU. Class/Categorization
precedes Mapping and Population for any SKU.
1.8. "Population" is the process of assigning all technical specifications,
marketing information, and other product attributes to a SKU, in order
to enable the Data Sheet generation. SKU Population is necessarily
preceded by Class/Categorization of that SKU.
1.9. "Configuration" is the process of assigning all technical specifications
in order to enable Configuration via the Configuration Model. SKU
Configuration is necessarily preceded by Class/Categorization of that
SKU.
1.10. "Processing" is the act of adding data to a received SKU, either through
Class/Categorization, Population, or Configuration of that SKU, or by any
combination thereof.
1.11. "Priority SKUs" are a subset of Vendor specific Ingram Catalog Data SKUs
which receive priority during the Class/Categorization and Mapping
process.
1.12. "Configuration Model" is the pcOrder industry standard model of
Configurable SKUs which is required by the pcOrder configuration
software in order to configure computers.
1.13. "Mapping" is the process of taking a SKU and converting Ingram's
manufacturer code into the equivalent pcOrder manufacturer code. This
process requires an accurate map of Ingram's manufacter codes and their
respective pcOrder codes.
1
<PAGE>
CONFIDENTIAL
------------
2. INITIAL SETUP PERIOD
2.1. pcOrder will require an Initial Setup Period in which to analyze the
initial Ingram Catalog Data and perform initial Catalog maintenance.
2.2. Duration of setup period
2.2.1. The Initial Setup Period shall be estimated after the inspection
of Initial Ingram Catalog Data ("ICCD"). The estimate may be
made based on a partial or incomplete ICCD, but it should be
noted that the final determination of duration is dependent upon
the size and scope of the Final Version of the ICCD. Setup
Periods vary, but are generally 120 days in duration. The Setup
Period will begin on the Effective Date or the date of pcOrder's
receipt of the Final Version of the ICCD, whichever is later.
Once the Final Version of the ICCD has been received, final
determination of the Setup Period will be made, and Ingram will
be notified of any deviations from the estimated duration,
together with the rationale. Once the Setup Period has begun,
subsequent changes to the Initial Ingram Catalog will be
attended to upon completion of the Setup Period, as a part of
the maintenance agreement. Alternatively, if Ingram desires, the
changed Ingram Catalog can be redesignated as the Final Version
of the ICCD, the duration of the Setup Period will be
reestimated/validated, and the Setup Period will be restarted
with the new ICCD.
2.3. Mutual Responsibilities
2.3.1. Ingram and pcOrder shall mutually generate the list of all
Ingram manufacturer codes and their equivalent pcOrder
manufactuer codes, so as to facilitate SKU mapping. Any
subsequent additions, deletions, or changes to Ingram's
manufacturer code list must be promptly brought to the attention
of pcOrder [*]
2.3.2. Ingram and pcOrder shall mutually determine [*]
2.3.3. Ingram and pcOrder shall mutually identify [*]
2.4. Maximum number of SKUs Mapped during setup period
2.4.1. During the Initial Setup Period, pcOrder will Map [*] percent of
Ingram Catalog Data SKUs.
2.5. Maximum number of SKUs Class/Categorized during setup period
2.5.1. During the Initial Setup Period, pcOrder will Class/Categorize [*]
percent of Ingram Catalog Data SKUs.
2.6. Maximum number of SKUs Populated during setup period
2.6.1. During the Initial Setup Period, pcOrder will Populate [*]
percent of SKUs for which TechNotes are available on the
Effective Date and [*] percent of SKUs for which pcOrder Data
Sheets are available on the Effective Date which represents a
total of [*] SKUs.
2.7. Maximum number of SKUs Configured during setup period
2.7.1. During the Initial Setup Period, pcOrder will Configure a maximum
of [*] percent of Ingram Catalog Data configurable SKUs.
3. MAINTENANCE OF SKUS
3.1. Class Categorization of Ingram Catalog Data SKUs
3.1.1. After the Initial Setup Period, pcOrder will Class/Categorize up
to [*] SKUs per month. SKUs Class/Categorized in excess of
[*] shall be charged an additional fee of [*] per SKU.
3.1.2. SKUs will be Class/Categorized within [*] (U.S.) business days
from the day of receipt.
3.2. Ingram Catalog Data SKU Population/SKU Configuration
3.2.1. pcOrder will Populate/Configure [*] applicable
Datasheet/Configurable SKUs (Complex SKUs) according to the
following schedule:
3.2.2. pcOrder will accept [*] new Complex SKUs for processing per
business day (to a maximum of [*] new SKUs in a single month).
An "effective date of receipt" (EDR) will be calculated as if
SKUs were delivered in such a way as to not exceed these limits.
For example, if [*] Complex SKUs are received in one day, the
first [*] will have an EDR of the day of actual receipt, the
next [*] will have an EDR of the following business day, etc.
The same scheme will be used to enforce the monthly limits no
more than [*] Complex SKUs will have an EDR within the same
calendar month.
3.2.3. Priority Datasheet SKUs will be Populated with datasheet
information within [*] (U.S.) business days of EDR, while
Non-Priority SKUs will be Populated with datasheet information
within [*] (U.S.) business days of EDR.
3.2.4. Priority Configurable SKUs will be Configured within [*]
(U.S.) business days of EDR, while Non-Priority Configurable
SKUs will be Configured within [*] (U.S.) business days
of EDR.
3.3. pcOrder shall have [*] months from the Effective Date to achieve the
service levels specified in Section 3.2.
3.4. pcOrder shall notify Ingram if the number of Ingram Catalog Data SKUs
received by pcOrder in any one month after the Initial Setup Period
exceeds [*]
4. INGRAM OBLIGATIONS
2
<PAGE>
CONFIDENTIAL
------------
4.1. Ingram acknowledges that pcOrder's ability to provide the Data and Model
Maintenance Services is dependent on Ingram's timely supplying the
following:
4.1.1. Ingram shall also provide pcOrder with test cases, Ingram
Catalog Data and such other information and resources that
pcOrder shall reasonably require to enable it to perform the
Data and Model Maintenance Services. [*] The parties shall amend
Attachment B to specify a mutually agreed upon a test case
process.
4.1.2. Ingram further acknowledges that it is responsible for providing
Ingram Catalog Data which is complete, accurate, and current,
and pcOrder shall not be responsible for any defects or damages
which arise from a delay in obtaining such resources and
information or from the use of defective information provided by
Ingram.
4.1.3. [*]
4.2. [*]
5. FEES
5.1. Fees will be charged as specified in the Subscription and Services
Agreement between the parties.
6. OTHER
6.1. Termination of the Subscription and Services Agreement or this Schedule,
for any reason, will not relieve Ingram from the obligation to pay for
all Data and Model Maintenance Services provided prior to termination of
this Schedule.
6.2. By signing below, each party acknowledges that it has read, understands,
and agrees to the terms of this Data and Model Maintenance Services
Schedule.
pcOrder.com, Inc.: Ingram Micro Inc.:
By: /s/ Christina Jones 9/3/98 By: /s/ David M. Carlson 3/2/98
__________________________________ ______________________________
Signature Date Signature Date
Christina Jones David M. Carlson
__________________________________ ______________________________
Name Name
President Senior Vice President
__________________________________ ______________________________
Title Title
3
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT A TO SCHEDULE 2
PCORDER CONFIGURABLE PRODUCT TYPES
AS OF MAY 15, 1998
The pcOrder System provides configuration information on a large variety of
complex computer equipment. This document outlines those specific types of
devices for which the pcorder system provides configuration information.
Inclusion of a product type does not indicate or guarantee the format of or the
specific instances in which such configuration information is made available to
users through the pcOrder System.
This document may be updated from time to time to reflect changes in computer
technology and the abilities and functionality of the pcOrder System. Such
changes may include the addition and deletion of product types, however
deletions will be made only to reflect the obsolescence of particular products
or product types.
CPU Model Products
- ------------------
A configurable CPU Model product is a single cabinet device containing the
Central Processing Unit (CPU), system memory, and storage devices which meets
one of the following two criteria:
. Desktop, tower, mini-tower, notebook, or server systems containing up to four
CPUs based upon fifth generation or later Intel x86 architecture operating at
a CPU clock speed of at least 90 MHz including processors manufactured by
companies other than Intel that include the full x86 instruction set and are
software and socket compatible with products designed for Intel x86
processors.
. Desktop, tower, mini-tower, notebook, or server systems containing up to four
CPUs based upon the Motorola PowerPC 603e, 604, or later architecture
operating at a CPU clock speed of at least 90 MHz.
Configurable CPU Model products may included such additional components as
keyboards, pointing devices, operating system software, and expansion devices
such as cards, provided such devices do not require a separate cabinet external
to the CPU Model cabinet (with the exception of Multi-Device External Storage
Models as defined below), and external as well as integrated displays.
Specific Exclusions
. CPU Models which are not single cabinet devices, unless the sole
functionality of an additional, external, cabinet is to provide additional
hard disk drive storage capacity (Multi-Device External Storage Models).
. CPU Models which meet the criteria for a high-end system.
. CPU Models which are based on processor architectures previous to those
outlined above, including but not limited to Intel 8088, 8086, 80286, 80386,
80486, and Motorola 68xxx and PowerPC 601 as well as processors which do not
specifically fall into one of the two categories defined above.
. CPU Models which are based on configurable product architectures, may be
marketed as "Enterprise Servers" and are designed to function in capacities
similar to Mainframe or mini-computer systems.
. CPU Models which cannot utilize a configurable operation system (including
palmtops)
Storage Device Products
- -----------------------
Configurable storage device products are internal or external, single device
products with fixed or removable media of one of the following types, which
connect to a configurable CPU Model:
. CD-ROM (compact disc)
. Hard Disk Drive (fixed magnetic platter, mounted as a permanent device or a
removable cartridge)
. DVD (digital versatile disk)
. Magneto optical disk drive (fixed or removable)
. 8mm 4mm (DAT), 1/4 in., or DLT tape drives
. Flexible magnetic disk media devices
Storage devices must connect to the CPU Model using a SCSI, IDE/EIDE (ATA, Fast
ATA, ATAPI), parallel or serial interface.
Specific Exclusions
. Products which are not single device (except as otherwise specified herein)
. Auto-loading tape drives
1
<PAGE>
CONFIDENTIAL
------------
. Multi-disc CD-ROM changers
. Media
. Reel to reel tape drives
Multi-Device External Storage Models
- ------------------------------------
A configurable multi-device external storage model is a single cabinet device
containing only hard disk drive (fixed magnetic platter) devices which connects
directly to a configurable CPU Model through a SCSI interface, provides no
additional functionality other than increasing the storage capacity of the CPU
Model, and is manufactured by the CPU Model Vendor for specific use with that
CPU Model as a hard disk drive expansion cabinet.
Monitor And Display Products
- ----------------------------
Configurable monitor and display products are designed to attach to a single
configurable CPU Model, provide only functionality as a display (visual output)
and fall into one of the following categories:
. Monochrome or color cathode ray tube (CRT) monitor with a nominal display (or
actual picture tube) size between 13 inches and 36 inches, inclusive.
. Liquid Crystal Display (LCD) which functions similarly to CRT displays.
. LCD panels designed to be placed on an overhead projector.
Specific Exceptions
. LCD projectors
. Any Display which provides functionality as an input device, including all
terminals.
Expansion Card Products
- -----------------------
A configurable expansion card product is a device designed to attach to the
system bus inside a configurable CPU MODEL and fall into one of the following
categories:
. Storage device controller (SCSI, EIDE, Floppy)
. Input/Output capability (parallel, serial, universal serial bus, SCSI)
. Sound Cards, including those with integrated controllers
. Display Adapters
. Ethernet, Token Ring, and FDDI (Fiber Distributed Data Interface) Network
Interface Cards
. Memory Expansion Cards
. Processor Cards
. Slot converter Cards
. All PCMCIA Cards
. Provides functionality as an Intel x86 based computer in an Apple Macintosh
(Apple PC compatibility card)
Modem Products
- --------------
A configurable modem product is an external device or expansion card device
which connects to a single configurable CPU Model and provides digital to analog
to digital data transfer and/or facsimile emulation over POTS (plain old
telephone service) lines.
Specific Exceptions
. Modems which do not connect to POTS lines
. Network Modems
. Modem pools and modem servers
Memory Products
- ---------------
Memory products which are placed inside the CPU Model cabinet and attach to
configurable CPU Models or configurable Expansion Cards or are placed inside a
configurable Printer are configurable if they are one of the following types:
. Main system memory
2
<PAGE>
CONFIDENTIAL
------------
. Level 2 system cache memory
. Display adapter memory
. Printer Memory
Specific Exceptions
. Level 1 and Level 3 system cache
. Controller Cache
. Non-standard Interleave
. Read Only Access memory (ROM) products
Input Device Products
- ---------------------
Configurable Input devices provide text (keyboard) or cursor manipulation
(pointing device) input and connect to a configurable CPU Model. Configurable
input devices include those which combine a keyboard and a pointing devices.
Specific Exceptions
. Tablet and other pen based pointing devices, including all pointing devices
which operate by contact with the display.
. Specialty and non-industry standard types of pointing devices including
adaptive devices for the mobility impaired.
. Numeric keypads
. Joysticks and gamepads
Software Products
- -----------------
Configurable software products are operating systems which can be utilized on a
configurable CPU Model and are of one of the following types:
. MS-DOS/PC-DOS 6.0 and later
. Microsoft Windows 3.x
. Microsoft Windows NT 3.5 and later
. Microsoft Windows 95 and later
. Macintosh OS System 7.0 and later
. IBM OS/2 4.0 and later
. Novell Netware 3.x and later
. Commercial UNIX implementations which are capable of operating on a
configurable CPU Model
Specific Exceptions
. Non operating system software
. Software which provides additional functionality to configurable software
products, but is not sold with the base product
. Freeware or shareware operating systems including Linux
Printer Products
- ----------------
A printer is a configurable product if it is one of the following types:
. Black & White or Color Laser
. Black & White or Color Ink Jet
Specific Exceptions
. Line printers, serial printers, dot matrix printers, thermal printers,
photograph printers, and plotters
. Multi-function devices which combine the functionality of a printer with that
of another configurable device such as a modem or scanner.
Printer Accessory Products
- --------------------------
Configurable printer accessories must connect to or be used with a configurable
printer and be one of the following types of devices:
3
<PAGE>
CONFIDENTIAL
------------
. Printer Memory
. Paper Handling Device (duplexer or paper input bin)
. Font Cartridge
. Toner or Ink cartridge
. Print Head
. Printer network connectivity devices which connect internal to the printer
Specific Exceptions
. Paper and other media
. Pens and pen carrousels
. Sheet Feeders
. Printer network connectivity devices external to the printer cabinet
Scanner Products
- ----------------
Sheetfed, hand-held, and flatbed color and grayscale scanners which connect
directly to a configurable CPU Model are configurable.
Specific Exceptions
. Scanners which connect to a network
. Photographic slide scanners or other specialty application scanners
. Bar code scanners
Cable products
- --------------
Cables which connect a configurable external device other than a printer to a
configurable CPU Model are configurable.
Specific Exceptions
. Internal cables
. Network cables
. Printer Cables
. Power Cables
. Cables which connect an input device to an CPU Model
Power Products
- --------------
The only configurable power products are:
. Batteries for configurable notebook computers
. Secondary or add-on internal power supplies for cabinets of configurable CPU
Models
Laptop Expansion Base Products
- ------------------------------
Docking stations and port replicators for configurable notebook computers are
configurable.
Other Exceptions
- ----------------
General Exceptions
. Any device other than system memory or system level 2 cache which requires
the replacement or substitution of a component already present in a
configurable product in order to function.
. Any component that does not work with a configurable product
. Devices which combine the functionality of multiple product types unless
otherwise included in this document
. Any other component which is not specifically included in this document as a
configurable product.
Specific Exceptions
4
<PAGE>
CONFIDENTIAL
------------
. Service, warranty, and support
. Media (including paper, magnetic, recordable, or any other media)
. Documentation
. Battery Chargers
. Carrying cases
. Network hardware which does not fall into a specifically configurable product
type, including hubs, routers, switches, bridges, print servers, modem
servers, CD-ROM servers, CSU/DSUs and repeaters
. Video equipment including cameras
. Microphones, speakers, headphones
. Upgrade processor boards and motherboards
. Teleconferencing equipment and telephone equipment
. Scanner Accessories
. AC Adapters
. Net PCs
. Demo Products
. Discontinued Products
. Refurbished Products
5
<PAGE>
CONFIDENTIAL
------------
SCHEDULE 3
APPLICATION HOSTING SERVICES SCHEDULE
TO SUBSCRIPTION AND SERVICES AGREEMENT
between
pcOrder.com, Inc.
a Delaware Corporation
5000 Plaza on the Lake, Suite 100
Austin, TX 78746
"pcOrder"
and
Ingram Micro Inc.
a Delaware Corporation
1600 St. Andrew Place
Santa Ana, CA 92705
"Ingram"
_______________
This Application Hosting Services Schedule ("Application Hosting Schedule")
amends Subscription and Services Agreement between the parties having an
Effective Date of September 1, 1998.
Application Hosting Services for the Server Software shall consist of the
following: (i) maintaining the hardware upon which the Server Software is
loaded; (ii) installing and maintaining the Server Software; and (iii)
administering the hardware and Server Software to facilitate reliable and
consistent access to the Server Software by licensed users.
1. FEES
[*]
2. HOSTING SERVICES LEVELS
2.1. pcOrder shall provide hosting service levels substantially in accordance
with a mutually agreed upon Hosting Service Level Agreement ("SLA") to be
attached hereto as Attachment A.
2.2. pcOrder may change the team members and contacts listed in Attachment A
from time to time. pcOrder shall notify Ingram of any such changes.
3. OTHER
3.1. Ingram shall provide pcOrder with the necessary dedicated communications
mechanism(s) for providing the pcOrder Hosting Services in accordance with
Attachment A hereto.
3.2. Both parties acknowledge that during the term of this Application Hosting
Schedule, Ingram may, at its sole discretion, elect to transfer the
Hosting Site [*] to [*] provided: (i) Ingram gives pcOrder not less than
ninety (90) days prior written notice of its intent to transfer the
Hosting Site, (ii) Ingram certifies that Ingram has provided the Required
Hardware as set forth in Attachment B hereto at the new Hosting Site, and
(iii) the new Hosting Site is within the United States. Subject to
fulfillment of Ingram's obligations for transferring the Hosting Site and
within ninety (90) days of receipt of Ingram's written notice, pcOrder
shall deliver one (1) copy of the Server Software to [*] to be used in
accordance with the terms and conditions of the Agreement. [*] All such
administration of the Software will be performed at [*]. On-site support
for new site setup, software installation, upgrades, and routine
maintenance will be provided by pcOrder on a time and materials basis, at
a mutually agreed upon rate plus reasonable expenses. Data Maintenance
Services shall continue as provided in Schedule 2 and at the same fee as
described therein. pcOrder shall no longer be obligated to maintain the
data in the system; instead, pcOrder shall provide to a single [*]
location daily updates of the data to be entered and maintained by pcOrder
under the terms of the Data Maintenance provisions of the Agreement.
Additional costs for data updates to multiple Ingram locations are to be
determined.
3.3. [*], pcOrder grants to Ingram a nonexclusive, nontransferable, non-
assignable, worldwide right and license to:
3.3.1. reproduce and copy the delivered Server Software only as strictly
necessary to host the Server Software; and
3.3.2. to make one (1) copy of the Server Software for archival and
backup purposes.
1
<PAGE>
By signing below, each party acknowledges that it has read, understands,
and agrees to the terms of this Application Hosting Schedule.
<TABLE>
<CAPTION>
<S> <C>
pcOrder.com, Inc.: Ingram Micro Inc:
By: /s/ Christina Jones 9/3/98 By: /s/ David M. Carlson 3/2/98
__________________________________ ______________________________
Signature Date Signature Date
Christina Jones David M. Carlson
__________________________________ ______________________________
Name Name
President Senior Vice President
__________________________________ ______________________________
Title Title
</TABLE>
2
<PAGE>
CONFIDENTIAL
------------
Hosting Service Level Agreement (SLA)
This is a Hosting Service Level Agreement ("SLA Agreement") between pcOrder.com
(pcOrder) and the Ingram Micro, Inc. (Ingram) for the hosting, operation, and
maintenance of the Server Software licensed under the Agreement [*]. This SLA
Agreement will be reviewed annually, or when a major system change requires
modification to the SLA Agreement specifications.
This SLA Agreement is meant to cover normal processing and maintenance
conditions. The items listed in this SLA will be measured on an ongoing basis
and metrics reports will be generated periodically. In the case of a disaster
affecting pcOrder operations, service levels may be significantly degraded.
System Platform: [*]
Overview
This SLA Agreement is for hosting and maintaining for Ingram Micro, Inc. the
Prime Access Server Modules and Prime Access Web Storefronts (collectively
referred to as the "System" for purposes of this SLA).
Services Provided
The services that are covered in this SLA include:
* System Availability
* Problem Management
These services will be tracked and measured. Reports will be generated
according to the following schedule:
* Monthly
* Samples of our reports are attached as Appendix A.
System Availability (System Up Time)
System availability is defined as the hours when the system will be available to
the business community for customer online access to the application. pcOrder
will make commercially reasonable efforts to provide system availability as
defined herein. pcOrder hosting services provides for system availability
according to the following schedule:
-------------------------------------------------------------------------
System Availability Hours [*]
-------------------------------------------------------------------------
Help Desk Support Hours [*]
(Normal Business Hours)
-------------------------------------------------------------------------
After Hours Support [*]
-------------------------------------------------------------------------
1
<PAGE>
CONFIDENTIAL
------------
[*]
- --------------------------------------------------------------------------------
Availability Definition
-----------------------
[*]
[*]
[*]
* [*]
* [*]
* [*]
* [*]
* [*]
[*]
[*]
* [*]
[*]
Availability Measurements
-------------------------
pcOrder will take measurements [*] over a service period.
* [*]
2
<PAGE>
CONFIDENTIAL
------------
* [*]
* [*]
[*]
Availability Measurement Targets
--------------------------------
[*]
[*]
[*]
- -------------------
/1/
3
<PAGE>
CONFIDENTIAL
------------
[*]
Communication and Tracking of Outages
-------------------------------------
[*]
[*]
[*]
[*]
[*]
* [*]
4
<PAGE>
CONFIDENTIAL
------------
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
[*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
[*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
[*]
* [*]
5
<PAGE>
CONFIDENTIAL
------------
* [*]
* [*]
* [*]
* [*]
* [*]
Scheduled System Maintenance
PcOrder will perform all scheduled system maintenance on the System. Scheduled
maintenance may include:
* Database Performance Tuning - [*],
* Hardware Upgrades - [*]
* Network Upgrades
* Application Software Upgrades
pcOrder will schedule regular system maintenance to occur within the maintenance
windows defined by the following schedule:
- --------------------------------------------------------------------------------
Application/System Hours Days
- --------------------------------------------------------------------------------
Application [*] [*]
[*] [*]
[*] [*]
- --------------------------------------------------------------------------------
System Hardware and Software [*] [*]
[*] [*]
[*] [*]
- --------------------------------------------------------------------------------
Network [*] [*]
[*] [*]
[*] [*]
- --------------------------------------------------------------------------------
[*].
6
<PAGE>
CONFIDENTIAL
------------
Other Additional Services
Production Reports
[*]
User Access Administration
User Access Administration will be handled as an application function and not an
operational function. Ingram will be responsible for maintaining user access
logins and passwords through the systems administration maintenance tools.
pcOrder ISP Real/Time Communications
pcOrder will maintain internet connectivity through [*].
pcOrder will manage the relationship with [*]. As of the Effective Date
of this SLA, the services and connectivity provided by [*]
include:
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
[*]
Data Retention (Backups) and Disaster Recovery
[*]
[*]
7
<PAGE>
CONFIDENTIAL
------------
[*]
* [*]
* [*]
* [*]
* [*]
* [*]
* [*]
Operations Practices - Monitoring
* [*]
* [*]
* [*]
* [*]
* [*]
Roles and Responsibilities
Customer:
- ---------
* [*]
* [*]
* [*]
pcOrder Support Staff:
- ---------------------
* [*]
* [*]
* [*]
* [*]
8
<PAGE>
CONFIDENTIAL
------------
pcOrder Operations Current Facilities Team
(All personnel specified herein are subject to change)
- --------------------------------------------------------------------------------
Vice President Operations [*]
[*]
- --------------------------------------------------------------------------------
Facilities & Operations Specialist [*]
[*]
- --------------------------------------------------------------------------------
Networking Specialist [*]
[*]
- --------------------------------------------------------------------------------
Database and Data Process Manager [*]
[*]
- --------------------------------------------------------------------------------
Reseller & Distributor Processing [*]
[*]
- --------------------------------------------------------------------------------
Database Performance Technical Lead [*]
[*]
- --------------------------------------------------------------------------------
Ingram SLA Contacts
- --------------------------------------------------------------------------------
Primary Point Of Contact [*]
- --------------------------------------------------------------------------------
Backup Point Of Contact [*]
- --------------------------------------------------------------------------------
9
<PAGE>
CONFIDENTIAL
------------
pcOrder SLA Current Contacts
- --------------------------------------------------------------------------------
PcOrder Level 2 Help Desk [*]
- --------------------------------------------------------------------------------
Facilities & Operations Specialist [*]
[*]
[*]
[*]
- --------------------------------------------------------------------------------
10
<PAGE>
CONFIDENTIAL
------------
ATTACHMENT B
TO SCHEDULE 3 APPLICATION HOSTING SERVICES SCHEDULE
SERVER FARM CONFIGURATION
- --------------------------------------------------------------------------------
Requirements for pcOrder Back Office Server Farm Setup (Required Hardware)
(C) Copyright 1998 by pcOrder.com, Inc.
All rights reserved.
This material is unpublished and Confidential Information of pcOrder.com, Inc.
and is available under license only. This material is not to be copied or
disclosed without the prior written approval of pcOrder.com, Inc.
1
<PAGE>
[*]
2
<PAGE>
CONFIDENTIAL
------------
[*]
[*]
[*]
1. [*]
1.1. [*]
1.1.1. [*]
1.1.2. [*]
1.1.2.1. [*]
1.1.2.2. [*]
1.1.2.3. [*]
1.1.3. [*]
1.1.3.1. [*]
1.1.3.2. [*]
1.2. [*]
1.2.1. [*]
1.2.2. [*]
1.2.3. [*]
1.2.4. [*]
2. [*]
2.1. [*]
2.1.1. [*]
2.1.2. [*]
2.1.2.1. [*]
2.1.2.2. [*]
2.1.3. [*]
2.1.3.1. [*]
2.1.3.2. [*]
2.1.3.3. [*]
2.2. [*]
2.2.1. [*]
2.2.2. [*]
3. [*]
3.1. [*]
3.1.1. [*]
3.1.2. [*]
3
<PAGE>
3.1.2.1. [*]
3.1.2.2. [*]
3.1.2.3. [*]
3.1.3. [*]
3.1.3.1. [*]
3.1.3.2. [*]
3.2. [*]
3.2.1. [*]
3.2.2. [*]
4. [*]
4.1. [*]
4.1.1. [*]
4.1.2. [*]
4.1.2.1. [*]
4.1.2.2. [*]
4.1.3. [*]
4.1.3.1. [*]
4.1.3.2. [*]
4.1.3.3. [*]
4.1.3.4. [*]
5. [*]
5.1. [*]
5.1.1. [*]
5.1.2. [*]
5.1.2.1. [*]
5.1.2.2. [*]
5.1.2.3. [*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
4
<PAGE>
[*]
[*]
1.) [*]
2.) [*]
3.) [*]
[*]
[*]
[*]
1.) [*]
2.) [*]
3.) [*]
[*]
5
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 5, 1999 in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-62985) and related Prospectus of
pcOrder.com, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
February 23, 1999
