<PAGE>
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 000-26453
COMMERCE ONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0322810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1600 Riviera Ave., Suite 200
Walnut Creek, CA 94596
(Address of principal executive offices)
(925) 941-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value (title of class)
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 16, 2000, was $14,350,705,970 based upon the last
sales price reported for such date on The Nasdaq Stock Market's National
Market. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the registrant, have been excluded
in that such persons may be deemed to be affiliates. This determination is
not necessarily conclusive.
As of March, 16, 2000 there were 77,387,388 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
The registrant has incorporated by reference into Part III of this Form 10-K
portions of its proxy statement for the registrant's Annual Meeting of
Stockholders to be held May 31,2000.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I
Item 1. Description of Business 2
Item 2. Description of Property 22
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 4A. Directors and Executive Officers of Registrant 22
PART II
Item 5. Market for the Registrants Common Stock and Related
Stockholder Matters 25
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 7A. Quantitative and Qualitative Disclosures about
Market Risks 34
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosures 53
PART III
Item 10. Directors and Executive Officers of Registrant 53
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 54
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 54
SIGNATURES 57
</TABLE>
PART I
EXPLANATORY NOTE
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS (WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED), INCLUDING THOSE
FORWARD-LOOKING STATEMENTS ATTRIBUTED TO CERTAIN THIRD PARTIES RELATING TO THEIR
ESTIMATES REGARDING THE GROWTH OF BUSINESS-TO-BUSINESS AND BUSINESS-TO-CONSUMER
ELECTRONIC COMMERCE AND RELATED SERVICE MARKETS AND SPENDING. YOU SHOULD NOT
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF
THE DATE OF THIS ANNUAL REPORT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR MANY REASONS INCLUDING
THE RISK FACTORS DESCRIBED BEGINNING ON PAGE 12 AND ELSEWHERE IN THIS ANNUAL
REPORT.
Commerce One, Inc., incorporated on March 24, 1999, under the laws of the
State of Delaware, is hereinafter sometimes referred to as "the Registrant,"
"the Company," "Commerce One," "we" and "us." We were initially incorporated
in California under the name of DistriVision Development Corporation on
January 7, 1994.
ITEM 1. DESCRIPTION OF BUSINESS
INDUSTRY BACKGROUND
The success of the Internet in streamlining business-to-consumer
commerce is encouraging companies to seek similar efficiencies in their
transactions with other businesses. Companies are increasingly using the
Internet to enter new markets, improve supply chains and meet the challenges of
increased competition and global
2
<PAGE>
markets. Forrester Research estimates that U.S.-based Internet commerce
between companies will grow from $109 billion in 1999 to $1.3 trillion in
2003. Forrester Research further estimates that by 2003 this market for
business-to-business transactions will be more than ten times larger than the
related business-to-consumer transactions market.
EARLY ENTERPRISE COMMERCE AUTOMATION
Initial efforts by businesses to reduce transaction costs and increase
commerce efficiency focused on automating supply chains, particularly for the
purchase and sale of raw materials, unfinished items and other direct goods.
Most large companies have historically relied upon enterprise resource planning
("ERP") and supply chain automation systems to increase the efficiency of their
internal procurement processes for direct goods. These systems are based on
complex client-server architectures that are designed to be used by a relatively
small number of sophisticated users. In addition, since ERP solutions do not
typically tie the corporation with its suppliers or customers, they do not
address any transaction costs or inefficiencies that are external to the
organization.
A variety of point-to-point solutions have been developed to address
procurement cycle inefficiencies across both buyers and suppliers. The most
successful of these has been to integrate electronic data interchange ("EDI")
into existing ERP systems. EDI has gained wide acceptance in automating the sale
and procurement of selected direct goods, principally in environments
characterized by high dollar-volume transactions with a few suppliers. However,
because EDI relies on the execution of certain pre-defined transactions, it
typically is not well suited for situations involving many buyers and suppliers,
a wide variety of goods and services, or numerous low dollar-volume
transactions. Moreover, EDI does not support real-time interactions between
trading partners, making it difficult for buyers to obtain up to date supplier
information about price, availability and order status. Finally, the expense and
complexity associated with licensing, implementing and managing both ERP and EDI
solutions makes them unsuitable for all but the largest organizations.
FIRST GENERATION INDIRECT AND DIRECT MATERIALS PROCUREMENT SOLUTIONS
Similar efforts have been made to improve the procurement process for
indirect goods and services, which include information technology and
telecommunications equipment, office equipment and supplies, travel and
entertainment, professional services and other repeat purchase items. The
purchase and sale of these goods comprise a large portion of
business-to-business transactions. The process of procuring these goods often
involves thousands of internal users, as numerous work groups, departments, and
divisions within an enterprise are involved in the purchase of indirect goods
and services. As a result, the indirect goods procurement process is also mired
in several inefficiencies, including high purchasing costs (as paper-based,
manual processes still dominate this process), wasted time on low value
activities within purchasing departments and poor communication between buyers
and suppliers.
A number of desktop-based requisitioning solutions have been introduced
to focus on automating the indirect goods and services procurement processes
within the enterprise. These solutions serve to enforce purchasing policies and
improve the efficiency of supplier management, buying authorization, approval
routing and order processing. However, these buyer-focused approaches offer
limited ability to address the costs and inefficiencies associated with the
supplier side of the transaction. They also typically lack the interactivity
users need to check prices, availability and order status, while they also
generally fail to provide a mechanism to automatically update supplier
information relating to these areas. Consequently, both internal users and
suppliers must still rely upon costly, manual phone- and fax-based processes to
interact and conduct commerce.
In response to these limitations, some vendors have produced
point-to-point solutions that automate buying and selling among trading
partners. These solutions typically require compatible software to be deployed
at both the buyer and supplier, a costly and inefficient approach that is
difficult to scale to a large number of trading partners.
3
<PAGE>
Indirect procurement is an ideal application for Internet-based
e-commerce. The Internet offers the potential to transform the indirect goods
supply chain into open marketplaces or trading communities by enabling companies
to publish information so that it is instantly available to all trading
partners. Ideally, these marketplaces should be open and interoperable, so that
buyers and suppliers can reach the largest number of trading partners,
regardless of the procurement applications they may be using or the trading
communities to which they belong.
Leveraging the infrastructure created for a comprehensive indirect
procurement solution, we will apply our products and the Commerce One Solution
to the direct goods market. In February 2000, Commerce One announced that
the MARKETSITE PORTAL SOLUTION will be expanded to support Internet-based
procurement of Direct Materials, Repair and Operations (MRO) materials, as well
as collaborative supply chain management services. This new service is designed
to enable integrated sourcing, collaborative planning, real-time business
transaction management and support services across the entire supply chain. By
leveraging the existing MarketSite portal infrastructure as a platform for these
services, customers and partners will be able to rapidly gain the benefits of a
truly collaborative environment.
THE COMMERCE ONE SOLUTION
Commerce One is a leading provider of global e-commerce solutions
for business. Our solutions are designed to create a network of interoperable
marketplaces, trading communities and commerce portals called the Global
Trading Web. We have developed the Commerce One Solution to automate the
procurement cycle between multiple buyers and suppliers. The Commerce One
Solution is comprised of the following components: enterprise e-procurement
applications consisting of BUYSITE, ENTERPRISE EDITION and BUYSITE PORTAL
EDITION and the MARKETSITE PORTAL SOLUTION. Within the MARKETSITE PORTAL
SOLUTION, business services such as auction services and enhanced content
services are offered, with others to be added in the future.
BUYSITE ENTERPRISE EDITION is an intranet-based purchasing application
that enables users throughout the enterprise to make purchases over the
Internet. BUYSITE provides access to and easy purchasing from catalogs of many
different suppliers while eliminating paperwork, automating the approval
process, and enforcing the purchasing policies that apply to each buyer and
supplier.
BUYSITE PORTAL EDITION is similar to the Enterprise edition in terms
of procurement functionality, but is intended to establish an industry leader
to host small and medium sized companies in the relevant market. A more
robust administration capability is provided to manage the number of
companies that will be hosted at a single BUYSITE PORTAL EDITION
implementation.
The MARKETSITE PORTAL SOLUTION provides the foundation for commerce
service providers to create and maintain regional and vertical marketplaces. We
believe this platform creates significant economies of scale for market
participants by centralizing content and transaction management services,
eliminating the need for buyers and suppliers to create point-to-point
integration with each trading partner. The MARKETSITE portals operating on
this platform include, without limitation, our MarketSite Global Trading
Portal, General Motors TradeXchange, Sesami.Net and BT MarketSite.Net.
Key benefits of our approach include the following:
1. END-TO-END ENTERPRISE PURCHASING SOLUTION
We believe that the Commerce One Solution offers an end-to-end solution
that automates the procurement cycle for marketplace participants, including
buyers, suppliers, market-makers and value-added commerce service providers. Our
BUYSITE application (both Enterprise and Portal edition) automates internal
procurement functions within the organization--replacing traditional methods
such as phone, fax, simple email, and EDI for communication between trading
partners. The MARKETSITE PORTAL SOLUTION provides the transaction platform
necessary for establishing real-time on-line trading communities.
4
<PAGE>
2. SCALABLE ARCHITECTURE
The Commerce One Solution architecture allows buyers and suppliers to
perform a single integration of their systems with the MARKETSITE PORTAL
SOLUTION. This is designed to provide a centralized portal for all commerce
services. This many-to-one-to-many architecture is highly scalable and is
designed to support trading communities.
3. SUPERIOR SUPPLIER SOLUTION
Our MARKETSITE PORTAL SOLUTION features a "publish once" content model
and related tools that enable suppliers to standardize their content
presentation and centralize the delivery of their catalogs. Purchasing
enterprises in the trading community can access this content and make purchases
using our BUYSITE products, providing suppliers with a large and expanding
channel for reaching corporate purchasers.
4. OPEN SOLUTION FOR ISV APPLICATIONS TO INTEROPERATE WITH MARKETSITE
PORTAL SOLUTION
In addition to our own BUYSITE applications, we also enable third-party
procurement applications to connect to the MARKETSITE PORTAL SOLUTION. This
extends the leverage of our "publish once" content model for suppliers, greatly
expanding the number of potential participants in our trading communities.
Enterprises that have already deployed third-party applications within their
organizations are able to leverage these applications and still take advantage
of our marketplace solutions. In addition, we have acquired, and have
integrated, innovative XML technology which has enabled us to incorporate
additional third-party applications.
5. GLOBAL MARKETPLACE SUPPORT
Our solution is designed to enable an enterprise buyer or supplier to
use our Commerce One Solution to access a global network of trading communities
as they are deployed, through a single Internet connection. We have established
strategic relationships with British Telecommunications PLC to host a
MarketSite in the United Kingdom, Banamex to host a MarketSite in Latin
America, NTT Communications to host a MarketSite in Japan, Singapore
Telecommunications to host a MarketSite in southeast Asia, Cable & Wireless
Optus to host a MarketSite in Australia and New Zealand, Deutsche Telekom to
host a MarketSite in Germany and Swisscom AG to host a MarketSite in
Switzerland. We also plan to pursue additional strategic relationships in the
future. We believe these global partnerships will be attractive to additional
trading partners, increasing the breadth and depth of our commerce service
offerings and accelerating the deployment of our Internet-based procurement
applications.
6. VERTICAL TRADING COMMUNITIES
Our products are designed to create vertical trading communities for
specialized market segments. Our solutions are constructed to allow
distributors and aggregators to transform their existing customer and
supplier relationships into real-time trading communities, improving the
efficiency of existing business processes and creating opportunities to offer
new value-added services. Moreover, because marketplaces in different
industries are designed to be interoperable, market-makers will be able to
significantly expand their supply and distribution chains. We have partnered
with some of the largest vertical industry players who desire to establish
trading communities such as General Motors, Citibank, Banamex and
Toronto-Dominion. Our MARKETSITE PORTAL SOLUTION also enables market-makers
within defined trading communities to host transactions in their community on
a subscription basis in order to encourage electronic trading within their
specific industries.
7. ELECTRONIC TRADING COMMUNITY FOR ORGANIZATIONS OF ALL SIZES
For buyers and suppliers with limited in-house e-commerce capabilities,
we provide hosted applications that offer low cost, low risk access to
electronic trading communities. BUYSITE PORTAL EDITION requires only a Web
browser interface and is an innovative platform for offering electronic
procurement solutions to
5
<PAGE>
small-to-medium size businesses on a subscription basis. Using the MarketSite
Global Trading Portal, these buyers can order products electronically from
supplier catalogs of any supplier on the MarketSite Global Trading Portal,
pay for these products and arrange for their shipment.
6
<PAGE>
PRODUCTS AND SERVICES
COMMERCE ONE BUYSITE
The Commerce One BUYSITE product currently consists of two offerings:
BUYSITE ENTERPRISE EDITION and BUYSITE PORTAL EDITION. Both applications offer
Web-based procurement capabilities that are designed to enable companies to
reduce their indirect goods purchasing costs while increasing their overall
supply chain efficiency. Cost reductions are achieved through user-friendly
application functionality designed to reduce off contract, or "rogue,"
purchases, automate unnecessary manual processes, improve leverage with
suppliers and provide links to a dynamic trading partner community.
BUYSITE ENTERPRISE EDITION is typically installed and maintained at
the customer site. Key components of BUYSITE ENTERPRISE EDITION include:
- An easy to use, Web-based interface that requires limited training and
is readily localized for international requirements.
7
<PAGE>
- A powerful multi-supplier catalog with advanced search capabilities
that allow easy access to the requested item or service.
- A robust workflow module that automates and controls the
requisition/order routing, approval and preparation processes.
- An easily-configured business rules module designed to implement each
customer's business processes.
- Unique transaction capabilities that enable real-time connections to
suppliers for up-to-the-minute prices and availability, status and
other critical information.
- The ERP COMMERCE CONNECTOR that enables BUYSITE to readily integrate
with customers' ERP systems.
BUYSITE PORTAL EDITION is designed to be used by a commerce service
provider to deliver B2B buying capability for their customers that do not
have the infrastructure nor the resources to install an enterprise
application. A commerce service provider is a Commerce One customer who is
typically an industry leader or a market leader.
BUYSITE PORTAL EDITION and BUYSITE ENTERPRISE EDITION include added
functionality in the following areas:
- Support for multiple buying organizations in a single hosted
environment.
- System and site monitoring designed to handle large volumes of users
in a distributed multi-organization environment.
- Multi-level administration designed to support the large number of
operators and system administrators inherent in a multiple enterprise,
shared environment.
COMMERCE ONE MARKETSITE PORTAL SOLUTION
The MARKETSITE PORTAL SOLUTION is the enabling technology that provides
for the creation and management of open, interactive marketplaces. The recent
releases of MARKETSITE PORTAL SOLUTION leverage our XML technology to enable
real-time transaction exchange among members of a marketplace.
Commerce One MarketSite Global Trading Portal is the first
available, open business-to-business marketplace portal deployed using the
MARKETSITE PORTAL SOLUTION. Primary features of MarketSite Global Trading
Portal include:
- Compatibility with multiple buying and selling applications;
- Real-time exchange of purchase orders, pricing availability, status
and other information; and
- Aggregation, normalization and updating of multiple supplier catalog
content through the Content Management Service.
HOSTED APPLICATIONS AND BUSINESS SERVICES PLATFORM
Our MARKETSITE PORTAL SOLUTION can host e-commerce applications and
business services developed by Commerce One or third-party partners. A hosted
content and order management module called "Commerce One SupplyOrder" enables
smaller suppliers to integrate with a MARKETSITE marketplace very quickly. Users
of Commerce One SupplyOrder are able to publish their content on a MARKETSITE
marketplace using only a Web browser. In the future, we expect to add
third-party services including shipping, payment, travel and tax, and intend to
support new applications for the MARKETSITE PORTAL SOLUTION.
8
<PAGE>
AUCTION SERVICES
Available through the acquisition of CommerceBid in November 1999,
Commerce One offers an Internet based B2B auction service via the Market Site
Global Trading Portal. This valuable service will be made available in our
partner MarketSite portals in the future. Through the auction services,
trading partners within the MarketSite Global Trading Portal will be able to
participate in B2B auctions, both forward and reverse.
CATALOG MANAGEMENT SERVICES
MARKETSITE CATALOG MANAGEMENT SERVICES provide the process and the
tools to automate and aggregate catalog content from multiple suppliers to
create a scalable resource across the marketplace. These tools provide both
manual and automated options for acquiring and aggregating the content from
supplier catalogs. This service is accomplished through our Supplier and Content
Management team as well as the technology developed by Commerce One. Commerce
One has further enhanced our strategic direction in catalog management services
by acquiring the iMerge products through the acquisition of Mergent. iMerge
products provide a more efficient aggregation capability, advanced search
capability, as well as further ability to enhance catalog content such as
creating rationalized content.
PROFESSIONAL SERVICES
Our professional services organization helps customers maximize their
investments by providing tools and services that facilitate the Commerce One
Solution implementation process. By teaming with a range of leading services
partners, we deliver comprehensive systems integration, implementation,
technical support, supplier adoption, and education services and programs to
deploy our Commerce One Solution. Our professional services are grouped into
three categories: implementation service packages, education and training
services, and support and maintenance services.
SERVICE PACKAGES
SUPPLIER CONTENT MANAGEMENT SERVICES PROGRAM. The Supplier Content
Management Services Program provides processes and tools to replicate and
integrate data from multiple suppliers into a single catalog. Our automation
tools and services enable suppliers to provide content in a storable
environment, lowering the supplier's costs. We provide a methodology and tools
which offer a "publish once" content strategy that can be leveraged across many
buyers. Unlike competing solution providers, we accept catalog content in the
supplier's preferred format and then map the data into the buying customer's
preferred format.
EDUCATION AND TRAINING SERVICES
We are committed to delivering the knowledge and tools needed for the
successful implementation and deployment of the Commerce One Solution. We have
designed a comprehensive curriculum to meet the needs of our customers and
partners. The curriculum includes hands-on classes and Web-based training for
BUYSITE and MARKETSITE customers, methodology and process-centered seminars for
system integrators, detailed technical training for systems administrators, and
integration training for suppliers.
SUPPORT AND MAINTENANCE SERVICES
We have developed a portfolio of complementary support and maintenance
programs for our customers. Our customer support center uses on-line media
access, call tracking, and knowledge management systems, as well as remote
access to customer sites, to provide a comprehensive range of services. For the
successful ongoing operation of our solutions, we offer support programs
specifically designed for each BUYSITE customer and its suppliers.
STRATEGIC RELATIONSHIPS
We have entered into several strategic relationships that are integral
to establishing trading communities, implementing our solutions and developing
our
9
<PAGE>
products. The continued establishment of strategic partnerships is a
fundamental piece of our strategy as we expand our products and services and
enter new markets. Our strategic partners include, without limitation, British
Telecom; Banamex; Cable & Wireless Optus; Deutsche Telekom; NTT
Communications; Sesami.Net; Toronto Dominion Bank; General Motors; Citigroup
and Swisscom AG.
TECHNOLOGY
SCALABLE ARCHITECTURE
We are able to leverage our Microsoft Windows distributed Internet
applications framework into a unified architecture enabling us to focus on
creating additional business functionality in our solutions, rather than
building and maintaining complex infrastructure code. Additionally, we have
designed our solution to be able to grow our infrastructure through the simple
addition of low-cost systems that utilize Intel microprocessors and the NT
operating system. This framework allows us to leverage technologies such as
resource pooling message queuing, security services, and coordination and
distribution of transactions, components and services.
XML TECHNOLOGY PLATFORM
We utilize the XML technology platform to create an XML server that
enables the creation and secure transmission of XML documents over the Internet.
This server also provides software development capabilities for the creation of
new XML document-based services. In addition, we have developed an XML schema
language, "schema for object specification" or "SOX," that extends base XML
documents. We have also created a common business library (CBL) designed to
enable a common semantic framework for uniting disparate business document
types. We believe that XML is emerging as a foundation of an industry standard
for business-to-business e-commerce.
PROVEN DEVELOPMENT METHODOLOGY
Our product development team employs object-oriented analysis and
design principles to guide the development of an object-oriented system of
software code. Our methodology allows us to exploit the capabilities of
object-oriented programming languages like Visual Basic, C++ and Java to build
reusable components and designs. This methodology also helps reduce the risks
inherent in developing complex system, and helps us design our solutions to meet
the needs of our trading partners.
SALES AND MARKETING
We market and sell our products and services to organizations through a
direct sales force. Our sales offices are located in the United States, the
United Kingdom, France and Switzerland. Since our products and services touch
upon multiple departments within an organization, our sales efforts are directed
at multiple decision makers, frequently including the chief financial officer,
chief information officer and vice president of procurement. We target our sales
efforts at Fortune 1000 enterprises and their suppliers and have initiated
vertical sales strategies targeted at the utilities, telecommunications,
government and oil and gas markets.
Our marketing activities include seminar programs, trade shows,
Web-site programs, public relation events and direct mailings. We are also
engaged in an on-going effort to maintain relationships with key industry
analysts.
We have entered into a strategic relationship with BT which, among
other things, provides that BT will act as a reseller of our BUYSITE solution
in its market. In addition, our system integrators, including the management
consulting services group within PricewaterhouseCoopers, Andersen Consulting
and Cambridge Technology Partners, provide us with sales and marketing
support.
As of December 31, 1999, we had 146 employees in our sales and
marketing department.
10
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
Our future success depends in part on our proprietary rights and
technology. We rely on a combination of patent, copyright, trademark and
trade secret laws, employee and third-party nondisclosure agreements and
other methods to protect our proprietary rights. In connection with the
acquisition of VEO, we acquired three patent applications relating to XML
technology. In addition, we have filed and intend to file additional patent
applications on our other proprietary technology. It may be possible for
unauthorized third parties to copy certain portions of our products or
reverse engineer or obtain and use information that we regard as proprietary.
Certain end user license provisions protecting against unauthorized use,
copying, transfer and disclosure of the licensed program may be unenforceable
under the laws of some foreign countries. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do
the laws of the United States. Some of our agreements with our customers and
development partners contain residual clauses regarding confidentiality and
the rights of third parties to obtain the source code for our products. These
provisions may limit our ability to protect our intellectual property rights
in the future. We cannot assure you that our means of protecting our
proprietary rights will be adequate or that competing companies will not
independently develop similar technology. If any of these events happen, our
business, operating results and financial condition could be harmed.
From time to time we may encounter disputes over rights and obligations
concerning intellectual property. Although we believe that our intellectual
property rights are sufficient to allow us to market our existing products
without incurring liability to third parties, we cannot assure you that we will
prevail in all such disputes. Failure to prevail in one or more such disputes
could impair our right to market our products which, in turn, could harm our
business, results of operations and financial condition. We cannot assure you
that our products do not infringe upon issued patents that may relate to our
products or to the market for Internet-based business-to-business e-commerce
applications in general. In addition, because patent applications in the United
States are not publicly disclosed until the patent is issued, we may not be
aware of applications that have been filed which relate to our products. We have
agreed, and may agree in the future, to indemnify certain of our customers
against claims that its products infringe upon the intellectual property rights
of others. We could incur substantial costs in defending ourself and our
customers against infringement claims. In the event of a claim of infringement,
our customers and us may be required to obtain one or more licenses from third
parties. We cannot assure you that such licenses could be obtained from third
parties at a reasonable cost or at all. Defense of any lawsuit or failure to
obtain any such required license could harm our business, operating results and
financial condition.
We license and will continue to license certain products integral to
our products and services from third parties, including products which are
integrated with internally developed products and used with our products to
provide key content and services. We cannot assure you that these third party
product licenses will continue to be available to us on commercially reasonable
terms or that we will be able to successfully integrate such third party
products into our solutions. Such product licenses may expose us to increased
risks, including risks associated with the assimilation of new products, the
diversion of resources from the development of our products, the inability to
generate revenues from new products sufficient to offset associated acquisition
costs and the maintenance of uniform, appealing products. The inability to
obtain any of these licenses could result in delays in site development or
services until equivalent products can be identified, licensed and integrated.
Any such delays in site development or services could harm our business,
operating results and financial condition.
"COMMERCE ONE," "BUYSITE," "MARKETSITE," "MANY MARKETS. ONE SOURCE,"
"GLOBAL TRADING WEB," GLOBAL TRADING PLATFORM," "BUYSITE COMMON BUSINESS
LIBRARY," "XML DEVELOPMENT KIT," "XML COMMERCE CONNECTOR," "MARKETVIEW,"
"SUPPLY ORDER" AND "VEO" are registered and unregistered trademarks of
Commerce One. All other trademarks or service marks appearing in this annual
report on Form 10-K are trademarks or service marks of the respective
companies that use them.
COMPETITION
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities
11
<PAGE>
of industry participants. Our primary source of direct competition comes from
independent software vendors of procurement applications. We also face
indirect competition from potential customers' internal development efforts
and have to overcome potential customers' reluctance to move away from
existing systems and processes.
Our current and potential competitors include Ariba, Clarus, Concur
Technologies, Connect, Harbinger, IBM, Intellisys, Microsoft, Netscape,
Oracle, I2 and iPlanet. In addition, there are a number of companies
developing and marketing business-to-business e-commerce solutions targeted
at specific vertical markets. Some of these competitors offer Web-based
solutions that are designed to enable an enterprise to buy more effectively
from its suppliers. Other competitors are also attempting to migrate their
technologies to an Internet-enabled platform. Some of these competitors and
potential competitors include ERP vendors, that are expected to sell their
procurement products along with their application suites. These ERP vendors
have a significant installed customer base and have the opportunity to offer
additional products to those customers as additional components of their
respective application suites.
We believe that the principal competitive factors for
business-to-business e-commerce solutions are breadth and scope of solution,
depth of supplier content, interoperability with existing information technology
systems, scalability, functionality, ease-of-use, ease-of-implementation, total
cost of ownership and installed base of referenceable customers. We believe we
compete favorably with our competitors in these areas.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do and may enter into
strategic or commercial relationships with larger, more established and
well-financed companies. Some of our competitors may be able to secure alliances
with customers and affiliates on more favorable terms, devote greater resources
to marketing and promotional campaigns and devote substantially more resources
to systems development than we do. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us. We
cannot assure you that we will be able to compete successfully against current
and future competitors, and competitive pressures faced by us could harm our
business operating results and financial condition.
EMPLOYEES
As of December 31, 1999, we had 594 full-time employees, 200 of whom
were engaged in product development, 146 in sales and marketing, 158 in
professional services and 90 in general administration. Our future success
depends, in part, on our continuing ability to attract, train and retain highly
qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and we cannot guarantee that we will be able to recruit
and retain sufficient numbers of qualified personnel. None of our employees are
represented by a labor union or a collective bargaining agreement. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY, WE HAVE A HISTORY OF LOSSES AND WE
EXPECT FUTURE LOSSES.
We have never been profitable, we expect to incur net losses for the
foreseeable future and we may never be profitable. We incurred net losses of
$63.3 million, $24.6 million and $11.2 million for the years ended December 31,
1999, 1998 and 1997, respectively. As of December 31, 1999, we had an
accumulated deficit of $102.6 million.
12
<PAGE>
In addition, we have a limited operating history that makes it
difficult to forecast our future operating results. We expect to
substantially increase our sales and marketing, product development and
general and administrative expenses. As a result, we will need to generate
significant additional revenues to achieve and maintain profitability in the
future. Although our revenues have grown in recent quarters, we cannot be
certain that such growth will continue or that we will achieve sufficient
revenues for profitability. If we do achieve profitability in any period, we
cannot be certain that we will sustain or increase such profitability on a
quarterly or annual basis.
THE QUARTERLY FINANCIAL RESULTS OF COMPANIES IN OUR INDUSTRY ARE PRONE TO
SIGNIFICANT FLUCTUATIONS AND THIS COULD CAUSE OUR STOCK PRICE TO FALL.
We believe that quarter-to-quarter comparisons of our revenues and
operating results are not necessarily meaningful, and that such comparisons may
not be accurate indicators of future performance. The operating results of
companies in the electronic commerce industry have in the past experienced
significant quarter-to-quarter fluctuations. If our revenues for a quarter fall
below our expectations and we are not able to quickly reduce our spending in
response, our operating results for that quarter would be harmed. It is likely
that in some future quarter our operating results may be below the expectations
of public market analysts and investors and, as a result, the price of our
common stock may fall. As with other companies in our industry, our operating
expenses, which include sales and marketing, product development and general and
administrative expenses, are based on our expectations of future revenues and
are relatively fixed in the short term.
OUR FUTURE SUCCESS DEPENDS UPON OUR COMMERCE SERVICE PROVIDER PARTNERS
DEVELOPING AND OPERATING SUCCESSFUL MARKETSITE MARKETPLACES; IF MARKETPLACES
DEVELOPED BY OUR PARTNERS ARE NOT SUCCESSFUL, WE WILL NOT GENERATE SUFFICIENT
REVENUES TO SUSTAIN OUR BUSINESS OR ALLOW US TO GROW.
We have established strategic relationships with various companies
each of whom has licensed our BUYSITE and MARKETSITE PORTAL SOLUTION products
in order to create MARKETSITE marketplaces. These MARKETSITE marketplaces are
in the United Kingdom, Japan and Southeast Asia as well as many other
geographical regions. We cannot assure you that these partners will be able
to implement our products and services effectively, that they will develop
and launch MARKETSITE marketplaces or that buyers or suppliers will
participate in their MARKETSITE marketplaces. Furthermore, these parties may
encounter delays in launching their MarketSite marketplaces, in fully
deploying these marketplaces and in achieving supplier participation in the
marketplace. If these or any other MARKETSITE marketplaces are not
successful, our business, operating results and financial condition will
suffer.
Many of the companies that have agreed to launch, or have indicated
that they will launch MarketSites have not yet done so. Additionally, although
our technology architecture supports the development of trading communities that
can operate with each other, we cannot assure you that their marketplaces will
in fact operate with each other. Furthermore, we cannot assure you that these
marketplaces will be able to successfully adapt to address markets of
different size, scope and geography.
THE DEVELOPMENT AND OPERATION OF THE GM TRADEXCHANGE OR A SIMILAR EXCHANGE FOR
THE AUTOMOTIVE INDUSTRY ENTAILS CERTAIN RISKS FOR US.
In January 2000, we entered into agreements with General Motors to
create and operate the GM TradeXchange, an Internet-based trading exchange
owned by GM that enables buying and selling over the Internet by GM, its
dealers and its suppliers. The closing of the GM TradeXchange agreements
remain subject to certain customary closing conditions, including requisite
regulatory clearance, and has been delayed pending the negotiations described
below.
Subsequent to the execution of the GM TradeXchange agreements,
Commerce One and GM have entered into negotiations with Ford Motor Company,
DaimlerChrysler and Oracle Corporation concerning the possible creation of
a broader business-to-business e-commerce exchange for the automotive
industry. Such an exchange would integrate or combine the GM TradeXchange
with an Internet-based trading exchange being developed by Ford and Oracle
Corporation. The parties have not, however, reached agreement on the
specific terms and conditions governing the creation of the exchange, the
responsibilities of the parties with respect to the exchange, or the extent
to which the parties, including Commerce One, will receive equity in the
exchange and share in the revenues of the exchange. In addition, such an
agreement would also require regulatory clearance.
The foregoing statements and the other statements in this Form 10-K
concerning the potential development and launch of the GM TradeXchange or of
a broader trading exchange for the automotive industry are forward-looking
statements that are subject to risks and uncertainties. We cannot assure you
that the parties will reach an agreement for a broader trading exchange on
mutually acceptable terms and conditions or that such an agreement would
receive regulatory clearance. Further, if such an agreement is not reached,
we cannot assure you that the GM TradeXchange agreements will receive
regulatory clearance and close in a timely fashion, or at all.
In addition, the development and operation of the GM TradeXchange or
any broader trading exchange will entail significant risks for Commerce One.
These risks include the diversion of a significant portion of our management,
technical and sales personnel to develop and operate the exchange; technical
hurdles associated with developing an exchange on this scale and integrating
it with GM's existing computer systems and those of other parties; antitrust
issues arising from the creation of the exchanges; disagreements with GM and
other parties concerning the development and operation of the exchange; and
all of the other risks of creating such exchanges described elsewhere in this
Risk Factors section. If we are not able to manage these risks, our
business, results of operations and financial condition will suffer.
OUR STRATEGY OF ESTABLISHING MARKETSITE MARKETPLACES AS TRADING COMMUNITIES IS
UNPROVEN AND MAY NOT BE SUCCESSFUL.
As part of our business strategy, we intend, directly and through
relationships with our strategic partners, to establish and maintain
MARKETSITE marketplaces where buyers and suppliers can conduct
business-to-business electronic commerce. If this business strategy is
flawed, or if we are unable to execute it effectively, our business,
operating results and financial condition will be substantially harmed. To
date, we have not generated significant revenue from the MarketSite Global
Trading Portal or any significant transaction-based revenue from any of the
MarketSite marketplaces.
13
<PAGE>
BECAUSE OUR INDUSTRY IS HIGHLY COMPETITIVE AND HAS LOW BARRIERS TO ENTRY, WE
CANNOT ASSURE YOU THAT WE WILL BE ABLE TO EFFECTIVELY COMPETE.
The market for Internet-based, business-to-business electronic commerce
solutions is extremely competitive. We expect competition to intensify as
current competitors expand their product offerings and new competitors enter the
market. We cannot assure you that we will be able to compete successfully
against current or future competitors, or that competitive pressures we face
will not harm our business, operating results or financial condition.
Because there are relatively low barriers to entry in the electronic
commerce market, competition from other established and emerging companies
may develop in the future. In addition, our customers and partners may become
competitors in the future. Certain of our competitors may be able to
negotiate alliances with strategic partners on more favorable terms than we
are able to negotiate. Many of our competitors may also have well-established
relationships with our existing and prospective customers. Increased
competition is likely to result in price reductions, lower average sales
prices, reduced margins, longer sales cycles and decrease or loss of our
market share, any of which could harm our business, operating results or
financial condition. Some of our competitors are Ariba, Intelisys, I2,
Oracle and iPlanet. In addition, certain of our competitors have announced
plans to jointly offer business-to-business electronic commerce solutions to
potential customers. These joint efforts could intensify the competitive
pressure in our market.
Many of our competitors have, and new potential competitors may have,
more experience developing Internet-based software and end-to-end purchasing
solutions, larger technical staffs, larger customer bases, more established
distribution channels, greater brand recognition and greater financial,
marketing and other resources than we have. In addition, competitors may be able
to develop products and services that are superior to our products and services,
that achieve greater customer acceptance or that have significantly improved
functionality as compared to our existing and future products and services. We
cannot assure you that the business-to-business electronic commerce solutions
offered by our competitors now or in the future will not be perceived by buyers
and suppliers as superior to ours.
CURRENT AND FUTURE ACQUISITIONS MAY ADVERSELY AFFECT OUR BUSINESS
As part of our business strategy we have made and expect to continue
to make acquisitions of businesses that offer complementary products,
services and technologies. In November 1999, we acquired CommerceBid.com, Inc.,
a provider of business-to-business Internet trading applications, and in
January 2000 we acquired Mergent Systems, Inc., a developer of distributed
product information management systems for business-to-business portals. Our
acquisitions are and will be accompanied by the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
possibility that we pay much more than the acquired business is worth, the
difficulty of integrating the operations and personnel of the acquired
business into ours, the potential product liability associated with the sale
of the acquired business's products, the potential disruption of our ongoing
business, the distraction of management from our business, the inability of
management to maximize our financial and strategic position, and the
impairment of relationships with employees and customers. We have limited
experience acquiring businesses, and we cannot assure you that we will identify
appropriate targets, will acquire such businesses on favorable terms, or will
be able to integrate such organizations into our business successfully.
Further, the financial consequences of our acquisitions and investments may
include potentially dilutive issuances of equity securities, one-time
write-offs, amortization expenses related to goodwill and other intangible
assets and the incurrence of contigent liabilities. These risks could have a
material adverse effect on our business, financial condition and results of
operations.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLE COULD CAUSE DELAYS IN REVENUE GROWTH.
The period between our initial contact with a potential customer and
the purchase of our products and services is often long and may have delays
associated with the lengthy budgeting and approval process of our customers.
Historically, our typical sales cycle has been approximately three to six
months and the implementation cycle at customer sites has been approximately
an additional six to twelve months. These lengthy cycles will have a negative
impact on the timing of our revenues, especially our realization of any
transaction fee based revenues.
We believe that a customer's decision to purchase our products and
services is discretionary, involves a significant commitment of resources, and
is influenced by customer budgetary cycles. To successfully sell our products
and services, we generally must educate our potential customers regarding the
use and benefit of our products and services, which can require significant time
and resources. Many of our potential customers are large enterprises that
generally take longer to make significant business decisions. In addition, our
solutions include enterprise applications that take significant time to deploy
successfully across an organization.
14
<PAGE>
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND
FAILURE TO MANAGE OUR GROWTH COULD STRAIN OUR MANAGEMENT AND OTHER RESOURCES.
Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. Future expansion efforts could be expensive and put a
strain on our management and resources. We have increased, and plan to continue
to increase, the scope of our operations at a rapid rate. Our headcount has
grown and will continue to grow substantially. At December 31, 1999, we had a
total of 594 employees, and at December 31, 1998, we had a total of 157
employees. In addition, we expect to hire a significant number of new employees
in the near future. To manage future growth effectively, we must maintain and
enhance our financial and accounting systems and controls, integrate new
personnel and manage expanded operations. We can not assure you that we will
be able to do this effectively.
OUR CUSTOMER BASE IS CONCENTRATED AND OUR SUCCESS DEPENDS IN PART ON OUR ABILITY
TO RETAIN EXISTING CUSTOMERS.
In 1999, Toronto Dominion accounted for 21% of our total revenues,
Singapore Telecommunications accounted for 15%, and British Telecommunications
accounted for 11%. If one or more of our major customers were to substantially
reduce or stop their use of our products or services, our business, operating
results and financial condition would be harmed. We do not have long-term
contractual commitments from any of our current customers and our customers
may terminate their contracts with us with little or no advance notice and
without significant penalty to them. As a result, we cannot assure you that
any of our current customers will be customers in future periods. A customer
termination would not only result in lost revenue, but also the loss of
customer references that are necessary for securing future customers.
IF SUPPLIERS DO NOT PARTICIPATE IN THE MARKETSITE MARKETPLACES, OUR MARKETSITE
MARKETPLACE PRODUCTS WILL NOT GROW AND OUR REVENUES WILL SUFFER.
If an adequate number of suppliers do not participate in the
MARKETSITE marketplaces, our MARKETSITE marketplace products will not grow
and our revenues will suffer. MARKETSITE marketplaces will be attractive to
suppliers only if a significant number of buyers are willing to purchase
goods and services through the MARKETSITE marketplaces. Suppliers incur costs
making information relating to their goods and services available on these
trading communities and thus must realize additional revenues to justify
their continued participation in these trading communities. We cannot assure
you that the suppliers will remain in the MARKETSITE marketplaces or that a
sufficient number of new suppliers will join these communities to make the
MarketSite marketplaces successful.
OUR FUTURE REVENUES DEPEND UPON OUR ABILITY TO INCREASE TRANSACTION VOLUME ON
MARKETSITE MARKETPLACES.
If the transaction volume on the MARKETSITE marketplaces does not grow,
it is unlikely that we will ever achieve or maintain profitability. We currently
derive substantially all of our revenues from licensing our MARKETSITE and
BUYSITE solution to buyers and providing related services. Transaction revenue
from MARKETSITE has been immaterial to date. However, our business model calls
for a significant portion of our revenues in the future to be based upon a
percentage of the transactions completed on MARKETSITE marketplaces developed by
current and future MARKETSITE PORTAL SOLUTION licensees. Accordingly, our future
revenues will depend significantly on the number of transactions that are
successfully completed on the MARKETSITE marketplaces.
WE MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING AND TECHNICAL
PERSONNEL THAT WE NEED TO SUCCEED BECAUSE THESE PERSONNEL ARE LIMITED IN NUMBER
AND IN HIGH DEMAND.
If we fail to hire and retain sufficient numbers of sales, marketing
and technical personnel, our business, operating results and financial
condition would be harmed. Competition for qualified sales, marketing and
technical personnel is intense as these personnel are in limited supply, and
we might not be able to hire and retain sufficient numbers of such personnel
to grow our business. We need to substantially expand our sales operations
and marketing efforts, both domestically and internationally, in order to
increase market awareness and sales of our BUYSITE and MARKETSITE PORTAL
SOLUTION and the related services we offer. We will also need to
significantly increase our technical staff to support the growth of our
business and our increasing commitments to other parties. In addition,
our competitors have in the past attempted to hire our employees away from
us. We expect that they will continue to attempt to do so in the future.
15
<PAGE>
IF OUR ELECTRONIC COMMERCE PRODUCTS DO NOT CONTAIN THE FEATURES AND
FUNCTIONALITY OUR CUSTOMERS WANT, OUR CUSTOMERS WILL NOT BUY THEM.
Our success depends upon our ability to accurately determine the
features and functionality required by customers and to design and implement
business-to-business electronic commerce products that meet these
requirements in a timely and efficient manner. If we fail to accurately
determine customer feature and functionality requirements, enhance our
existing products and develop new products, our current and potential future
customers will not buy them. To date, our products have been based on our
internal efforts and on feedback from a limited number of customers and
potential customers. We cannot assure you that we have determined or will
successfully determine customer requirements or that the features and
functionality of our future products and services will adequately satisfy
current or future customer demands.
OUR FUTURE REVENUES DEPEND UPON CURRENT AND POTENTIAL CUSTOMERS INTEGRATING OUR
SOLUTIONS INTO THEIR BUSINESSES.
Our success depends upon the acceptance and successful integration
by customers and their suppliers of our BUYSITE and MARKETSITE PORTAL
SOLUTION products. Our current customers and potential customers and their
related suppliers often rely on third-party systems integrators such as
Andersen Consulting, CSC, PricewaterhouseCoopers and Cambridge Technology
Partners and others to develop, deploy and manage their Internet-based,
business-to-business electronic commerce platforms and solutions. If a large
number of systems integrators fail to adopt and support our solution, if any
of our customers or suppliers are not able to successfully integrate our
solution or if we are unable to adequately train our existing systems
integration partners, our business, operating results and financial condition
could suffer.
OUR STRATEGY OF ESTABLISHING STRATEGIC RESELLING RELATIONSHIPS WITH OUR PARTNERS
IS UNPROVEN AND MAY NOT BE SUCCESSFUL.
We have established strategic relationships with Andersen
Consulting, British Telecommunications, Singapore Telecommunications,
Banamex, Deutsche Telekom, NTT Communications, Toronto Dominion Bank, General
Motors, Citigroup, PricewaterhouseCoopers, Swisscom AG and Cable and Wireless
Optus, among others, each of whom is entitled to resell our existing BUYSITE
application to their customers. These relationships are new and this strategy
is unproven, and we cannot assure you that any of these resellers, or those
we may appoint in the future, will be able to resell our BUYSITE product to a
sufficient number of customers, or that those customers will purchase our
applications and more importantly, connect into MARKETSITE marketplaces. To
date, a few of our partners have not been successful in reselling our BuySite
products. If our current or future strategic partners are not able to
successfully resell our BUYSITE product, our business will suffer.
16
<PAGE>
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND THIS CHANGE MAY MAKE OUR
PRODUCTS AND SERVICES OBSOLETE OR CAUSE US TO INCUR SUBSTANTIAL COSTS TO ADAPT
TO THESE CHANGES.
If the market for our products and services fails to develop and
grow or we fail to gain acceptance in this market such failure would harm our
business, operating results and financial condition. Our market is
characterized by rapidly changing technology, evolving industry standards and
frequent new product announcements. To be successful, we must adapt to our
rapidly changing market by continually improving the performance, features
and reliability of our products and services or else our products and
services may become obsolete. We also could incur substantial costs to modify
our products, services or infrastructure in order to adapt to these changes.
Our business, operating results and financial condition could be harmed if we
incur significant costs without adequate results, or find ourselves unable to
adapt rapidly to these changes.
DELAYS IN RELEASING ENHANCED VERSIONS OF OUR PRODUCTS COULD ADVERSELY AFFECT OUR
COMPETITIVE POSITION.
We will need to continue to introduce new versions of our products
to add new features, functionality and technology that customers desire. In
the past, we have experienced delays releasing new products. As a result, we
cannot assure you that we will be able to successfully complete the
development of currently planned or future products in a timely and efficient
manner. Due to the complexity of these products, internal quality assurance
testing and customer testing of pre-commercial releases may reveal product
performance issues or desirable feature enhancements that could lead us to
postpone the release of these new versions. In addition, the reallocation of
resources associated with any such postponement would likely cause delays in
the development and release of other future products or enhancements to our
currently available products.
SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS AND
SERVICES.
A fundamental requirement to conduct Internet-based,
business-to-business electronic commerce is the secure transmission of
confidential information over public networks. Failure to prevent security
breaches of the MARKETSITE marketplaces, or well publicized security breaches
affecting the Internet in general, could significantly harm our business,
operating results and financial condition. We cannot be certain that advances in
computer capabilities, new discoveries in the field of cryptography, or other
developments will not result in a compromise or breach of the algorithms we use
to protect content and transactions on MARKETSITE marketplaces or proprietary
information in our databases. Anyone who is able to circumvent our security
measures could misappropriate proprietary, confidential customer information or
cause interruptions in our operations. We may be required to incur significant
costs to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information.
FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, its
infrastructure may not be able to support these demands and its performance and
reliability may decline. If outages or delays on the Internet occur frequently
or increase in frequency, overall Internet usage including usage of our products
and services could grow more slowly or decline. Our ability to increase the
speed and scope of our services to customers is ultimately limited by and
depends upon the speed and reliability of both the Internet and our customers'
internal networks. Consequently, the emergence and growth of the market for our
services depends upon improvements being made to the entire Internet as well as
to our individual customers' networking infrastructures to alleviate overloading
and congestion. If these improvements are not made, the ability of our customers
to utilize our
17
<PAGE>
solution will be hindered, and our business, operating results and financial
condition may suffer.
CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS
NECESSARY FOR OUR FUTURE GROWTH.
The market for Internet-based, business-to-business electronic commerce
products is relatively new and is evolving rapidly. Our future revenues and any
future profits depend upon the widespread acceptance and use of the Internet as
an effective medium of business-to-business commerce, particularly as a medium
to perform indirect goods procurement and fulfillment functions. The failure of
the Internet to continue to develop as a commercial or business medium or of
significant numbers of buyers and suppliers of indirect goods to conduct
business-to-business commerce on the Internet would harm our business, operating
results and financial condition. The acceptance and use of the Internet for
business-to-business commerce could be limited by a number of factors, such as
the growth and use of the Internet in general, the relative ease of conducting
business on the Internet, the efficiencies and improvements that conducting
commerce on the Internet provides, concerns about transaction security and
taxation of transactions on the Internet.
OUR REVENUES MAY DECREASE IF GROWTH IN THE USE OF THE INTERNET IN THE MARKETS WE
TARGET DOES NOT OCCUR AS PROJECTED.
The use of the Internet as a means to interconnect buyers and
sellers and to create online trading communities is integral to our business
model. Our business strategy is, in part, to create a global,
business-to-business electronic marketplace for buyers and sellers of
indirect goods. However, the use of the Internet as a means of transacting
business is relatively new and has not been accepted by all customers in the
markets we have targeted. If the rate of growth of the Internet use in our
targeted markets is less than expected, or if the Internet fails to produce a
feasible electronic commerce marketplace, our revenues will suffer. We cannot
assure you that the use of the Internet as a means of conducting business
will continue to grow at a rate similar to the historical rates, if at all.
IF WE RELEASE PRODUCTS CONTAINING DEFECTS, WE MAY NEED TO HALT FURTHER SHIPMENTS
UNTIL WE FIX THE DEFECTS, AND OUR BUSINESS AND REPUTATION WOULD BE HARMED.
Products as complex as ours often contain unknown and undetected errors
or performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial shipment of new products
or enhancements to existing products. Although we attempt to resolve all errors
that we believe would be considered serious by our customers before shipment to
them, our products are not error-free. These errors or performance problems
could result in lost revenues or delays in customer acceptance and would be
detrimental to our business and reputation. In the past, defects in our products
have delayed their shipments after those products have been commercially
introduced. While these delays have not been material to date, we cannot assure
you that undetected errors or performance problems in our existing or future
products will not be discovered in the future or that known errors considered
minor by us will not be considered serious by our customers.
IF OUR POTENTIAL CUSTOMERS ARE NOT WILLING TO SWITCH TO OR ADOPT OUR ELECTRONIC
COMMERCE SOLUTION, OUR GROWTH AND REVENUES WILL BE LIMITED.
The failure to generate a large customer base would harm our growth
and revenues. This failure could occur for several reasons. Some of our
business-to-business electronic commerce competitors charge their customers
large fees upon the execution of customer agreements. Businesses that have
made substantial up-front payments to our competitors for electronic commerce
solutions may be reluctant to replace their current solution and adopt our
solution. As a result, our efforts to create a larger customer base may be
more difficult than expected even if we are deemed to offer products and
services superior to those of our competitors. Further, because the
business-to-business electronic commerce market is new and underdeveloped,
potential customers in this market may be confused or uncertain about the
relative merits of each electronic commerce solution or which electronic
commerce solution to adopt, if any. Confusion and uncertainty in the
marketplace may inhibit customers from adopting our solution, which could
harm our business, operating results and financial condition.
18
<PAGE>
IF OUR EXTENSIBLE MARK-UP LANGUAGE SOFTWARE TECHNOLOGY DOES NOT PROVE TO BE
EFFECTIVE, WE WILL NOT REMAIN COMPETITIVE.
In connection with our acquisition of VEO Systems in January 1999,
we acquired the rights to its extensible mark-up language software
technology. This technology is an information modeling language for data
exchange in electronic commerce applications. If we are unable to utilize
this technology effectively or if this technology is not compatible with our
other technology or technology we develop or acquire in the future, we will
not remain competitive in our industry. Although we have not yet experienced
any material problems with this technology in our product development
process, we have only limited experience utilizing this technology to date.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers and other key personnel, and none of our executive officers (except
Jay M. Tenenbaum) or key employees are bound by an employment agreement for
any specific term. If we lose the services of one or more of our executive
officers or key employees, or if one or more of them decide to join a
competitor or otherwise compete directly or indirectly with us, our business,
operating results and financial condition would be seriously harmed. In
particular, the services of Mark Hoffman, our Chief Executive Officer, would
be difficult to replace.
WE INTEND TO CONTINUE TO EXPAND OUR INTERNATIONAL OPERATIONS AND THESE
EFFORTS MAY NOT BE SUCCESSFUL IN GENERATING ADDITIONAL REVENUES.
We have generated significant international revenues and are
planning to increase our international operations and sales efforts. However,
we cannot assure you that international revenues will continue to increase or
that risks of international sales and operations will not harm us.
International business involves inherent risks, and we anticipate the
risks that may affect us include:
- unexpected changes in regulatory requirements and tariffs that may be
imposed on electronic commerce;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and greater difficulty in accounts receivable
collection;
- potentially harmful tax consequences, including withholding tax
issues;
- fluctuating exchange rates;
- price controls or other restrictions on foreign currency; and
- difficulties in obtaining export and import licenses.
In addition, we have only limited experience in marketing, selling
and supporting our products and services in foreign countries. This may be
more difficult or take longer than we anticipate especially due to
international problems, such as language barriers or currency exchange
issues, and the fact that the Internet infrastructure in such foreign
countries may be less advanced than the Internet infrastructure in the United
States.
BECAUSE THE PROTECTION OF OUR PROPRIETARY TECHNOLOGY IS LIMITED, OUR PROPRIETARY
TECHNOLOGY COULD BE USED BY OTHERS WITHOUT OUR CONSENT.
Our success depends, in part, upon our proprietary technology and
other intellectual property rights. To date, we have relied primarily on a
combination of copyright, patent, trade secret, and trademark laws, and
nondisclosure and other contractual restrictions on copying and distribution
to protect our proprietary technology. Although (i) we acquired three filed
patent applications as part of our acquisition of VEO Systems in January 1999
and (ii) we have filed and intend to file additional patent applications on
our other proprietary technology, we have no issued patents to date. We
cannot assure you that our means of protecting our intellectual property
rights in the United States or abroad will be adequate or that others,
including our competitors, will not use our proprietary technology without
our consent.
Furthermore, litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or
19
<PAGE>
invalidity. Such litigation could result in substantial costs and diversion
of resources and could harm our business, operating results and financial
condition.
IF THIRD PARTIES CLAIM THAT WE INFRINGE UPON THEIR INTELLECTUAL PROPERTY, OUR
ABILITY TO USE CERTAIN TECHNOLOGIES AND PRODUCTS COULD BE LIMITED AND WE MAY
INCUR SIGNIFICANT COSTS TO RESOLVE THESE CLAIMS.
Litigation regarding intellectual property rights is common in the
Internet and software industries. We expect third-party infringement claims
involving Internet technologies and software products and services to increase.
If an infringement claim is filed against us, we may be prevented from using
certain technologies and may incur significant costs to resolve the claim.
We have in the past received letters suggesting that we are infringing
the intellectual rights of others, and we may from time to time encounter
disputes over rights and obligations concerning intellectual property. Although
we believe that our intellectual property rights are sufficient to allow us to
market our existing products without incurring liability to third parties, we
cannot assure you that our products and services do not infringe on the
intellectual property rights of third parties.
In addition, we have agreed, and may agree in the future, to indemnify
certain of our customers against claims that our products infringe upon the
intellectual property rights of others. We could incur substantial costs in
defending ourselves and our customers against infringement claims. In the event
of a claim of infringement, we and our customers may be required to obtain one
or more licenses from third parties. We cannot assure you that we or our
customers could obtain necessary licenses from third parties at a reasonable
cost or at all.
OUR PRODUCTS DEPEND UPON THE CONTINUED AVAILABILITY OF LICENSED TECHNOLOGY FROM
THIRD PARTIES.
We license and will continue to license certain technology integral to
our products and services from third parties. Our inability to acquire any
third-party product licenses, or integrate the related third-party products into
our products, could result in delays in product development until equivalent
products can be identified, licensed and integrated. We also expect to require
new licenses in the future as our business grows and technology evolves. We
cannot assure you that these licenses will continue to be available to us on
commercially reasonable terms, if at all.
OUR MARKETSITE MARKETPLACES MAY NOT FUNCTION AS EFFECTIVELY WHEN HANDLING HIGH
VOLUMES OF TRANSACTIONS.
As the volume of transactions on our MarketSite marketplaces
increases, participants in these marketplaces may experience slower response
times or other problems. In addition, participants in our MarketSite
marketplaces will depend upon Internet service providers, telecommunications
companies and their computer networks to access these marketplaces. Each of
these has experienced performance problems in the past and could experience
similar problems in the future. Any delays in the response time of our
MarketSite marketplaces or other performance problems could adversely affect
customer usage and adoption of our solutions.
WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK-UP SYSTEMS, AND A DISASTER COULD
SEVERELY DAMAGE OUR OPERATIONS.
We currently do not have a disaster recovery plan in effect and do not
have fully redundant systems for our service at an alternate site. A disaster
could
20
<PAGE>
severely harm our business because our service could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to
maintain and protect our computer systems in our principal facilities in
Walnut Creek, California, Pleasanton, California, Santa Clara, California and
Mountain View, California, which exist on or near known earthquake fault
zones. We will depend on third parties to host (most) of our MarketSite
marketplaces. Although these systems are designed to be fault tolerant, they
are vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events.
OUR PUBLICATION OF INACCURATE CATALOG CONTENT DATA COULD CAUSE THE LOSS OF
CUSTOMERS AND EXPOSE US TO LEGAL LIABILITY.
The accurate publication of supplier catalog content is critical to our
customers' businesses. Our MARKETSITE PORTAL SOLUTION contains content
management tools that help suppliers manage the collection and publication of
their catalog content. The failure of these tools to accurately publish catalog
content could deter businesses from participating in the MARKETSITE
marketplaces, damage our business reputation, harm our ability to win new
customers and potentially expose us to legal liability. In addition, from time
to time some of our customers may submit to us inaccurate pricing or other
catalog information. Even though such inaccuracies are not caused by our work
and are not within our control, similar consequences could occur. We currently
do not carry insurance that would adequately cover losses which may be incurred
as a result of inaccurate content publication.
ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE OUR COSTS OF DOING BUSINESS.
The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws or regulations relating to the Internet could
harm our business, operating results and financial condition by increasing our
costs and administrative burdens. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel,
consumer protection and taxation apply to the Internet.
Laws and regulations directly applicable to communications or commerce
over the Internet are becoming more prevalent. We must comply with new
regulations in both Europe and the United States, as well as any other
regulations adopted by other countries where we may do business. The growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, as
well as new laws governing the taxation of Internet commerce. Compliance with
any newly adopted laws may prove difficult for us and may harm our business,
operating results and financial condition.
WE EXPECT OUR OPERATIONS TO CONTINUE TO PRODUCE A NEGATIVE CASH FLOW;
CONSEQUENTLY, IF WE CANNOT RAISE ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO FUND
OUR CONTINUED OPERATIONS.
Since our inception, cash used in our operations has substantially
exceeded cash received from our operations, and we expect this trend to
continue for at least in the next two years. We currently anticipate that our
available cash resources will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least the next twelve
months. The estimate of the time period in which our cash resources will be
sufficient to meet our working capital and capital expenditure needs is a
forward-looking statement that involves risks and uncertainties. The actual
time period may differ materially from that indicated in the forward-looking
statement as a result of a number of factors so that we cannot assure you
that such resources will be sufficient for anticipated or unanticipated
working capital and capital expenditure requirements for this period. Factors
that may vary significantly affect whether our cash resources are sufficient
to meet our needs for the period indicated include our expectation that we
will continue to incur net losses and our continuing incurrence of
substantial negative cash flow. If adequate funds are not available or are
not available on acceptable terms, we may not be able to take advantage of
unanticipated opportunities, develop new products or services, fund our
continued operations, or otherwise respond to unanticipated
21
<PAGE>
competitive pressures. We cannot assure you that any additional financing we
may need will be available on terms favorable to us, if at all.
INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE.
The stock market and specifically the stock prices of Internet related
companies have been very volatile. This volatility is often not related to the
operating performance of the companies. This broad market volatility and
industry volatility may reduce the price of our common stock, without regard to
our operating performance. Due to this volatility, the market price of our
common stock could significantly decrease at anytime.
ITEM 2. DESCRIPTION OF PROPERTY
We lease a total of approximately 81,800 square feet of office space
in four buildings, one located in Walnut Creek, California, one in Mountain
View, California, one in Santa Clara, California and one in Pleasanton,
California. We plan to move our principal offices to our Pleasanton facility
in the second quarter of 2000. We also lease offices in Switzerland, the
United Kingdom and France. We believe our current facilities and available
additional space will be adequate through at least 2000. However, we may need
to locate additional space to meet our needs thereafter.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in disputes and litigation in the normal
course of business. The Company does not believe that the outcome of any of
these disputes or litigation will have a material effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of March 27, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------------------------------------
<S> <C> <C>
Mark B. Hoffman 53 Chairman of the Board and Chief Executive Officer
Robert M. Kimmitt 52 Vice Chairman of the Board and President
Charles J. Donchess 46 Executive Vice President and Chief Strategy Officer
Peter F. Pervere 52 Senior Vice President and Chief Financial Officer
Mark S. Biestman 42 Senior Vice President, Worldwide Sales
Kirby B. Coryell 50 Senior Vice President, Services
Samuel C. Prather 45 Senior Vice President, Engineering
Carl O. Falk 50 Senior Vice President, Global Trading Web
Thomas J. Gonzales 33 Director, Senior Vice President and
Chief Technology Officer
Robert M. Tarkoff 31 Senior Vice President, Corporate Development,
General Counsel and Secretary
Jay M. Tenenbaum 56 Director, Senior Vice President and Chief Scientist
John V. Balen(1) 39 Director
William B. Elmore(2) 46 Director
David H. J. Furniss 41 Director
Kenneth C. Gardner 49 Director
William J. Harding(2) 52 Director
Noriyoshi Osumi 47 Director
Jeffrey T. Webber(1) 46 Director
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
- --------------------------------------------------------------------------------
MARK B. HOFFMAN has served as President, Chief Executive Officer and
Chairman of the Board of Directors of Commerce One since December 1996. In
March 2000, he became Chairman of the Board and Chief Executive Officer.
Prior to joining Commerce One, Mr. Hoffman served as Chief Executive Officer
and President of Sybase, Inc., a company which he co-founded in 1984. Mr.
Hoffman currently serves on the board of directors and compensation committee
of Intraware, Inc. He also serves on the boards of The Fantastic Corp.,
Pacific Research Institute, Quong Hop and Strata Biosciences. Mr. Hoffman
earned a B.S. degree in Engineering from the U.S. Military Academy at West
Point and an M.B.A. degree from the University of Arizona.
ROBERT M. KIMMITT joined Commerce One in December 1999 as a board
member and in February 2000 he became Vice Chairman of the Board and Chief
Operating Officer. In March 2000, he was promoted to President while
remaining Vice Chairman of the Board. Prior to joining Commerce One, Mr.
Kimmitt was a partner in the law firm of Wilmer, Cutler & Pickering from 1997
to 2000. He was Managing Director of Lehman Brothers from 1993 to 1997. Prior
to joining Lehman, he was the American Ambassador to Germany from 1991 to
1993. He also served as Under Secretary of State for Political Affairs from
1989 to 1991. Mr. Kimmitt currently serves on the boards of Allianz Life
Insurance Co. of North America, Mannesmann AG, Siemens AG and United Defense
Industries, Inc. He received a B.S. degree in Engineering from the U.S.
Military Academy at West Point and a J.D. degree from Georgetown University.
CHARLES J. DONCHESS was promoted in February 2000 to Executive Vice
President and Chief Strategy Officer. Prior to his promotion he had served as
Vice President, Marketing of Commerce One from December 1996 to February
2000. Prior to joining Commerce One, Mr. Donchess was Vice President of
Marketing and Business Development at Aurum Software, Inc., a leading
provider of sales information software, from March 1995 to November 1996.
Prior to his tenure at Aurum Software, Inc., Mr. Donchess worked at Sybase,
Inc. from August 1989 to November 1994, most recently as Vice President and
General Manager of workgroup products from January 1994 to November 1994. Mr.
Donchess holds a B.A. degree from Brown University.
PETER F. PERVERE joined Commerce One in April 1997 as Vice President
and Chief Financial Officer. In February 2000, Mr. Pervere was promoted to
Senior Vice President and Chief Financial Officer. Prior to joining Commerce
One, Mr. Pervere was at Sybase, Inc. from October 1987 to April 1997, serving as
Vice President and Corporate Controller from 1991 to 1997. Mr. Pervere holds a
B.A. degree in History from Stanford University.
MARK S. BIESTMAN joined Commerce One in November 1997 as Vice
President, Worldwide Sales. In February 2000, Mr. Biestman was promoted to
Senior Vice President, Worldwide Sales. Prior to joining Commerce One, Mr.
Biestman was Vice President of Western United States Sales for Netscape
Communications Corporation from July 1995 to November 1997. Prior to his tenure
of Netscape Communications Corporation, Mr. Biestman served as Vice President of
Telecommunication Sales of Oracle Corporation from November 1994 to July 1995.
From November 1993 to November 1994, Mr. Biestman served as Vice President of
Worldwide Sales of Metaphor, Inc. Mr. Biestman serves as a member of the board
of directors and compensation committee of Prologic Management Systems, Inc. Mr.
Biestman holds an B.A. degree in Economics from the University of California,
Berkeley.
KIRBY B. CORYELL was promoted in February 2000 to Senior Vice
President, Services. Prior to his promotion he served as Vice President,
Operations of Commerce One from January 1997 to February 2000. Prior to
joining Commerce One, Mr. Coryell was Vice President of Manufacturing at NEC
Technologies, Inc. from September 1995 to January 1997. From September 1993
to September 1995, Mr. Coryell was Vice President of Worldwide Operations of
AST Research, Inc. Mr. Coryell holds a B.S. degree in Mechanical Engineering
from the University of Cincinnati.
SAMUEL C. PRATHER joined Commerce One as Vice President, Engineering in
December 1998. In February 2000, Mr. Prather was promoted to Senior Vice
President,
23
<PAGE>
Engineering. Prior to joining Commerce One, Mr. Prather was the Vice
President of Engineering at Resolute Software from February 1998 to December
1998 where he built electronic commerce performance tools and products. Prior
to joining Resolute, Mr. Prather served as Senior Research and Development
Manager at Hewlett-Packard from October 1984 to February 1998, managing a
wide variety of software development programs and a business-to-consumer
electronic commerce service. Mr. Prather holds a B.S. degree in Electrical
Engineering from the University of Oklahoma.
CARL O. FALK joined Commerce One in May 1998 as Vice President, Product
Marketing and Procurement Solutions. In June 1999, he became Vice President,
Global Trading Web and in February 2000, he was promoted to Senior Vice
President, Global Trading Web. Prior to joining Commerce One, Mr. Falk was
President of ACQUION, Inc., the Internet procurement subsidiary of Harbinger
Corporation, a worldwide supplier of electronic commerce software and services,
from August 1997 to May 1998. Prior to his tenure at Harbinger Corporation, Mr.
Falk was Vice President and General Manager of Fluor Daniel, Inc. from May 1989
to May 1994, when he founded ACQUION and became its President, a position he
held until August 1997 when ACQUION was sold to Harbinger. Mr. Falk holds a B.S.
degree in Mechanical Engineering from the University of Cincinnati and a J.D.
degree from Salmon Chase College of Law, N.K.U.
THOMAS J. GONZALES co-founded Commerce One in January 1994. In February
2000, he was promoted to Senior Vice President and Chief Technology Officer. He
served as Vice President and Chief Technology Officer from September 1996
through January 2000. He has also been a member of the board of directors since
April 1998. From January 1994 to September 1996, Mr. Gonzales served as
President and Chairman of the board of directors of Commerce One. Mr. Gonzales
attended the University of California, Berkeley.
ROBERT M. TARKOFF joined Commerce One in January 1999 as Vice
President, General Counsel and Secretary. In February 2000, Mr. Tarkoff was
promoted to Senior Vice President, Corporate Development, General Counsel and
Secretary. Prior to joining Commerce One, Mr. Tarkoff was an Associate at the
law firm of Wilson Sonsini Goodrich & Rosati from August 1995 to January 1999
where he served as outside counsel to Commerce One. Mr. Tarkoff received a B.A.
degree from Amherst College in Political Science and Economics and a J.D. degree
from Harvard University.
JAY M. TENENBAUM joined Commerce One as Chief Scientist and a member of
the board of directors in January 1999. In February 2000, he became Senior Vice
President and Chief Scientist. Prior to joining Commerce One, Dr. Tenenbaum was
the Chairman of the board of directors and Chief Scientist of VEO Systems, Inc.
from January 1998 to January 1999. Prior to joining VEO Systems, Inc., Dr.
Tenenbaum formed CommerceNet, an industry association for Internet commerce,
where he served as Chairman of the board of directors and Chief Executive
Officer from May 1996 to January 1998. Prior to founding CommerceNet, Dr.
Tenenbaum served as Vice President of Strategic Technology for VeriFone, Inc.
from November 1995 to May 1996. In February 1991, Dr. Tenenbaum founded E.I.T.,
a company that engages in security and payment solutions for the Internet, where
he served as Chairman of the board of directors and Chief Executive Officer,
until November 1995. He holds B.S. and M.S. degrees in Electrical Engineering
from the Massachusetts Institute of Technology and a Ph.D. in Electrical
Engineering and Computer Science from Stanford University.
JOHN V. BALEN has served as a member of the board of directors of
Commerce One since December 1996 and as a member of Commerce One's
compensation committee since April 1999. Mr. Balen joined Canaan Partners, a
national venture capital investment firm, in September 1995, where he is
currently a general partner. From June 1985 to June 1995, Mr. Balen served as
a Managing Director of Horsley Bridge Partners, a private equity investment
management firm. Mr. Balen currently serves on the board of directors and
compensation audit committees of E-Stamp Corporation and Intraware, Inc. He
also serves on the board of directors of Command Audio, Echo Pass, Everdream,
Gazooba, Mslide, Restaurantpro.com and Voice Web. Mr. Balen has a B.S. degree in
Electrical Engineering and an M.B.A. degree from Cornell University.
WILLIAM B. ELMORE has served as a member of the board of directors of
Commerce One since October 1997 and as a member of Commerce One's audit
committee since April 1999. Since December 1995, Mr. Elmore has been a Manager
of Foundation Capital Management, L.L.C., the general partner of Foundation
Capital, L.L.P., a venture capital firm focused on early-stage information
technology companies. From 1987 to 1995, he was a General Partner of Inman &
Bowman, a venture capital firm. Mr. Elmore serves on the boards of directors of
Onyx Software, Wind River Systems, Inc., Shoreline
24
<PAGE>
Teleworks, SuccessFactor.com, Dejacube, Wherenet, eALITY and T-Span Systems.
Mr. Elmore received a B.S. degree and an M.S. degree in Electrical
Engineering from Purdue University and an M.B.A. degree from Stanford
University.
DAVID H.J. FURNISS has served as a member of the board of directors of
Commerce One since November 1999. Since October 1999, Mr. Furniss has been
General Manager, Electronic Business of British Telecommunications plc. From
1997 to 1999, he was the Sales and Marketing Director at Demon Internet, a
leading consumer and business-to-business ISP. Prior to his position at Demon
Internet, Mr. Furniss worked in senior sales and marketing roles with Compaq.
Mr. Furniss received a B.S. degree in Business Studies from Leeds Metropolitan
University.
KENNETH C. GARDNER has served as a member of the board of directors of
Commerce One since September 1996. Since June 1995, Mr. Gardner has been
President and Chief Executive Officer of Sagent Technology, Inc. Prior to his
tenure at Sagent, Mr. Gardner served as Vice President of Products at Borland
International from April 1994 to June 1995. He is on the board of directors of
Data Sage, Inc. and ObjectSwitch Corporation. Mr. Gardner received a B.S. degree
in Finance from the University of Louisville.
WILLIAM J. HARDING has served as a member of the board of directors of
Commerce One since December 1996 and as a member of Commerce One's audit
committee since April 1999. Since 1994, Dr. Harding has been a General Partner
of Morgan Stanley Dean Witter Venture Partners. Prior to joining Morgan Stanley
Dean Witter, Dr. Harding was a General Partner of J.H. Whitney & Co. from 1985
to 1993. Dr. Harding currently serves on the board of Duet Technologies,
Blaze Software, Persistence Software, Interwave Communications, Inter Nap
Network Services, Respond.com, The Industry Standard Corp., Form Factor, Inc.,
and SendMail, Inc. Dr. Harding received a B.S. degree in Engineering Mathematics
and an M.S. degree in Systems Engineering from the University of Arizona and a
Ph.D. degree in Engineering from Arizona State University.
NORIYOSHI OSUMI has served as a member of the board of directors
since July 1999. In 1980, Dr. Osumi joined NTT Basic Research Labs as a
research scientist. He has been Vice President of NTT America, Inc. since
July 1998. Prior to this appointment he was Senior Research Manager from
April 1988 to July 1998. From 1985 to 1986, Dr. Osumi was a visiting scholar
at the University of California, Berkeley. In 1977 and in 1980, respectively,
Dr. Osumi received Masters and PH.D degrees in Electronic Engineering from
the Tokyo Institute of Technology, and in 1992 he obtained an M.B.A. degree
from Cornell University.
JEFFREY T. WEBBER has served as a member of the board of directors and
compensation committee of Commerce One since 1995. Mr. Webber co-founded R.B.
Webber & Company, a company which provides strategic planning consulting
services to high technology companies, where he has served as President since
1991. He also serves as a General Partner of The Entrepreneurs' Fund, an early
stage venture capital fund, which position he has held since 1997. Mr. Webber
also serves on the board of directors of Sagent Technology, Inc., Persistence
Software, Avantgo, eGlyphs, gForce Systems, NetAcumen, Spear Technologies and
enCommerce. Mr. Webber holds a B.A. degree from Yale University.
There are no family relationships among any of our directors or
officers. All executive officers are appointed by the board of directors on an
annual basis and serve until their successors have been duly appointed and
qualified.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Commerce One, Inc. common stock, par value $.0001, is traded on the
Nasdaq Stock Market's National Market under the symbol "CMRC." The price per
share reflected in the table below represents the range of low and high closing
sale prices for Commerce One's common stock as reported on the Nasdaq Stock
Market's
25
<PAGE>
National Market for the quarters indicated, since July 1, 1999, the date of
its initial public offering of stock.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1999:
Quarter Ended September 30, 1999(i) $42.33 $9.71
Quarter Ended December 31, 1999 $256.44 $32.15
</TABLE>
(i) This information has been restated to reflect a three-for-one
stock split, effected in the form of a stock dividend to each stockholder of
record as of December 3, 1999.
Commerce One has never paid cash dividends on its capital stock. We
currently intend to retain any earnings, if any, for use in our business and
do not anticipate paying any cash dividends in the foreseeable future.
The closing price of Commerce One's common stock as reported on the
Nasdaq Stock Market's National Market on March 16, 2000 was $222.53. The
number of stockholders of record of our common stock as of March 16, 2000 was
894, and there is a substantially greater number of Commerce One beneficial
owners.
On November 12, 1999, we issued approximately 2,289,156 shares of
Commerce One common stock in exchange for all outstanding shares of CommerceBid
stock and options and other rights to acquire CommerceBid stock. The
issuance of securities are deemed to be exempt from the registration of the
Securities Act in reliance on Section 4(2) of the Securities Act as transactions
by an issuer not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 33,557 $ 2,563 $ 1,746 $ 812 $ 439
-------- -------- -------- -------- --------
Gross profit (loss) 17,487 (1,806) (1,141) 30 207
Operating expenses 79,923 22,990 10,032 1,810 517
-------- -------- -------- -------- --------
Loss from operations (62,436) (24,796) (11,173) (1,780) (310)
Interest income, net 3,302 156 9 (25) (31)
Provision for income taxes 4,188 --- --- --- ---
-------- -------- -------- -------- --------
Net loss (63,322) (24,640) (11,164) (1,805) (341)
======== ======== ======== ======== ========
Basic and diluted net loss
per share $ (1.48) $ (2.74) $ (1.40) $ (0.23) $ (0.05)
======== ======== ======== ======== ========
Shares used in calculation of
basic and diluted net loss
per share 43,027 9,159 8,037 7,854 7,539
======== ======== ======== ======== ========
Proforma basic and diluted net loss per
share $ (1.01)
========
Shares used in calculation of proforma
basic and diluted net loss per share 62,839
========
</TABLE>
BALANCE SHEET DATA: (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short term investments $124,606 $ 15,138 $ 9,367 $ 6,111 $ 230
Working capital 77,480 11,777 7,194 5,209 (246)
Total assets 384,610 20,507 11,664 6,745 327
Long term liabilities 262 1,896 1,096 199 ---
Redeemable convertible preferred
stock --- 50,432 20,650 7,258 ---
Total stockholders' equity
(deficit) 316,721 (37,011) (13,040) (1,897) (157)
</TABLE>
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Background
Commerce One is a leading provider of business-to-business electronic
commerce solutions that link buyers and suppliers of goods and services into
trading communities over the Internet. We were founded under the name
DistriVision Development Corporation in 1994. In March 1997, we changed our name
to Commerce One, Inc. and embarked on an aggressive product development effort,
which culminated in the release of the BUYSITE and MARKETSITE products in April
1998. We released subsequent versions of the BUYSITE and MARKETSITE products in
November 1998, April 1999 and December 1999.
Source of Revenues
We generate revenues from multiple sources. License fees are generated
from licensing the BUYSITE and MARKETSITE products to end-user organizations,
primarily Fortune 1000 enterprises. Professional service fees are received from
BUYSITE and MARKETSITE licensees and their suppliers for enterprise resource
planning integration, content aggregation, project management and other related
services. Software maintenance revenues are generated from product licensees
based on the scope of their implementation and the extent of the service
provided. MARKETSITE subscription fees are received from BUYSITE licensees, as
well as other customers, for the right to access services in MARKETSITE.
Transaction fees are received from suppliers for purchase orders the supplier
receives through MARKETSITE. To date, transaction and MARKETSITE subscription
fees have been immaterial. However, our revenue growth will depend upon
realizing significant transaction and MARKETSITE subscription fees in the
future.
Revenue Recognition
We recognize revenues from license agreements upon delivery and
acceptance of the software if there is persuasive evidence of an arrangement,
collection is probable, the fee is fixed or determinable, and there is
sufficient vendor-specific objective evidence to support allocating the total
fee to all elements of multiple-element arrangements. If an acceptance period is
required, license revenues are recognized upon the earlier of customer
acceptance or the expiration of the acceptance period.
We recognize revenues from professional services as the services are
provided. If a transaction includes both license and service elements, the
license fee is recognized on delivery and acceptance of the software, provided
services do not include significant customization or modification of the base
product, and the payment terms for licenses are not dependent on additional
acceptance criteria. In cases where license fee payments are contingent on the
acceptance of services, recognition of revenues is deferred for both the license
and the service elements until the acceptance criteria are met. Software
maintenance revenues and MarketSite subscription fees are recognized ratably
over the term of the support contract, typically one year.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the
Company expressed as a percentage of total revenues for the years ended December
31, 1999, 1998 and 1997. The Company's historical operating results are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
License fees 73 % 64 % 42 %
Services 27 % 36 % 58 %
---- ---- ----
Total revenues 100 % 100 % 100 %
Cost of revenues:
License fees 1 % 0 % 0 %
Services 47 % 170 % 165 %
---- ----- -----
Total costs of revenues 48 % 170 % 165 %
---- ----- -----
Gross profit (loss) 52 % (70)% (65)%
Operating expenses:
Sales and marketing 94 % 511 % 347 %
Product development 61 % 267 % 125 %
General and administrative 15 % 76 % 103 %
Purchased in-process research and development 28 % 0 % 0 %
Amortization of deferred stock compensation 7 % 43 % 0 %
Amortization of goodwill and other intangible
assets 33 % 0 % 0 %
---- ----- -----
Total operating expenses 238 % 897 % 575 %
---- ----- -----
Loss from operations (186)% (967) % (640) %
Interest income, net 10 % 6 % 1 %
Provision for income taxes 13 % 0 % 0 %
---- ----- -----
Net loss (189) % (961) % (639) %
======= ======= =======
</TABLE>
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
Revenue
Total revenues for the year ended December 31, 1999 increased to
approximately $33.6 million compared to $2.6 million and $1.7 million in the
years ended December 31, 1998 and 1997, respectively. A relatively small number
of customers have accounted for a significant portion of our total revenue to
date.
License revenues for the year ended December 31, 1999 increased to
approximately $24.6 million compared to $1.6 million in the year ended December
31, 1998 and $0.7 million in the year ended December 31, 1997. The increase in
revenues from license fees in 1999 primarily resulted from an increase in new
customers who purchased and accepted the BUYSITE and MARKETSITE products.
Service revenues include revenue from professional services,
maintenance fees, and to a lesser degree, MarketSite subscription fees and
transaction fees. Services revenues increased approximately 866% to $9.0 million
for the year ended December 31, 1999 compared to $0.9 million and $1.0 million
for the years ended December 31, 1998 and 1997, respectively. The increase in
service revenues in 1999 resulted primarily from an increase in consulting
revenue associated with implementing our products at an increased number of
customer sites. The increase was also attributable to higher maintenance revenue
resulting from customer sites that have commenced maintenance over the past 12
months.
28
<PAGE>
Cost of Revenues
Cost of revenues were approximately $16.1 million, or 48% of total
revenues, in the year ended December 31, 1999, $4.4 million, or 170% of total
revenues, in the year ended December 31, 1998 and $2.9 million, or 165% of total
revenues, in the year ended December 31, 1997.
Cost of services, which primarily consists of consulting, customer
support and training costs, were $15.6 million, $4.4 million and $2.9 million
for the years ended December 31, 1999, 1998 and 1997, respectively. The increase
in cost of services resulted primarily from an increase in personnel related
expenses due to the hiring and training of consulting, support and training
personnel in the United States and Europe. Additionally, in 1999 an increase in
allocated overhead expenses and third party consultants contributed to the
increase. Cost of services also includes software media and duplication and
software documentation costs, although these costs have not been material to
date.
Cost of license fees for the year ended December 31, 1999 of $0.5
million consisted of royalties due to third parties.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee salaries,
benefits and commissions, and the costs of seminars, promotional materials,
trade shows and other sales and marketing programs. Sales and marketing expenses
were approximately $31.5 million, $13.1 million and $6.1 million for the years
ended December 31, 1999, 1998 and 1997, respectively. The increase in 1999 was
primarily attributable to an overall increase in the number of sales and
marketing personnel as well as an increase in marketing related activity. The
number of employees engaged in sales and marketing increased to 146 at December
31, 1999 from 49 at December 31, 1998 and 29 at December 31, 1997. The increase
in 1999 was also attributable to increased commission expense, travel related
expense resulting from increased sales activity and allocated overhead expenses.
We expect that the dollar amount of sales and marketing expenses will continue
to increase due to the planned growth of our sales force, including the
establishment of sales offices in additional domestic and international
locations, and due to expected additional increases in marketing programs and
other promotional activities.
Product Development Expenses
Product development expenses consist primarily of personnel and
related costs associated with our product development efforts. Product
development expenses were approximately $20.5 million, $6.8 million and $2.2
million for the years ending December 31, 1999, 1998 and 1997, respectively.
The increase in product development expenses during 1999 was primarily
attributable to personnel related expenses to support development of the
BUYSITE and MARKETSITE products. The overall number of employees engaged in
product development was 158 at December 31, 1999, which included the addition
of 22 employees from the acquisition of VEO Systems in January 1999, 61 at
December 31, 1998 and 26 at December 31, 1997. We believe that investments in
product development are essential to our future success and expect that the
dollar amount of product development expenses will increase in future periods.
General and Administrative Expenses
General and administrative expenses consist primarily of employee
salaries and related expenses for executive, administrative and finance
personnel. General and administrative expenses were approximately $5.1 million,
$1.9 million and $1.8 million for the years ended December 31, 1999, 1998 and
1997, respectively. The increase in 1999 was primarily attributable to an
increase in personnel related expenses. The number of employees engaged in
general and administrative functions increased to 90 at December 31, 1999 from
16 at December 31, 1998 and 9 at December 31, 1997. We expect general and
administrative expenses to increase modestly in future periods.
29
<PAGE>
Purchased In-Process Research and Development
VEO SYSTEMS
In January 1999, we acquired VEO Systems, Inc., a company specializing
in the creation of extensible mark-up language software technology applications,
to complement our existing technologies. We accounted for the VEO Systems
acquisition as a purchase transaction. The purchase consideration was
approximately $23.2 million consisting of shares of common and preferred stock,
stock options assumed and $400,000 in cash plus an additional $400,000 in
contingent consideration.
We estimated that approximately $3.0 million of the $23.2 million
purchase consideration represented purchased in-process research and development
that had not yet reached technological feasibility and had no alternative future
use. Accordingly, we charged this amount to operations in the three months ended
March 31, 1999. A total of approximately $3.5 million of the purchase
consideration was allocated to other intangible assets, including existing
technology ($2.3 million), assembled workforce ($541,000) and tradenames and
patents ($693,000), with these amounts being amortized over periods of four, two
and five years, respectively.
Purchased in-process research and development consisted of a single
project, the development of a set of software tools which is being designed to
enable applications developers to generate programs to interface with the
extensible mark-up language document interchange and transport server. These
tools will be integrated into our products. The efforts required to develop the
acquired in-process technology include the completion of all planning,
designing, and testing activities that are necessary to establish that the
product or service can be produced to meet its design requirements, including
functions, features, and technical performance requirements.
These development tools are based on VEO Systems' proprietary platform
and new standards utilizing extensible mark-up language and will be scalable,
will have new security features and functionality and will have capabilities for
several new services. Significant risk factors with respect to the timely
completion of the development of the technology include the successful
development of the new platform, the development of the schema for object
oriented extensible mark-up language operating language, development of specific
service modules, the configuration into a scalable product, the interoperability
independent of any operating language and maintaining project timing schedules
and retention of key development personnel.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis on the anticipated income stream of the related
product revenues. The discounted cash flow analysis was based on management's
forecast of future revenues, cost of revenues and operating expenses related to
the products and technologies purchased from VEO Systems. The calculation of
value was then adjusted to reflect only the value creation efforts of VEO
Systems prior to the close of the acquisition. At the time of the acquisition,
the product was approximately 46.0% complete with approximately $1.3 million in
estimated costs remaining which were incurred in 1999. The technology was
available for use in our products in late 1999 and has a technology life of
approximately five years. The resultant value of in-process technology was
further reduced by the estimated value of core technology, which was included in
capitalized developed technology.
The discount rates selected for estimating future discounted cash flows
for developed and in-process technology were 20.0% and 30.0%, respectively. In
the selection of the appropriate discount rates, consideration was given to our
estimated weighted average return on working capital and our estimated weighted
average return on assets. The discount rate utilized for the in-process
technology was determined to be higher than our estimated weighted average
return on working capital due to the fact that the technology had not yet
reached technological feasibility as of the date of valuation. In utilizing a
discount rate greater than our weighted average return on working capital, we
have reflected the risk premium associated with achieving and sustaining growth
rates and improved profitability as well as the increased rates of return
associated with intangible assets.
COMMERCEBID
In November 1999, we acquired CommerceBid.com, Inc., a leading
developer of business-to-business auction and reverse auction service
solutions. The purchase consideration was approximately $227.5 million
consisting of
30
<PAGE>
2,289,156 shares of common stock with a fair value of $217.1 million, 29,502
options assumed with a fair value of $2.8 million and $4.5 million in cash
plus an additional $5.0 million in contingent consideration.
We estimated that approximately $6.3 million of the $227.5 million
purchase consideration represented purchased in-process research and development
that had not yet reached technological feasibility and had no alternative future
use. Accordingly, we charged this amount to operations in the three months ended
December 31, 1999. A total of approximately $24.0 million of the purchase
consideration was allocated to other intangible assets, including existing
technology ($21.1 million), developed technology ($2.5 million) and assembled
workforce ($385,000) with these amounts being amortized over periods of four,
one and two years, respectively.
Purchased in-process research and development consisted of a single
project, the development of a full-featured ChannelBid product to incorporate
additional auction types, such as Japanese style auctions, reverse procurement
style auctions and a sealed Japanese auction. In addition, CommerceBid intended
to add additional international functions to include multiple languages,
currency conversion features as well as more advanced business rules and a more
user friendly interface that will enable users to create and customize auctions
easier and quicker.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis on the anticipated income stream of the related
product revenues. The discounted cash flow analysis was based on management's
forecast of future revenues, cost of revenues, and operating expenses related to
the products and technologies purchased from CommerceBid. The calculation of
value was then adjusted to reflect only the value creation efforts of
CommerceBid prior to the close of the acquisition. At the time of the
acquisition, the product was approximately 50.0% complete with approximately
$400,000 in estimated costs remaining, the majority of which are expected to be
incurred in 2000. The technology is expected to be available for use in our
products in the latter half of 2000 and have a technology life of approximately
3.5 years. The resultant value of in-process technology was further reduced by
the estimated value of core technology, which was included in capitalized
developed technology.
The discount rates selected for estimating future discounted cash flows
for the developed, core and in-process technology were 15.0%, 20.0% and 25.0%,
respectively. In the selection of the appropriate discount rates, consideration
was given to our estimated weighted average return on working capital and our
estimated weighted average return on assets. The discount rate utilized for the
in-process technology was determined to be higher than our estimated weighted
average return on working capital due to the fact that the technology had not
yet reached technological feasibility as of the date of valuation. In utilizing
a discount rate greater than our weighted average return on working capital, we
have reflected the risk premium associated with achieving and sustaining growth
rates and improved profitability as well as the increased rates of return
associated with intangible assets.
MERGENT SYSTEMS
On January 7, 2000, we acquired Mergent Systems, Inc. (Mergent), a
company specializing in enabling infomediaries and Global 3000 companies to
create, operate, and manage product information systems and aggregated
multivendor catalogs for e-commerce. The purchase consideration was
approximately $148.4 million consisting of 871,095 shares of common stock
with a fair value of $122.6 million, 109,505 options assumed with a fair
value of $15.3 million and approximately $10.0 million in cash to the Mergent
stockholders.
We estimated that approximately $5.1 million of the $148.4 million
purchase consideration represented purchased in-process research and development
that has not yet reached technological feasibility and has no alternative future
use. Accordingly, we will charge this amount to operations in the three months
ended March 31, 2000. A total of approximately $8.8 million of the purchase
consideration was allocated to other intangible assets, including purchased
technology ($7.9 million), assembled workforce ($373,000) and tradenames/patents
($555,000) with these amounts being amortized over periods of one to five years.
Purchased in-process research and development consists of two
projects, (1) the development of an enterprise application that enables fast,
easy electronic catalog creation, product information management and
aggregation for (a) infomediaries and (b) large corporations who automate
their procurement processes and (2) the development of a new feature which
will enable users to get unstructured HTML files in a form that can be
utilized by the enterprise application. These applications will be integrated
into our products. The efforts required to develop the acquired in-process
technology include the completion of all planning, designing and testing
activities that are necessary to establish that the product or service can be
produced to meet its design requirements, including functions, features and
technical performance requirements.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis on the anticipated income stream of the related
product revenues. The discounted cash flow analysis was based on management's
forecast of future revenues, cost of revenues, and operating expenses related
to the products and technologies purchased from Mergent. The calculation of
value was then adjusted to reflect only the value creation efforts of Mergent
prior to the close of the acquisition. At the time of the acquisition, the
product was approximately 75% complete with approximately $300,000 in
estimated costs remaining, the majority of which are expected to be incurred
in 2000. The technology is expected to be available for use in our products
in the latter half of 2000 and have a technology life of approximately 3.5
years. The resultant value of in-process technology was further reduced by
the estimated value of core technology, which was included in capitalized
developed technology.
The discount rates selected for estimating future discounted cash
flows for the core and in-process technology were 18% and 24%, respectively.
In the selection of the appropriate discount rates, consideration was given
to our estimated weighted average return on working capital and our estimated
weighted average return on assets. The discount rate utilized for the
in-process technology was determined to be higher than our estimated weighted
average return on working capital due to the fact that the technology had not
yet reached technological feasibility as of the date of valuation. In
utilizing a discount rate greater than our weighted average return on working
capital, we have reflected the risk premium associated with achieving and
sustaining growth rates and improved profitability as well as the increased
rates of return associated with intangible assets.
Amortization of Deferred Stock Compensation
Amortization of deferred stock compensation totaled approximately $2.3
million and $1.1 million in the years ended December 31, 1999 and 1998,
respectively. The deferred stock compensation is being amortized over the
vesting period of the related options using a graded vesting method. The vesting
period of the options range from three to four years.
Amortization of Goodwill and Other Intangible Assets
Amortization of goodwill and other intangible assets was
$11.1 million for the year ended December 31, 1999 which was attributable to
the amortization of goodwill and other purchased intangible assets resulting
from the acquisitions of Veo Systems, Inc. and CommerceBid during 1999.
We expect to incur quarterly charges to amortization of goodwill and
other intangible assets of approximately $11.0 million related to these
acquisitions. In addition, we expect to incur additional charges to amortization
of goodwill and other intangible assets related to the acquisition of Mergent
Systems, Inc. In the
31
<PAGE>
event of future acquisitions, we anticipate the amortization of goodwill and
other intangible assets will increase.
Provision for Income Taxes
The income tax provision for 1999 is the result of withholding taxes
on customer payments generated in certain international jurisdictions.
Realization of our net deferred tax assets is dependent upon Commerce One
generating sufficient taxable income in future years in appropriate tax
jurisdictions to obtain benefit from the reversal of temporary differences and
from net loss operating carryforwards. Due to the uncertainty of the amount and
timing of future taxable income, we have provided a full valuation allowance
against their net deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through
issuances of equity securities and lease and debt financing. On July 7, 1999,
we closed an initial public offering and concurrent private placement of our
common stock which resulted in net proceeds of approximately $92.5 million.
Net cash provided by operating activities totaled approximately $3.8
million for the year ended December 31, 1999 as compared to net cash used in
operating activities of approximately $21.3 million and $10.6 million for the
years ended December 31, 1998 and 1997, respectively. Cash provided by
operating activities for the year ending December 31, 1999 resulted principally
from cash collections related to deferred revenues, partially offset by the net
loss and amortization of goodwill and other intangible assets associated with
the acquisition of Veo Systems and CommerceBid. Cash used in operating
activities for the years ended December 31, 1998 and 1997 resulted primarily
from net losses in those periods.
Net cash used in investing activities totaled approximately $88.5
million for the year ended December 31, 1999 as compared to approximately
$2.5 million and $900,000 for the years ended December 31, 1998 and 1997,
respectively. The uses in each period resulted from the acquisition of
capital assets, primarily computer and office equipment, as well as the
acquisitions of Veo Systems and CommerceBid in the year ended December 31,
1999.
Net cash provided by financing activities totaled approximately $121.4
million for the year ended December 31, 1999 as compared to approximately $29.6
million and $14.8 million for the years ended December 31, 1998 and 1997,
respectively. The cash provided in the year ended December 31, 1999 resulted
primarily from an initial public offering and concurrent private placement of
our common stock, completed on July 7, 1999 which resulted in net proceeds of
approximately $92.5 million. The cash provided in the prior years resulted
primarily from the net proceeds from issuances of convertible preferred stock
and option exercises.
As of December 31, 1999, our principal sources of liquidity included
approximately $124.6 million of cash, cash equivalents and short term
investments. We anticipate an increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel.
We believe that our available cash resources together with the net
proceeds from our recent public offering and the concurrent private placement
will be sufficient to finance our presently anticipated operating losses and
working capital expenditure requirements for at least the next twelve months.
Our future liquidity and capital requirements will depend upon numerous
factors. The rate of expansion of our operations in response to potential
growth opportunities and competitive pressures will affect our capital
requirements as will funding of continued net losses and substantial negative
cash flows. Additionally, we may need additional capital to fund acquisitions
of complementary businesses, products and technologies. Our forecast of the
period of time through which its financial resources will be adequate to
support operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially as a result of the
factors described above. If we require additional capital resources, we may
seek to sell additional equity or debt securities or secure a bank line of
credit. The sale of additional equity or convertible debt securities could
result in additional dilution to our stockholders. We cannot assure you that
any financing arrangements will be available in amounts or on terms
acceptable to us, if at all.
NEW ACCOUNTING PRONOUCEMENTS
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements of all public registrants. The
provisions of SAB 101 are effective for transactions beginning in the year
2000. The company has not completed its assessment of the impact of SAB 101
and has not determined its effect, if any, on its future reported results of
operations.
32
<PAGE>
RECENT EVENTS
1. Acquisition of Mergent Systems, Inc.
On January 7, 2000, Commerce One acquired privately held Mergent
Systems, Inc. (Mergent), a company specializing in enabling infomediaries and
Global 3000 companies to create, operate and manage product information
systems and aggregated multivendor catalogs for e-commerce. The acquisition
was structured as a tax-free, stock-for-stock exchange, and will be accounted
for as a purchase transaction. Commerce One issued approximately 871,095
shares of common stock with a fair value of $122.6 million, 109,505 options
assumed with a fair value of $15.3 million and approximately $10.0 million in
cash to the Mergent stockholders in this transaction.
2. Strategic Relationship with General Motors
In January 2000, we entered into agreements with General Motors to
create and operate the GM TradeXchange, an Internet-based trading exchange
owned by GM that enables buying and selling over the Internet by GM, its
dealers and its suppliers. The agreements governing the GM TradeXchange
currently provide that Commerce One and GM will share equally in the net
revenues generated by the GM TradeXchange, after the repayment of both
parties expenses, for an anticipated ten-year term. The GM TradeXchange
agreements also provided for the restructuring of Commerce One into a holding
company and the issuance of 14,400,000 shares of common stock to GM. Of these
14,400,000 shares, 7,200,000 shares will be held in escrow until the GM
TradeXchange has repaid the accumulated investements by both Commerce One and
GM in developing the GM TradeXchange. The shares issued to GM will generally
not be freely transferable for three years and would be subject to standstill
restrictions that will restrict GM's ability to acquire more than 19.9% of
the company's outstanding stock during the first three years of the
relationship or more than 25.0% thereafter. GM is also entitled to certain
registration rights with respect to the shares after the initial three year
period. The closing of the GM TradeXchange agreements remains subject to
certain customary closing conditions, including requisite regulatory
clearance, and has been delayed pending the negotiations described below.
Subsequent to the execution of the GM TradeXchange agreements,
Commerce One and GM have entered into negotiations with Ford Motor Company,
DaimlerChrysler and Oracle Corporation concerning the possible creation of a
broader business-to-business e-commerce exchange for the automotive industry.
Such an exchange would integrate or combine the GM TradeXchange with an
Internet-based trading exchange being developed by Ford and Oracle Corporation.
The parties have not, however, reached agreement on the specific terms and
conditions governing the creation of the exchange, the responsibilities of the
parties with respect to the exchange, or the extent to which the parties,
including Commerce One, will receive equity in the exchange and share in the
revenues of the exchange. In addition, such an agreement would also require
regulatory clearance.
We cannot assure you that the parties will reach an agreement for a
broader trading exchange on mutually acceptable terms and conditions or that
such an agreement would receive regulatory clearance. Further, if such an
agreement is not reached, we cannot assure you that the GM TradeXchange
agreements will receive regulatory clearance and close in a timely fashion, or
at all. For more information concerning certain risks associated with the GM
TradeXchange or a broader exchange for the automotive industry, see the Risk
Factors section of this Form 10-K.
Forward-Looking Statements
The foregoing descriptions of recent events include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements include statements concerning the
establishment of a business-to-business e-commerce portal, the anticipated
date of its commencement of operations, the anticipated date of Commerce One
and General Motors, Ford and DaimlerChrysler reaching definitive terms on
the agreements that will underlie the relationship between the companies, the
potential revenues to be generated by the portal, the interoperability of the
portal with other business-to-business e-commerce portals, the potential
efficiencies and cost savings that may be realized from the portal, the
acquisition of Mergent and the integration of the iMerge product into
Commerce Ones software and services offerings. These statements are subject
to risks and uncertainties. Actual results may differ materially from those
described in such statements as a result of a number of factors. These
factors include but are not limited to the ability of Commerce One and its
partners to timely enter into definitive agreements relating to the portal,
the ability of the companies to timely and successfully launch the portal,
the extent of supplier and buyer adoption and utilization of the portal once
it becomes operational, the extent to which Commerce One and Mergent can
integrate their technology, personnel and businesses in order to offer
software and services and the extent to which customers adopt and utilize
such software services once they become available.
33
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
MARKET RISK
The following discusses our exposure to market risk related to changes
in interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in "Risk Factors" on page 12.
INTEREST RATE RISK
At December 31, 1999, we had cash, cash equivalents and short term
investments of approximately $124.6 million, compared to $15.1 million at
December 31, 1998, which consist of cash and highly liquid investments. These
investments may be subject to interest rate risk and will decrease in value
if market interest rates decrease. A hypothetical increase or decrease in
market interest rates by 10 percent from the
34
<PAGE>
market interest rates at December 31, 1999 would cause the fair market value
of our cash and cash equivalents to change by an immaterial amount. Declines
in interest rates over time will, however, reduce our interest income.
FOREIGN CURRENCY EXCHANGE RATE RISK
Substantially all of our revenues recognized to date have been
denominated in U.S. dollars a significant portion of which has been realized
outside of United States. To the extent that we engage in international
sales denominated in U.S. dollars, an increase in the value of the U.S.
dollar relative to foreign currencies could make our products less
competitive in international markets. Although we will continue to monitor
our exposure to currency fluctuations, and, when appropriate, may use
financial hedging techniques in the future to minimize the effect of these
fluctuations, we cannot assure you that exchange rate fluctuations will not
harm our business in the future.
EQUITY PRICE RISK
We do not own any significant equity investments. Therefore, we
believe we are not currently exposed to any direct equity price risk.
35
<PAGE>
REPORT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS
To The Board of Directors and Stockholders
Commerce One, Inc.
We have audited the accompanying consolidated balance sheets of
Commerce One, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Commerce One, Inc. at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
January 21, 2000
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
COMMERCE ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $51,792 $ 15,138
Short term investments 72,814 -
Accounts receivable, net 15,845 1,200
Prepaid expenses and other current assets 4,656 629
--------- --------
Total current assets 145,107 16,967
Property and equipment, net 11,892 2,590
Note receivable from Veo Systems, Inc. - 950
Goodwill and other intangible assets, net 227,611 -
--------- --------
Total assets $ 384,610 $ 20,507
========= ========
<CAPTION>
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable $ 6,885 $ 709
Accrued compensation and related expenses 3,972 352
Current portion of capital lease obligations 274 448
Current portion of notes payable 411 876
Deferred revenue 40,414 1,168
Other current liabilities 15,671 1,637
------ -----
Total current liabilities 67,627 5,190
Capital lease obligations - 309
Notes payable 262 1,587
Commitments and contingent liabilities
Redeemable convertible preferred stock, $0.0001 par value;
issuable in series: 62,237,928 shares authorized;
26,333,487 issued and outstanding at December 31, 1998 - 50,432
Stockholders' equity (deficit):
Convertible preferred stock, $0.0001 par value; 10,000,000
shares authorized, 1,010,520 shares issued and
outstanding at December 31, 1998 - 487
Common stock, $0.0001, 250,000,000 shares authorized;
74,968,238 and 9,897,204 issued and outstanding at
December 31, 1999 and 1998, respectively 423,839 3,165
Deferred stock compensation (4,110) (1,848)
Accumulated deficit (102,556) (38,765)
Accumulated other comprehensive loss (452) (50)
--------- --------
Total stockholders' equity (deficit) 316,721 (37,011)
--------- --------
Total liabilities, redeemable convertible preferred stock and
stockholders' equity (deficit) $ 384,610 $ 20,507
========= ========
</TABLE>
See accompanying notes.
37
<PAGE>
COMMERCE ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
License fees $ 24,571 $ 1,633 $ 742
Services 8,986 930 1,004
----- --- -----
Total revenues 33,557 2,563 1,746
Cost of revenues:
License fees 484 - -
Services 15,586 4,369 2,887
------ ----- -----
Total cost of revenues 16,070 4,369 2,887
Gross profit (loss) 17,487 (1,806) (1,141)
Operating expenses:
Sales and marketing 31,546 13,108 6,055
Product development 20,496 6,839 2,172
General and administrative 5,050 1,941 1,805
Purchased in-process research
and development 9,374 - -
Amortization of deferred stock
compensation 2,324 1,102 -
Amortization of goodwill and other
intangible assets 11,133 - -
----- --- -----
Total operating expenses 79,923 22,990 10,032
------ ------ ------
Loss from operations (62,436) (24,796) (11,173)
Interest income, net 3,302 156 9
------- ------- -------
Loss before income taxes (59,134) (24,640) (11,164)
Provision for income taxes 4,188 - -
----- --- -----
Net loss $(63,322) $(24,640) $(11,164)
========= ========= =========
Basic and diluted net loss per share $(1.48) $ (2.74) $ (1.40)
========= ========= =========
Shares used in calculation of basic and diluted
net loss per share 43,027 9,159 8,037
========= ========= =========
Pro forma basic and diluted net loss per $ (1.01)
share =========
Shares used in calculation of pro forma net loss 62,839
per share ========
</TABLE>
See accompanying notes.
38
<PAGE>
Commerce One, Inc.
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)
(In thousands, except share data)
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
Redeemable Convertible
Convertible Preferred Stock Common Stock Deferred
Preferred Stock --------------- ------------ Stock
Shares Amount Shares Amount Shares Amount Compensation
------ ------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 5,341,464 $ 7,258 1,010,520 $ 487 7,956,606 $ 23 -
Issuance of common stock
upon exercise of options - - - - 1,709,592 136 -
Issuance of Series C redeemable
convertible preferred stock, net of
issuance costs 7,680,912 13,262 - - - - -
Issuance of Series B, redeemable
convertible preferred stock
upon exercise of warrants 10,974 15 - - - - -
Accretion of redeemable preferred stock - 115 - - - - -
Net loss and comprehensive loss - - - - - - -
----------- -------- ---------- ----- ---------- -------- --------
BALANCES AT DECEMBER 31, 1997 13,033,350 20,650 1,010,520 487 9,666,198 159 -
----------- -------- ---------- ----- ---------- -------- --------
Issuance of common stock upon exercise
of stock options - - - - 231,006 56 -
Issuance of Series D redeemable
convertible preferred stock, net of
issuance costs 13,300,137 29,343 - - - - -
Accretion of redeemable preferred stock - 439 - - - - -
Deferred stock compensation - - - - - 2,950 (2,950)
Amortization of deferred stock
compensation - - - - - - 1,102
Foreign currency translation adjustment - - - - - - -
Net loss - - - - - - -
----------- -------- ---------- ----- ---------- -------- --------
Comprehensive loss - - - - - - -
----------- -------- ---------- ----- ---------- -------- --------
BALANCES AT DECEMBER 31, 1998 26,333,487 50,432 1,010,520 487 9,897,204 3,165 (1,848)
----------- -------- ---------- ----- ---------- -------- --------
Issuances of common stock upon exercise
of stock options - - - - 3,715,641 1,492 -
Repurchase of common stock from
terminated employees - - - - (36,561) (16) -
Issuance of common stock under
employee stock purchase plan - - - - 326,538 1,943 -
Issuance of shares in connection with
business combinations 1,200,249 2,793 - - 8,176,221 238,258 -
Issuance of series E preferred stock, net
of issuance costs 8,276,457 23,786 - - - - -
Issuance of preferred stock upon exercise
of warrants 1,643,969 3,895 - - - - -
Accretion of redeemable preferred stock - 469 - - - - -
Issuance of common stock in initial
public offering, net of issuance cost - - - - 11,385,000 72,549 -
Issuance of common stock in concurrent
private placement, net of issuance cost - - - - 3,039,513 20,000 -
Conversion of preferred stock to common
stock upon initial public offering,
net of issuance cost (37,454,162) (81,375) (1,010,520) (487) 38,464,682 81,862 -
Deferred stock compensation - - - - - 4,586 (4,586)
Amortization of deferred stock
compensation - - - - - - 2,324
Foreign currency translation adjustment - - - - - - -
Unrealized loss on investments - - - - - - -
Net loss - - - - - - -
----------- -------- ---------- ----- ---------- -------- --------
Comprehensive loss - - - - - - -
----------- -------- ---------- ----- ---------- -------- --------
BALANCES AT DECEMBER 31, 1999 - $- - $- 74,968,238 $423,839 $(4,110)
=========== ======== ========== ===== ========== ======== ========
<CAPTION>
Accumulated
Other
Accumulated Comprehensive
Deficit Loss Total
------- ---- -----
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 $ (2,407) - $ (1,897)
Issuance of common stock
upon exercise of options - - 136
Issuance of Series C redeemable
convertible preferred stock, net of
issuance costs - - -
Issuance of Series B, redeemable
convertible preferred stock
upon exercise of warrants - - -
Accretion of redeemable preferred stock (115) - (115)
Net loss and comprehensive loss (11,164) - (11,164)
--------- ----- --------
BALANCES AT DECEMBER 31, 1997 (13,686) - (13,040)
--------- ----- --------
Issuance of common stock upon exercise
of stock options - - 56
Issuance of Series D redeemable
convertible preferred stock, net of
issuance costs - - -
Accretion of redeemable preferred stock (439) - (439)
Deferred stock compensation - - -
Amortization of deferred stock
compensation - - 1,102
Foreign currency translation adjustment - (50) (50)
Net loss (24,640) - (24,640)
------- --- -------
Comprehensive loss - - (24,690)
--------- ----- --------
BALANCES AT DECEMBER 31, 1998 (38,765) (50) (37,011)
--------- ----- --------
Issuances of common stock upon exercise
of stock options - - 1,492
Repurchase of common stock from
terminated employees - - (16)
Issuance of common stock under
employee stock purchase plan - - 1,943
Issuance of shares in connection with
business combinations - - 238,258
Issuance of Series E preferred stock, net
of issuance costs - - -
Issuance of preferred stock upon exercise
of warrants - - -
Accretion of redeemable preferred stock (469) - (469)
Issuance of common stock in initial
public offering, net of issuance cost - - 72,549
Issuance of common stock in concurrent
private placement, net of issuance cost - - 20,000
Conversion of preferred stock to common
stock upon initial public offering, net
of issuance cost - - 81,375
Deferred stock compensation - - -
Amortization of deferred stock
compensation - - 2,324
Foreign currency translation adjustment - (111) (111)
Unrealized loss on investments - (291) (291)
Net loss (63,322) - (63,322)
--------- ----- --------
Comprehensive loss - - (63,724)
--------- ----- --------
BALANCES AT DECEMBER 31, 1999 $(102,556) $(452) $316,721
========= ===== ========
</TABLE>
See accompanying notes.
39
<PAGE>
COMMERCE ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net loss $ (63,322) $ (24,640) $(11,164)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,534 1,026 470
Purchased in-process research and development 9,374 - -
Amortization of deferred stock compensation 2,324 1,102 -
Amortization of goodwill and other intangible assets 11,133 - -
Changes in operating assets and liabilities:
Accounts receivable (14,058) (966) (21)
Prepaid expenses and other current assets (3,867) (78) (425)
Accounts payable 5,951 47 476
Accrued compensation and related expenses 3,163 113 84
Other current liabilities 11,369 1,086 312
Deferred revenue 39,246 994 (337)
----------- ----------- -----------
Net cash provided by (used in) operating activities 3,847 (21,316) (10,605)
Investing activities:
Purchase of property and equipment, net (11,464) (1,560) (924)
Note receivable from VeoSystems, Inc. - (950) -
Proceeds from the maturities of short term investments 18,154 - -
Purchases of short term investments (91,259) - -
Business combinations, net of cash acquired (3,889) - -
----------- ----------- -----------
Net cash used in investing activities (88,458) (2,510) (924)
Financing activities:
Borrowings under bank line of credit - - 750
Proceeds from issuance of preferred stock, net 27,681 29,343 13,277
Proceeds from issuance of common stock, net 95,968 56 136
Proceeds from borrowings on notes payable - 1,014 955
Payments on notes payable (2,052) (340) (160)
Payments on capital lease obligations (221) (426) (173)
----------- ----------- -----------
Net cash provided by financing activities 121,376 29,647 14,785
Effect of foreign currency translation on cash and
cash equivalents (111) (50) -
----------- ----------- -----------
Increase in cash and cash equivalents 36,654 5,771 3,256
Cash and cash equivalents at beginning of period 15,138 9,367 6,111
----------- ----------- -----------
Cash and cash equivalents at end of period $ 51,792 $ 15,138 $ 9,367
=========== =========== ===========
Supplemental disclosures:
Interest paid $ 384 $ 461 $ 192
=========== =========== ===========
Cash paid for income taxes $ 4,188 $ - $ -
=========== =========== ===========
Noncash investing and financing activities:
Capital lease obligations incurred $ - $ 554 $ 763
=========== =========== ===========
Deferred compensation related to stock option grants $ 4,586 $ 2,950 $ -
=========== =========== ===========
Conversion of borrowings under bank line of credit to
note payable $ 750 $ 750 $ -
=========== =========== ===========
Unrealized loss on short term investments $ 291 $ - $ -
=========== =========== ===========
Issuance of preferred stock, common stock and
assumption of stock options in connection with
business combinations $ 241,051 $ - $ -
=========== =========== ===========
Conversion of convertible preferred stock into common stock $ 81,862 $ - $ -
=========== =========== ===========
</TABLE>
See accompanying notes.
40
<PAGE>
COMMERCE ONE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Commerce One, Inc. (the "Company") was incorporated in the State of
California in 1994. The Company has one business segment which provides
business-to-business electronic commerce solutions that use the Internet to link
buyers and sellers of business goods and services into real-time trading
communities. In March 1999, the Company was re-incorporated in the State of
Delaware.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The functional currency of the Company's foreign subsidiaries is the
local currency. The Company translates all assets and liabilities to U.S.
dollars at the current exchange rates as of the applicable balance sheet
date. Revenue and expenses are translated at the average exchange rate
prevailing during the period. Gains and losses resulting from the
translation of the foreign subsidiaries' financial statements are reported
as a separate component of stockholders' equity. Net gains and losses
resulting from foreign exchange transactions were not significant during any
of the periods presented.
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.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with insignificant
interest rate risk and maturities of three months or less at the date of
purchase and are stated at amounts that approximate fair value, based on quoted
market prices. Cash equivalents consist principally of investments in
short-term money market instruments and certificates of deposit.
SHORT TERM INVESTMENTS
Short term investments consist principally of commercial paper and
corporate notes with maturities greater than 90 days and are stated at
amounts that approximate fair market value.
The Company accounts for its short term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date.
The Company classifies its short term investments as
available-for-sale. Available-for-sale investments are recorded at fair value
with unrealized gains and losses reported in the statement of stockholders'
equity. Fair values of investments are based on quoted market prices, where
available. Realized gains and losses, which have been immaterial to date, are
included in interest and other income and are derived using the specific
identification method for determining the cost of investments sold. Dividend and
interest income is recognized when earned.
41
<PAGE>
The following summarizes the Company's fair market value of
investments at December 31, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial paper $ 1,009 $ - $ (3) $ 1,006
Government notes and bonds 5,158 - (45) 5,113
Corporate notes and bonds 47,347 - (215) 47,132
Certificates of deposit 19,561 2 - 19,563
-------- ---------- --------- --------
$ 73,075 $ 2 $ (263) $ 72,814
======== ========== ========= ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets as
follows: computer and office equipment--three years; furniture and
fixtures--five years; and leasehold improvements--the shorter of the remaining
term of the related leases or the estimated economic useful lives of the
improvements. Equipment under capital leases is amortized over the shorter of
the expected useful life or the related lease term.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets result from business combinations
accounted for under the purchase method. Goodwill is being amortized over
estimated useful lives of four to five years. Intangible assets related to
acquired technology, assembled workforce, tradenames, patents and other
intangibles are being amortized on a straight-line method over the estimated
useful life of the related asset, generally one to five years. The Company
periodically evaluates whether changes have occurred that would require
revision of the remaining estimated useful life of the assigned goodwill or
intangible assets or render the goodwill or intangible assets not recoverable.
If such circumstances arise, the Company would use an estimate of the
undiscounted value of operating cash flows to determine whether the goodwill or
intangibles are impaired. To date, no such impairment has been indicated.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," under
which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. Through December 31, 1999,
development costs incurred subsequent to the establishment of technological
feasibility have not been significant, and all software development costs have
been charged to product development expense in the accompanying consolidated
statements of operations.
CONCENTRATION OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which potentially subject the Company to
concentrations of risk include cash, cash equivalents, short term
investments and accounts receivable. The Company maintains its cash, cash
equivalents and short term investments with two domestic financial institutions.
For the year ended December 31, 1999, three customers accounted for
21%, 15% and 11% of the Company's revenues. For the year ended December 31, 1998
and December 31, 1997, four customers accounted for 24%, 21%, 18% and 12% of the
Company's revenues and one customer accounted for 12% of the Company's revenues,
respectively. At December 31, 1999, three customers accounted for 42%, 17% and
16% of accounts receivable. At December 31, 1998 and 1997, four customers and
one customer accounted for 13% and 20%, respectively, of accounts receivable.
The Company performs ongoing credit evaluations of its customers and does not
typically require collateral or guarantees. Management establishes an allowance
for doubtful
42
<PAGE>
accounts when it appears accounts receivable will not be collectible, and
such losses to date have been within management's expectations.
REVENUE RECOGNITION
The Company recognizes revenues from software license agreements for
its BuySite and MarketSite applications upon delivery and acceptance of the
software if there is persuasive evidence of an arrangement, collection is
probable, the fee is fixed or determinable, and there is sufficient
vendor-specific objective evidence to support allocating the total fee to all
elements of multiple-element arrangements. If an acceptance period is required,
license revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
The Company recognizes revenues from professional services as the
services are provided. If a transaction includes both license and service
elements, the license fee is recognized on delivery and acceptance of the
software, provided services do not include significant customization or
modification of the base product, and the payment terms for licenses are not
subject to additional acceptance criteria. In cases where license fee payments
are contingent on the acceptance of services, recognition of revenues is
deferred for both the license and the service elements until the acceptance
criteria are met. Software maintenance revenues and MarketSite subscription fees
are recognized ratably over the term of the support contract, typically one
year.
Transaction fees, which have not been significant, are recognized as
earned based on customer transactions.
Deferred revenue consists of license fees for which revenue has been
deferred and prepaid fees for services, MarketSite subscription fees, and
maintenance and support agreements.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25 ("APB
25") and has adopted the disclosure-only alternative of FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123").
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was
approximately $332,000, $219,000 and $88,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement
No. 109, "Accounting for Income Taxes," which requires the use of the liability
method in accounting for income taxes. Under this method, deferred tax assets
and liabilities are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of FASB Statement No. 128, "Earnings per
Share." Basic earnings per share has been computed using the weighted-average
number of shares of common stock outstanding during the period, less shares
subject to repurchase, and excludes any dilutive effects of options, warrants,
and convertible securities. Potentially dilutive securities have also been
excluded from the computation of diluted net loss per share as their inclusion
would be antidilutive.
Pro forma net loss per share has been computed as described above
and also gives effect, under Securities Exchange Commission guidance, to the
conversion of preferred shares not included above that automatically
converted to common shares upon completion of the Company's initial public
offering in July 1999, using the if-converted method.
The calculation of historical and pro forma basic and diluted net loss
per share is as follows (in thousands, expect per share data):
43
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Historical:
Net loss $ 63,322 $ 24,640 $ 11,164
Preferred stock accretion 469 439 115
---------- ---------- ----------
Loss applicable to common stockholders $ 63,791 $ 25,079 $ 11,279
========== ========== ==========
Weighted average shares of common stock outstanding 43,750 9,771 8,454
Less: Weighted average shares subject to repurchase 723 612 417
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per
share 43,027 9,159 8,037
---------- ---------- ----------
Basic and diluted net loss per share $ (1.48) $ (2.74) $ (1.40)
========== ========== ==========
Pro forma:
Net loss $ 63,322 $ 24,640 $ 11,164
========== ========== ==========
Weighted average shares used in computing basic and
diluted net loss per share (from above) 43,027
Adjustment to reflect the effect of the assumed
conversion of preferred stock from the date of
issuance 19,812
Weighted average shares used in computing pro forma
basic and diluted net loss per share 62,839
Pro forma basic and diluted net loss per share $ (1.01)
</TABLE>
If the Company had reported net income, the calculation of historical
and pro forma diluted earnings per share would have included approximately an
additional 7,568,000, 1,360,000 and 394,000 common equivalent shares related to
outstanding stock options and warrants not included above (determined using the
treasury stock method) for the years ended December 31, 1999, 1998 and 1997,
respectively.
EFFECTS OF NEW ACCOUNTING STANDARDS
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements of all public registrants. The provisions of
SAB 101 are effective for transactions beginning in the year 2000. The company
has not completed its assessment of the impact of SAB 101 and has not determined
its effect, if any, on its future reported results of operations.
RECLASSIFICATIONS
Certain prior amounts have been reclassified to conform to current year
presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
44
<PAGE>
1999 1998
---- ----
<S> <C> <C>
Accounts receivable $ 14,542 $ 1,495
Unbilled accounts receivable 1,796 -
-------- --------
16,338 1,495
Less allowance for doubtful accounts 493 295
-------- --------
$ 15,845 $ 1,200
======== =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Computer and office equipment $ 12,282 $ 3,632
Furniture and fixtures 2,694 223
Leasehold improvements 1,016 258
-------- --------
15,992 4,113
Less accumulated depreciation and amortization 4,100 1,523
-------- --------
$ 11,892 $ 2,590
======== =======
</TABLE>
4. NOTES PAYABLE
In May 1998, the Company entered into a loan agreement with a bank
which provides for a line of credit of $1,500,000, plus 75% of the Company's
net accounts receivable balance, up to a total of $3,000,000. Borrowings
under the line of credit bear interest at the bank's prime rate plus 1.0%
which is 9.5% at December 31, 1999. The loan agreement also provides for a
revolving equipment loan facility in the amount of $1,500,000. Borrowings
under the equipment loan facility bear interest at the bank's prime rate plus
1.5% which is 10.0% at December 31, 1999 and are to be repaid in monthly
installments of principal and interest over 36 months. No borrowings were
outstanding under the loan agreement at December 31, 1999.
In the years ended December 31, 1998 and 1997, the Company entered
into notes payable agreements with two leasing companies. The notes accrue
interest monthly based on effective interest rates ranging from 13.75% to
15.01% and mature at various dates from January 2000 to December 2001. The
notes are secured by the equipment acquired with the proceeds from these
notes. The principal amount outstanding at December 31, 1999 under these
notes is $673,000 of which the long-term portion of $262,000 is due in 2001.
5. COMMITMENTS
LEASE OBLIGATIONS
The Company leases its principal office facilities under non-cancelable
operating leases. Rent expense amounted to $2,321,000, $587,000 and $428,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Capital lease obligations represent the present value of future rental
payments under capital lease agreements for equipment. The original cost and
accumulated depreciation on the equipment under capital leases is $1,392,000 and
$627,000, respectively, at December 31, 1999 and $1,367,000 and $610,000,
respectively, at December 31, 1998.
Future minimum payments under capital and operating leases at December
31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
2000 $314 $ 6,070
2001 - 7,280
2002 - 4,648
2003 - 3,656
2004 and thereafter - 1,224
-------- -------
Total minimum lease payment 314 $22,878
Less amounts representing interest 40 =======
--------
Present value of minimum lease payments $274
===
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in disputes and litigation in the normal course
of business. The Company does not believe that the outcome of any of these
disputes or litigation will have a material effect on the Company's financial
condition or results of operations. However, an unfavorable outcome of some
or all of these matters could have a material effect on the Company's
financial position or results of operations.
45
<PAGE>
6. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING AND CONCURRENT PRIVATE PLACEMENT OF COMMON STOCK
On July 7, 1999, the Company closed its initial public offering of
11,385,000 shares of common stock at a price per share to the public of $7.00
and the concurrent private placement of 3,039,513 shares of common stock at a
price per share of $6.58. The net proceeds from these transactions was $92.5
million, after deducting underwriting discounts and other offering expenses.
In addition, upon completion of the initial public offering, each outstanding
share of the Company's convertible preferred stock and redeemable convertible
preferred stock was automatically converted into one share of common stock.
STOCK SPLIT
Upon the Company's initial public offering, the Company had a
one-for-two reverse stock split of issued and outstanding common and
preferred stock. On November 16, 1999, the Board of Directors approved a
three-for-one stock split of issued and outstanding common stock. The stock
split was effected as a stock dividend for stockholders of record on December
3, 1999 and was effective December 23, 1999. All preferred and common stock
prices and amounts in the accompanying financial statements have been
retroactively adjusted to reflect the stock splits.
STOCK OPTIONS
Under the Company's VEO, CommerceBid, 1995, 1997 and 1999 Stock
Option Plans ("the Plans"), 21,170,149 shares of common stock have been
reserved for the issuance of incentive stock options (ISO) or non-statutory
stock options (NSO) to employees, officers, directors and consultants. The
ISOs may be granted at a price per share not less than the fair market value
on the date of the grant. The NSOs may be granted at a price per share not
less than 85% of the fair market value at the date of grant. Options granted
under the Plans are exercisable over a maximum term of ten years from the
date of grant and generally vest over periods of up to four years. Under the
Plans, the option holder may exercise unvested options and obtain shares of
stock that are subject to a repurchase option by the Company at the original
exercise price in the event of the employee's termination. The repurchase
rights lapse over the period that the underlying options vest. Shares issued
under the 1995 Plan are also subject to various restrictions as to resale.
Under the Company's 1999 Director Option Plan, 450,000 shares of
common stock have been reserved for grants of stock options under such plan.
As of December 31, 1999, options to purchase 135,000 shares have been granted
under the 1999 Director Option Plan.
46
<PAGE>
A summary of the Company's stock option activity under all plans is set
forth below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
------ ---------
<S> <C> <C>
Outstanding at December 31, 1996 3,285,564 $ 0.09
Granted 1,715,775 $ 0.13
Exercised (1,709,592) $ 0.08
Canceled (393,063) $ 0.10
--------- -------
Outstanding at December 31, 1997 2,898,684 $ 0.11
Granted 3,668,250 $ 0.39
Exercised (231,006) $ 0.11
Canceled (669,096) $ 0.21
--------- -------
Outstanding at December 31, 1998 5,666,832 $ 0.28
Granted and assumed 13,144,012 $ 22.45
Exercised (3,715,641) $ 0.42
Canceled (1,497,372) $ 1.13
----------- -------
Outstanding at December 31, 1999 13,597,831 $ 20.85
========== =======
Exercisable and vested at December 31, 1999 2,313,036 $ 1.44
========= =======
Outstanding shares of common stock subject
to repurchase at December 31, 1999 722,502
=======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING AND VESTED
-------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF CONTRACTUAL WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE LIFE EXERCISE PRICE EXERCISE PRICE
PRICES NUMBER (YEARS) PER SHARE NUMBER PER SHARE
------ ------ ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$ 0.00 - $ 0.17 2,004,759 7.6 $ 0.11 999,635 $ 0.10
$ 0.20 - $ 0.80 2,523,061 8.5 $ 0.52 610,591 $ 0.49
$ 1.33 - $ 2.73 2,193,923 9.2 $ 2.40 370,721 $ 2.35
$ 4.80 - $ 7.00 2,843,388 9.4 $ 6.19 332,089 $ 6.18
$ 10.92 - $ 18.00 1,058,850 9.6 $ 13.48 - $ -
$ 23.67 - $ 39.67 890,550 9.7 $ 34.99 - $ -
$ 57.08 - $ 98.33 577,800 9.8 $ 71.73 - $ -
$109.76 - $109.76 1,096,050 9.9 $ 109.76 - $ -
$115.50 - $196.50 409,450 9.9 $ 126.76 - $ -
------- --- -------- --------- ------
13,597,831 9.0 $20.85 2,313,036 $ 1.44
========== === ====== ========= ======
</TABLE>
The Company recorded deferred stock compensation of approximately
$4,586,000 and $2,950,000 during the years ended December 31, 1999 and 1998,
respectively, representing the difference between the exercise price and the
deemed fair value of certain of the Company's stock options granted to
employees. These amounts are being amortized by charges to operations over the
vesting periods of the individual stock options using a graded vesting method.
Such amortization amounted to approximately $2,324,000 for the year ended
December 31, 1999 and $1,102,000 for the year ended December 31 1998.
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK BASED COMPENSATION
Pro forma information regarding results of operations and net loss per
share is required by FAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options under
the fair value method of FAS 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option valuation model with the
following weighted-average assumptions: a risk-free interest rate of 5.7%, 5.8%
and 6.2% for the years ended December 31, 1999, 1998 and 1997, respectively, no
dividend yield, a weighted-average expected life of the options of 4.5 years for
the years ended December 31, 1999, 1998 and 1997, a volatility factor of the
expected market price of the Company's common stock of 170% for the period July
1, 1999 to December 31, 1999 and
47
<PAGE>
0% for the period January 1, 1999 to June 30, 1999 (minimal value method used
in 1998 and 1997).
The option valuation models were developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation
plans been determined using the fair value at the grant dates for awards
under those plans calculated using the Black-Scholes option valuation model,
the Company's net loss and basic and diluted net loss per share would have
been increased to the pro forma as adjusted amounts indicated below (in
thousands except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss -- pro forma as adjusted $66,055 $25,562 $11,302
========= ========= =========
Net loss per share - pro forma as adjusted $1.11 $2.79 $1.41
========= ========= =========
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $37.78, $0.99 and $0.03 for options
granted during the years ended December 31, 1999, 1998 and 1997, respectively.
The pro forma impact of options on the net loss for the years ended
December 31, 1999, 1998 and 1997 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
additional years of stock option grants.
1999 EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1999 Employee Stock Purchase Plan 2,250,000
shares of common stock have been reserved for issuance under the plan.
Eligible employees may purchase common stock at 85% of the lesser of the fair
market value of the Company's common stock on the first day of the applicable
two year offering period or the last day of the applicable six month purchase
period. In the year ending December 31, 1999, 326,538 shares of common stock
were purchased under the plan at a weighted average price of $5.95 per share.
7. INCOME TAXES
The following is a geographical breakdown of consolidated income (loss)
before income taxes by income tax jurisdiction (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $(50,187) $ (22,879) $(11,151)
48
<PAGE>
Foreign (8,947) (1,761) (13)
--------- ---------- ---------
Total $(59,134) $ (24,640) $(11,164)
========= ========== =========
</TABLE>
There has been no provision for U.S. federal or state income taxes
for any period as the Company has incurred operating losses in all periods.
During the year ended December 31, 1999, the Company recorded a foreign
income tax provision of $ 4.2 million related to taxes withheld from customer
payments and remitted to foreign taxing jurisdictions on the Company's
behalf.
A reconciliation of income taxes at the statutory federal income tax
rate to net income taxes included in the accompanying statements of operations
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal taxes (benefit)
at statutory rate (35.0)% (34.0)% (34.0)%
State (5.0)% (4.0)% (6.0)%
Foreign 7.1% -% -%
Acquisition related charges 12.1% -% -%
Valuation allowance 28.1% 38.0% 40.0%
Other (0.2)% - -
----- ------ ------
Total 7.1% -% -%
===== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 41,667 $ 12,687
Capitalized research and development 1,548 474
Deferred revenue 7,401 -
Other 2,012 642
--------- ---------
Deferred tax assets 52,628 13,803
--------- ---------
Less: valuation allowance (43,015) (13,803)
--------- ---------
Total deferred tax assets 9,613 -
Deferred tax liabilities:
Other identified intangibles (9,613) -
--------- ---------
Total deferred tax liabilities (9,613) -
--------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
Realization of deferred tax assets is dependent upon future earnings,
if any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. During the
years ended December 31, 1999 and 1998, the valuation allowance on deferred tax
assets increased by $29,212,000 and $8,455,000, respectively.
49
<PAGE>
The tax benefits associated with employee stock options provide a
deferred tax benefit of $22.7 million in 1999 which has been fully offset by a
valuation allowance and will be credited to additional paid-in capital when
realized.
At December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $98,613,000, which expire in
the years 2009 through 2019. The Company also had net operating loss
carryforwards for state income tax purposes of approximately $48,099,000
expiring in years 2002 through 2004. In addition, the Company had net operating
loss carryforwards for foreign income tax purposes of approximately $10,708,053
which expire in varying amounts in the years 2005 and 2006. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards.
Utilization of the Company's net operating loss is subject to a
substantial annual limitation due to the ownership change limitation provided by
the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
8. PROFIT SHARING PLAN
The Company has a profit sharing plan and trust under Section 401(k) of
the Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan via payroll withholdings, subject
to certain limitations. The Company does not match contributions by plan
participants.
9. REVENUE BY GEOGRAPHIC AREA
Revenue was derived from customers in the following geographic areas
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
North America $16,937 $ 2,563 $ 1,746
Europe/Middle East/Africa 8,877 - -
Asia Pacific 7,743 - -
----- ------ ------
$33,557 $ 2,563 $ 1,746
======= ======= =======
</TABLE>
10. BUSINESS COMBINATIONS
VEO SYSTEMS, INC.
Effective January 15, 1999, the Company acquired VEO Systems, Inc.
("VEO"), a company specializing in the creation of XML technology
applications, in a transaction accounted for as a purchase. The consolidated
financial statements include the operating results of VEO from the date of
acquisition. The purchase consideration was approximately $23.2 million
consisting of 5,897,065 shares of common stock with a fair value of $13.3
million, 1,200,249 shares of Series D prime preferred stock (having the same
rights as Series D with an aggregate liquidation preference of $2,000,000)
with a fair value of $2.8 million, 2,477,313 stock options with a fair value
of $5.1 million, $258,000 of assumed liabilities, $400,000 in cash and
$400,000 of acquisition costs. In addition, the Company advanced $950,000 in
cash to Veo under a note receivable during 1998. An additional consideration
of $400,000 in cash was paid to certain employees who remained employed
through January 2000.
The purchase consideration was allocated to the acquired assets and
assumed liabilities based on deemed fair values as follows (in thousands):
50
<PAGE>
<TABLE>
<S> <C>
Cash............................................................... $ 358
Accounts receivable and other assets............................... 823
Intangible assets:
Purchased technology............................................. 2,274
Assembled workforce.............................................. 541
Tradenames/patents............................................... 693
Goodwill......................................................... 15,432
---------
Total intangible assets............................................ 18,940
---------
Purchased in-process research and development charged to operations
in the three months ended March 31, 1999......................... 3,037
---------
Total purchase consideration....................................... $ 23,158
---------
</TABLE>
Goodwill arising from the acquisition will be amortized on a
straight-line basis over five years. Other intangible assets will be amortized
over their estimated useful lives ranging from two to five years.
The following unaudited pro forma adjusted summary represents the
consolidated results of operations for the year ended December 31, 1998 as if
the acquisition of VEO had occurred January 1, 1998 and are not intended to be
indicative of future results (in thousands, except per share data):
<TABLE>
<S> <C>
Pro forma adjusted net revenue.................................... $ 5,353
Pro forma adjusted net loss....................................... $ (30,903)
Pro forma adjusted net loss per share--basic and diluted.......... $ (2.58)
Number of shares used in pro forma share calculation--basic and
diluted......................................................... 11,994
</TABLE>
The pro forma results of operations include historical operations of
the Company and VEO adjusted to reflect certain pro forma adjustments, including
amortization of goodwill and other intangible assets arising from the
acquisition and do not include the charge for purchased in-process research and
development of $3,037,000 since it is a non-recurring charge. These results do
not purport to be indicative of what would have occurred had the acquisition
been made as of that date or the results of operations which may occur in future
periods.
COMMERCEBID.COM, INC.
Effective November 12, 1999, the Company acquired CommerceBid.com,
Inc. ("CommerceBid"), a leading provider of business-to-business auction and
reverse auction service solutions. The consolidated financial statements
include the operating results of CommerceBid from the date of acquisition.
The purchase consideration was approximately $227.5 million consisting of
2,289,156 shares of common stock with a fair value of $217.1 million, 29,502
options assumed with a fair value of $2.8 million, $4.5 million in cash plus
an additional $5.0 million in contingent consideration.
The purchase consideration was allocated to the acquired assets and
assumed liabilities based on deemed fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash............................................................... $ 1,160
Accounts receivable and other assets............................... 296
Intangible assets:
Purchased technology............................................. 23,646
Assembled workforce.............................................. 385
Goodwill......................................................... 195,707
---------
Total intangible assets............................................ 219,738
---------
Purchased in-process research and development charged to operations
in the three months ended December 31, 1999..................... 6,337
---------
Total purchase consideration....................................... $ 227,531
=========
</TABLE>
51
<PAGE>
Goodwill arising from the acquisition will be amortized on a
straight-line basis over four years. Other intangible assets will be amortized
over their estimated useful lives ranging from one to four years.
The following unaudited pro forma adjusted summary represents the
consolidated results of operations for the ten months ended October 31, 1999
as if the acquisition of CommerceBid had occurred January 1, 1999 and are not
intended to be indicative of future results (in thousands, except per share
data):
<TABLE>
<S> <C>
Pro forma adjusted net revenue.................................... $ 16,669
Pro forma adjusted net loss....................................... $ (78,002)
Pro forma adjusted net loss per share--basic and diluted.......... $ (4.08)
Number of shares used in pro forma share calculation--basic and
diluted......................................................... 19,095
</TABLE>
The pro forma results of operations include historical operations of
the Company and CommerceBid adjusted to reflect certain pro forma adjustments,
including amortization of goodwill and other intangible assets arising from the
acquisition and do not include the charge for purchased in-process research and
development of $6,337,000 since it is a non-recurring charge. These results do
not purport to be indicative of what would have occurred had the acquisition
been made as of that date or the results of operations which may occur in future
periods.
11. SUBSEQUENT EVENTS
ACQUISITION OF MERGENT SYSTEMS, INC.
Effective January 7, 2000, the Company acquired Mergent Systems,
Inc. ("Mergent"), a company specializing in enabling infomediaries and Global
3000 companies to create, operate, and manage product information systems and
aggregated multivendor catalogs for e-commerce. The purchase consideration
was approximately $148.4 million consisting of 871,095 shares of common stock
with a fair value of $122.6 million, 109,505 options assumed with a fair
value of $15.3 million and approximately $10.0 million in cash to the Mergent
stockholders in this transaction.
The purchase consideration will be allocated to the acquired assets
and assumed liabilities based on the estimated deemed fair values as follows
(in thousands):
<TABLE>
<S> <C>
Cash............................................................... $ 1,126
Accounts receivable and other assets............................... 272
Intangible assets:
Purchased technology............................................. 7,884
Assembled workforce.............................................. 373
Tradenames/patents............................................... 555
Goodwill......................................................... 133,065
---------
Total intangible assets............................................ 141,877
---------
Purchased in-process research and development to be charged to
operations in the three months ended March 31, 2000............. 5,142
---------
Total purchase consideration....................................... $ 148,417
---------
</TABLE>
Goodwill arising from the acquisition will be amortized on a
straight-line basis over five years. Other intangible assets will be amortized
over their estimated useful lives ranging from one to five years.
52
<PAGE>
The following unaudited pro forma adjusted summary represents the
consolidated results of operations for the year ended December 31, 1999 as if
the acquisition of Mergent had occurred January 1, 1999 and are not intended to
be indicative of future results (in thousands, except per share data):
<TABLE>
<S> <C>
Pro forma adjusted net revenue.................................... $ 33,590
Pro forma adjusted net loss....................................... $ (93,811)
Pro forma adjusted net loss per share--basic and diluted.......... $ (2.14)
Number of shares used in pro forma share calculation--basic and
diluted......................................................... 43,898
</TABLE>
The pro forma results of operations include historical operations of
the Company and Mergent adjusted to reflect certain pro forma adjustments,
including amortization of goodwill and other intangible assets arising from the
acquisition and do not include the charge for purchased in-process research and
development of $5,142,000 since it is a non-recurring charge. These results do
not purport to be indicative of what would have occurred had the acquisition
been made as of that date or the results of operations which may occur in future
periods.
STRATEGIC RELATIONSHIP WITH GENERAL MOTORS
2. Strategic Relationship with General Motors.
In January 2000, the Company entered into agreements with General
Motors to create and operate the GM TradeXchange, an Internet-based trading
exchange owned by GM that enables buying and selling over the Internet by GM,
its dealers and its suppliers. The agreements governing the GM TradeXchange
currently provide that Commerce One and GM will share equally in the net
revenues generated by the GM TradeXchange, after the repayment of both
parties' expenses, for an anticipated ten-year term. The GM TradeXchange
agreements also provide for the restructuring of Commerce One into a holding
company and the issuance of 14,400,000 shares of common stock to GM. Of
these 14,400,000 shares, 7,200,000 shares which be held in escrow until the
GM TradeXchange has repaid the accumulated investments by both Commerce One
and GM in developing the GM TradeXchange. The shares issued to GM will
generally not be freely transferable for three years and would be subject to
standstill restrictions that will restrict GM's ability to acquire more than
19,9% of the company's outstanding stock during the first three years of the
relationship or more than 25.0% thereafter. GM is also entitled to certain
registration rights with respect to the shares after the initial three year
period. The closing of the GM TradeXchange agreements remains subject to
certain customary closing conditions, including requisite regulatory
clearance, and has been delayed pending the negotiations described below.
Subsequent to the execution of the GM TradeXchange agreements,
Commerce One and GM have entered into negotiations with Ford Motor Company,
DaimlerChrysler and Oracle Corporation concerning the possible creation of a
broader business-to-business e-commerce exchange for the automotive industry.
Such an exchange would integrate or combine the GM TradeXchange with an
Internet-based trading exchange being developed by Ford and Oracle
Corporation. The parties have not, however, reached agreement on the
specific terms and conditions governing the creation of the exchange, the
responsibilities of the parties with respect to the exchange, or the extent
to which the parties, including Commerce One, will receive equity in the
exchange and share in the revenues of the exchange. In addition, such an
agreement would also require regulatory clearance.
The Company cannot assure you that the parties will reach an
agreement for a broader trading exchange on mutually acceptable terms and
conditions or that such an agreement would receive regulatory clearance.
Further, if such an agreement is not reached, we cannot assure you that the
GM TradeXchange agreements will receive regulatory clearance and close in a
timely fashion, or at all. For more information concerning certain risks
associated with the GM TradeXchange or a broader exchange for the automotive
industry, see the Risk Factors section of this Form 10-K.
STOCK SPLIT
On March 13, 2000, Commerce One announced a Board approved
two-for-one stock split of common stock. The stock split will be effected as
a stock dividend for stockholders of record as of March 24, 2000, to be
effective April 19, 2000. Preferred and common stock prices and amounts in
the accompanying financial statements have not been retroactively adjusted to
reflect this stock split.
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information set forth in the sections entitled "Proposal No.
1--Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in Commerce One's Proxy Statement for the 2000 annual meeting of
stockholders to be filed with the Securities and Exchange Commission within 120
days after the end of Commerce One's fiscal year ended December 31, 1999 (the
"2000 Proxy Statement"), which is incorporated herein by reference, and the
information set forth in the
53
<PAGE>
section entitled "Executive Officers of the Registrant" in Part I, Item 4A of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth in the section entitled "Executive
Compensation and Related Information" in the 2000 Proxy Statement, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information set forth in the section entitled "Stock Ownership
of Certain Beneficial Owners and Management" in the 2000 Proxy Statement, which
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information set forth in the sections entitled "Certain
Relationships and Related Transactions" and "Compensation Committee Interlocks
and Insider Participation" in the 2000 Proxy Statement, which is incorporated
herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
See Item 8 of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Commerce One for each of
the years ended December 31, 1999, 1998 and 1997 should be read in conjunction
with the Consolidated Financial Statements, and related notes thereto, of
Commerce One.
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Schedule II--Valuation and Qualifying Accounts.............. 59
</TABLE>
Schedules other than those listed above have been omitted as they are
either not required, not applicable, or the information has otherwise been shown
in the consolidated financial statements or notes thereafter.
3. EXHIBITS
The exhibits listed on the accompanying index to exhibits immediately
following the financial statement schedule are filed as part of, or incorporated
by reference into, this Form 10-K.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1** Agreement and Plan or Reorganization, dated December
23, 1999, by and among Commerce One, Inc., Gavel
Acquisition Corporation, Mergent Systems, Inc., and
other related parties.
2.2*** Agreement and Plan of Merger and Reorganization,
dated November 4, 1999, by and among Commerce One,
Inc., Eddie Acquisition Corporation, CommerceBid.com,
Inc., and other related parties.
3.1**** Amended and Restated Certificate of Incorporation of
the Registrant.
54
<PAGE>
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
10.1* Form of Indemnification Agreement between the
Registrant and each of its directors and officers.
10.2* Form of 1997 Incentive Stock Option Plan and form of
agreements thereunder.
10.3* Form of 1999 Employee Stock Purchase Plan and form of
agreements thereunder.
10.4***** 1999 Nonstatutory Stock Option Plan and form of
agreement thereunder.
10.5** Form of 1999 Director Option Plan and form of
agreements thereunder.
10.6* Intentionally Omitted.
10.7* Master Software License and Services Agreement
between the Registrant and NTT Communications,
dated April 16, 1999.
10.8* Governance Agreement between the Registrant and
British Telecommunications, plc., dated March 26,
1999.
10.9* Marketing Agreement between the Registrant and
British Telecommunications, plc., dated March 26,
1999.
10.10*+ MarketSite License Agreement between the Registrant
and British Telecommunications, plc., dated March 25,
1999.
10.11* Amended and Restated Trading Agreement between the
Registrant and British Telecommunications, plc.,
dated March 25, 1999.
10.12* Marketing Agreement between the Registrant and MCI
Systemhouse Corporation dated August 4, 1998.
10.13* Agreement between the Registrant and
PricewaterhouseCoopers LLP dated September 2, 1998.
10.14*+ OEM Software License and Distribution Agreement
between the Registrant and PeopleSoft, Inc., dated
June 5, 1999.
10.14.1++ Amendment No. 1 to the OEM Software License and
Distribution Agreement between the Registrant and
PeopleSoft, Inc. dated January 22, 2000.
10.15* Joint Development Agreement between the Registrant
and PeopleSoft, Inc., dated June 5, 1999.
10.16* Stock Purchase and Master Strategic Relationship
Agreement between the Registrant and PeopleSoft,
Inc., dated June 5, 1999.
10.17* Stock Purchase and Master Strategic Relationship
Agreement between the Registrant and SingTel Ventures
(Cayman) Pte. Limited, dated June 1999.
10.18* Stock Purchase and Master Strategic Relationship
Agreement between the Registrant and NTT
Communications, dated June 1999.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1* Power of Attorney (see page 57).
27.1 Financial Data Schedule.
- -----------------------------
* Incorporated by reference to Commerce One's Registration Statement on
Form S-1 (File No. 333-76987), declared effective July 1, 1999.
** Incorporated by reference to Commerce One's Current Report on Form 8-K
(File No. 000-26453), filed on January 20, 2000.
55
<PAGE>
*** Incorporated by reference to Commerce One's Current Report on Form 8-K
(File No. 000-26453), filed on November 24, 1999.
**** Incorporated by reference to Commerce One's Quarterly Report on Form 10-Q
(File No. 000-26453), filed on November 12, 1999.
***** Incorporated by reference to Commerce One's Form S-8 (File No.
333-33324), filed on March 27, 2000.
+ Certain portions of this exhibit has been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
++ Certain portions of this exhibit have been omitted pending a
determination by the Commission that such portions may be afforded
confidential treatement.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter ended
December 31, 1999:
<TABLE>
<CAPTION>
Item Numbers Description Filing Date
- ------------ ----------- -----------
<S> <C> <C>
5, 7 A report dated November 23, 1999, November 24, 1999
regarding the acquisition of
CommerceBid.com, Inc., a Delaware
Corporation, by Commerce One, Inc.
</TABLE>
(c) EXHIBITS
See Item 14(a)(3), above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 8, above.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMMERCE ONE, INC.
By: /s/ Mark B. Hoffman
-----------------------------------
Mark B. Hoffman
Chairman President and Chief
Executive Officer
Date: March 24, 2000
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter F. Pervere and Robert M. Tarkoff, his or
her attorneys-in-fact, each with the power of substitution, for him or her in
any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and conforming all that said attorney-in-fact, or his or her
substitute or substitutes, any do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Mark B. Hoffman Chief Executive Officer March 24, 2000
- ------------------- and Chairman of the Board
Mark B. Hoffman (Principal Executive
Officer) March 24, 2000
/s/ Robert M Kimmitt Vice Chairman of the Board and
- -------------------- President March 24, 2000
Robert M. Kimmitt
/s/ Peter F. Pervere Senior Vice President and
- -------------------- Chief Financial Officer
Peter F. Pervere (Principal Financial Officer) March 24, 2000
/s/ John V. Balen Director March 24, 2000
- -----------------
John V. Balen
/s/ William B. Elmore Director March 24, 2000
- ---------------------
William B. Elmore
/s/ Kenneth C. Gardner Director March 24, 2000
- ----------------------
Kenneth C. Gardner
/s/ Thomas Gonzales Director March 24, 2000
- -------------------
Thomas J. Gonzales
/s/ William J. Harding Director March 24, 2000
- ----------------------
William J. Harding
57
<PAGE>
/s/ David H.J. Furniss Director March 24, 2000
- ----------------------
David H.J. Furniss
/s/ Noriyoshi Osumi Director March 24, 2000
- -------------------
Noriyoshi Osumi
/s/ Jay M. Tenenbaum Director March 24, 2000
- --------------------
Jay M. Tenenbaum
/s/ Jeffrey T. Webber Director March 24, 2000
- ---------------------
Jeffrey T. Webber
</TABLE>
58
<PAGE>
COMMERCE ONE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCES
<TABLE>
<CAPTION>
Balances at Charged to Balances at
Beginning Costs and End of
of Period Expenses Deductions Period
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997 $ 25 $ 60 $ (15) $ 70
=========== ============= ============= =============
Year ended December 31, 1998 $ 70 $ 251 $ (26) $ 295
=========== ============= ============= =============
Year ended December 31, 1999 $ 295 $ 213 $ (15) $ 493
=========== ============= ============= =============
</TABLE>
59
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1** Agreement and Plan or Reorganization, dated December
23, 1999, by and among Commerce One, Inc., Gavel
Acquisition Corporation, Mergent Systems, Inc., and
other related parties.
2.2*** Agreement and Plan of Merger and Reorganization,
dated November 4, 1999, by and among Commerce One,
Inc., Eddie Acquisition Corporation, CommerceBid.com,
Inc., and other related parties.
3.1**** Amended and Restated Certificate of Incorporation of
the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
10.1* Form of Indemnification Agreement between the
Registrant and each of its directors and officers.
10.2* Form of 1997 Incentive Stock Option Plan and form of
agreements thereunder.
10.3* Form of 1999 Employee Stock Purchase Plan and form of
agreements thereunder.
10.4***** 1999 Nonstatutory Stock Option Plan and form of
agreements thereunder.
10.5** Form of 1999 Director Option Plan and form of
agreements thereunder.
10.6* Intentionally Omitted.
10.7* Master Software License and Services Agreement
between the Registrant and NTT Communications, dated
April 16, 1999.
10.8* Governance Agreement between the Registrant and
British Telecommunications, plc., dated March 26,
1999.
10.9* Marketing Agreement between the Registrant and
British Telecommunications, plc., dated March 26,
1999.
10.10*+ MarketSite License Agreement between the Registrant
and British Telecommunications, plc., dated March 25,
1999.
10.11* Amended and Restated Trading Agreement between the
Registrant and British Telecommunications, plc.,
dated March 25, 1999.
10.12* Marketing Agreement between the Registrant and MCI
Systemhouse Corporation dated August 4, 1998.
10.13* Agreement between the Registrant and
PricewaterhouseCoopers LLP dated September 2, 1998.
10.14*+ OEM Software License and Distribution Agreement
between the Registrant and PeopleSoft, Inc., dated
June 5, 1999.
10.14.1++ Amendment No. 1 to the OEM Software License and
Distribution Agreement between the Registrant and
PeopleSoft, Inc. dated January 22, 2000
10.15* Joint Development Agreement between the Registrant
and PeopleSoft, Inc., dated June 5, 1999.
10.16* Stock Purchase and Master Strategic Relationship
Agreement between the Registrant and PeopleSoft,
Inc., dated June 5, 1999.
10.17* Stock Purchase and Master Strategic Relationship
Agreement between the Registrant and SingTel Ventures
(Cayman) Pte. Limited, dated June 1999.
10.18* Stock Purchase and Master Strategic Relationship
Agreement between the Registrant and NTT
Communications, dated June 1999.
21.1 List of Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
60
<PAGE>
24.1* Power of Attorney (see page 57).
27.1 Financial Data Schedule.
- -----------------------------
* Incorporated by reference to Commerce One's Registration Statement on
Form S-1 (File No. 333-76987), declared effective July 1, 1999.
** Incorporated by reference to Commerce One's Current Report on Form 8-K
(File No. 000-26453), filed on January 20, 2000.
*** Incorporated by reference to Commerce One's Current Report on Form 8-K
(File No. 000-26453), filed on November 24, 1999.
**** Incorporated by reference to Commerce One's Quarterly Report on Form 10-Q
(File No. 000-26453), filed on November 12, 1999.
***** Incorporated by reference to Commerce One's Form S-8 (File No.
333-33324), filed on March 27, 2000.
+ Certain portions of this exhibit has been granted confidential
treatment by the Commission. The omitted portions have been separately
filed with the Commission.
++ Certain portions of this exhibit have been omitted pending a
determination by the Commission that such portions may be afforded
confidential treatement.
61
\<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
COMMERCE ONE, INC.
(A DELAWARE CORPORATION)
AS OF JANUARY 24, 2000
-i-
<PAGE>
BYLAWS OF
COMMERCE ONE, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I CORPORATE OFFICES...........................................................................................1
1.1 REGISTERED OFFICE...................................................................................1
1.2 OTHER OFFICES.......................................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS...................................................................................1
2.1 PLACE OF MEETINGS...................................................................................1
2.2 ANNUAL MEETING......................................................................................1
2.3 SPECIAL MEETING.....................................................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................................................3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................................................3
2.6 QUORUM..............................................................................................4
2.7 ADJOURNED MEETING; NOTICE...........................................................................4
2.8 VOTING..............................................................................................4
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............................................5
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING..........................................................5
2.11 PROXIES.............................................................................................5
2.12 ORGANIZATION........................................................................................6
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................................................6
ARTICLE III DIRECTORS.................................................................................................6
3.1 POWERS..............................................................................................6
3.2 NUMBER OF DIRECTORS.................................................................................6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS............................................................7
3.4 RESIGNATION AND VACANCIES...........................................................................7
3.5 REMOVAL OF DIRECTORS................................................................................8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................................8
3.7 FIRST MEETINGS......................................................................................8
-ii-
<PAGE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
<S> <C>
3.8 REGULAR MEETINGS....................................................................................9
3.9 SPECIAL MEETINGS; NOTICE............................................................................9
3.10 QUORUM..............................................................................................9
3.11 WAIVER OF NOTICE....................................................................................9
3.12 ADJOURNMENT........................................................................................10
3.13 NOTICE OF ADJOURNMENT..............................................................................10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................................................10
3.15 FEES AND COMPENSATION OF DIRECTORS.................................................................10
3.16 APPROVAL OF LOANS TO OFFICERS......................................................................10
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION.............................................11
ARTICLE IV COMMITTEES................................................................................................11
4.1 COMMITTEES OF DIRECTORS............................................................................11
4.2 MEETINGS AND ACTION OF COMMITTEES..................................................................11
4.3 COMMITTEE MINUTES..................................................................................12
ARTICLE V OFFICERS...................................................................................................12
5.1 OFFICERS...........................................................................................12
5.2 ELECTION OF OFFICERS...............................................................................12
5.3 SUBORDINATE OFFICERS...............................................................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................................................13
5.5 VACANCIES IN OFFICES...............................................................................13
5.6 CHAIRMAN OF THE BOARD..............................................................................13
5.7 PRESIDENT..........................................................................................14
5.8 VICE PRESIDENTS....................................................................................14
5.9 SECRETARY..........................................................................................14
5.10 CHIEF FINANCIAL OFFICER............................................................................15
5.11 ASSISTANT SECRETARY................................................................................15
5.12 ADMINISTRATIVE OFFICERS............................................................................15
5.13 AUTHORITY AND DUTIES OF OFFICERS...................................................................16
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS........................................16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................16
6.2 INDEMNIFICATION OF OTHERS..........................................................................17
6.3 INSURANCE..........................................................................................17
ARTICLE VII RECORDS AND REPORTS......................................................................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................................................18
7.2 INSPECTION BY DIRECTORS............................................................................18
-iii-
<PAGE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
<S> <C>
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................................................18
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................................18
7.5 CERTIFICATION AND INSPECTION OF BYLAWS.............................................................19
ARTICLE VIII GENERAL MATTERS.........................................................................................19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING..............................................19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..........................................................19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.................................................19
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES...................................................20
8.5 SPECIAL DESIGNATION ON CERTIFICATES................................................................20
8.6 LOST CERTIFICATES..................................................................................21
8.7 TRANSFER AGENTS AND REGISTRARS.....................................................................21
8.8 CONSTRUCTION; DEFINITIONS..........................................................................21
ARTICLE IX AMENDMENTS................................................................................................21
</TABLE>
-iv-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
COMMERCE ONE, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of the stockholders of this corporation shall be
held each year on a date and at a time designated by the board of directors. At
the meeting, directors shall be elected and any other proper business may be
transacted. Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who
<PAGE>
was a stockholder of record at the time of giving of notice provided for in
these Bylaws, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this Bylaw.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the preceding
sentence, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the secretary at the principal executive offices of the
corporation at a time when such stockholder is a stockholder of record of the
corporation and shall be so delivered not less than one hundred twenty (120)
calendar days prior to the first anniversary of the date on which the
corporation first mailed its proxy materials for the preceding year's annual
meeting of stockholders; provided, however, that if the date of the annual
meeting is advanced more than 30 days prior to or delayed by more than 30 days
after the anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of one hundred twenty (120) calendar days in advance of
such annual meeting or ten (10) calendar days following the date on which the
notice of meeting was mailed. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(or any successor thereto) (the "Exchange Act") and Rule 14a-11 thereunder (or
any successor thereto) (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the corporation's books, and of such beneficial owner, and (ii)
the class and number of shares of the corporation which are owned beneficially
and of record by such stockholder and such beneficial owner. Notwithstanding any
provision herein to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 2.2.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
-2-
<PAGE>
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and Rule 14a-11 thereunder (or any
successor thereto) (including such proposed nominee's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business to be taken at the meeting, a brief
description of such business, the reasons for conducting such business and any
material interest in such business of the person or persons calling such meeting
and the beneficial owners, if any, on whose behalf such meeting is called; and
(c) as to the person or persons calling such meeting and the beneficial owners,
if any, on whose behalf the meeting is called (i) the name and address of such
persons, as they appear on the corporation's books, and of such beneficial
owners, and (ii) the class and number of shares of the corporation which are
owned beneficially and of record by such persons and such beneficial owners. No
business may be transacted at such special meeting otherwise than specified in
such notice or by or at the direction of the corporation's board of directors.
The corporation's secretary shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time reasonably requested by the
person or persons who called the meeting, not less than 60 nor more than 90 days
after the receipt of the request. If the notice is not given within 20 days
after the receipt of a valid request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
Only such business shall be conducted at a special meeting of
stockholders called by action of the board of directors as shall have been
brought before the meeting pursuant to the corporation's notice of meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Sections 2.2 and 2.3 of these bylaws not less than ten
(10) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date and hour of the meeting and (i) in the case of a
special meeting, the purpose or purposes for which the meeting is called (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the stockholders
(but any proper matter may be presented at the meeting for such action). The
notice of any meeting at which directors are to be elected shall include the
name of any nominee or nominees who, at the time of the notice, the board
intends to present for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
-3-
<PAGE>
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
-4-
<PAGE>
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The stockholders may not take any action by written consent in lieu of
a meeting, and must take any actions at a duly called annual or special meeting
of stockholders and the power of stockholders to consent in writing is
specifically denied.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.11 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
-5-
<PAGE>
2.12 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such matters
as the regulation of the manner of voting and the conduct of business. The
secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the secretary at any meeting of the
stockholders, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the Corporation shall be not less than nine
(9) nor more than twelve (12). The exact number of directors shall be eleven
(11) until changed, within the limits specified above, by a Bylaw amending this
Section 3, duly adopted by the Board of Directors or by the shareholders.
-6-
<PAGE>
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws or Article Tenth of
the certificate of incorporation of the corporation, directors shall be elected
at each annual meeting of stockholders to hold office until the next annual
meeting. Each director, including a director elected or appointed to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Election of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Unless otherwise provided in the certificate
of incorporation or these bylaws, each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree
-7-
<PAGE>
summarily ordering an election as provided in Section 211 of the General
Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
-8-
<PAGE>
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate
-9-
<PAGE>
records or made part of the minutes of the meeting. A waiver of notice need
not specify the purpose of any regular or special meeting of the board of
directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
-10-
<PAGE>
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13
-11-
<PAGE>
(notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents (however denominated), one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices may be
held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
-12-
<PAGE>
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint
Administrative Officers of the corporation in accordance with the provisions of
Section 5.12 of these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any
contract of employment, any Corporate Officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting of
the board or, except in case of a Corporate Officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president
may be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
-13-
<PAGE>
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He or
she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the board
of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
-14-
<PAGE>
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
-15-
<PAGE>
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefor has
been received by the corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the corporation shall
-16-
<PAGE>
have the burden of proving that the claimant was not entitled to the
requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. The corporation's obligation, if any, to indemnify any person
who was or is serving at its request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, enterprise or
non-profit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
-17-
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
-18-
<PAGE>
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
-19-
<PAGE>
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating,
-20-
<PAGE>
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the corporation shall issue to represent such class or
series of stock a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, the designations, the
preferences and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
Any of these Bylaws may be altered, amended or repealed by the
affirmative vote of a majority of the members of the board of directors or, with
respect to Bylaw amendments, excluding
-21-
<PAGE>
amendments relating to Sections 2.2, 2.3, 2.9, 3.3, 3.5 or Article VI, placed
before the stockholders for approval and except as otherwise provided herein
or required by law, by the affirmative vote of the holders of a majority of
the shares of the corporation's stock entitled to vote, voting as one class,
and with respect to Bylaw amendments relating to Sections 2.2, 2.3, 2.9, 3.3,
3.5 or Article VI placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the affirmative vote of the
holders of at least two-thirds of the shares of the corporation's stock
entitled to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or the filing of the operative written consent(s) shall be
stated in said book.
-22-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
COMMERCE ONE, INC.
CERTIFICATE BY SECRETARY OF ADOPTION BY BOARD OF DIRECTORS
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Commerce One, Inc. and that the foregoing
Bylaws, comprising twenty-one (21) pages, were approved by the directors of the
corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this ____ day of ____________ 19__.
-----------------------------------
Secretary
-23-
<PAGE>
CONFIDENTIAL
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
AMENDMENT ONE
TO THE
OEM SOFTWARE LICENSE AND DISTRIBUTION AGREEMENT
This Amendment One ("Amendment One") to the OEM Software License and
Distribution Agreement between Commerce One, a California corporation ("Commerce
One"), with principal offices at 1600 Riviera Ave, Walnut Creek, California,
94596 and PeopleSoft, Inc., a Delaware corporation ("PeopleSoft"), with
principal offices at 4460 Hacienda Drive, Pleasanton, California 94588-8615
dated as of June 5, 1999 (the "Agreement"), is effective as of January 22, 2000
(the "Amendment Effective Date").
Now therefore the parties hereby agree as follows:
Capitalized terms defined in the Agreement shall have the same meaning in this
Amendment One as in the Agreement.
1. AS OF THE AMENDMENT EFFECTIVE DATE, THE FOLLOWING PROVISIONS ARE
HEREBY AMENDED, MODIFIED OR ADDED TO SECTION 2 AS FOLLOWS:
2.6 "Distribute" or "Distribution" means selling,
sublicensing, transmitting, marketing, or otherwise
distributing the Products, PeopleSoft.Net, Branded
MarketSite, MarketSite Auction Services, Enterprise
Portal Service or the MarketSite Services.
2.8 "End User" shall include, in addition to any third
party licensed to use, but not to further Distribute,
the BuySite Products and/or the PeopleSoft Products,
an end user customer who accesses the MarketSite
Software for the electronic procurement of products
and/or services from one or more Suppliers for use in
the day-to-day operation of such end user's business.
"Auction Site End Users" means all end users of the
Auction Site, including without limitation, bidders
and sellers.
2.13 "MarketSite Services" means the MarketSite Direct and
MarketSite Indirect Services and shall include
PeopleSoft.Net operated using the MarketSite
Software.
2.14 "MRO Portal" means a multisupplier and multiproduct
line merchant portal designed primarily to facilitate
trading for operating resources (goods or services
which are used to operate a business, excluding goods
or services which are primarily used to directly
contribute to products, services or other
<PAGE>
revenue generating activities which a business
provides to its customers or uses to support its
internal administrative operations). Operating
resources shall include, but not be limited to,
industrial parts and supplies, computer equipment and
peripherals, goods and services required to maintain
plant, property and equipment. Without limiting the
foregoing, such multisupplier and multiproduct line
merchant portal shall not include any and all portals
which are not: (1) multisupplier; (2) multiproduct
line; (3) do not offer both (a) goods; and (b)
services for the purposes set forth above; or (4)
directed to government markets.
2.17 "PeopleSoft Product" shall mean PeopleSoft's
software product, as described in Attachment F as
amended.
2.20 "Specified Companies" means the list of entities set
out on Attachment H, as amended.
2.23 "Enterprise BuySite" means the license granted to
PeopleSoft by Commerce One in Section 3.1 (l).
2.24 "First Commercial Shipment" or "FCS" of a product or
service shall mean the first commercial release of
the PeopleSoft Product to third party customers. For
the avoidance of doubt, First Commercial Shipment, or
FCS, shall not include trial, "Beta," or similar
shipments that are not commonly considered commercial
release on a general basis to third party customers.
2.25 "Hosted BuySite" shall mean offering the BuySite
Products in Object Code only in a hosted manner for
use by End Users.
2.26 "MarketSite Software" means the computer software
programs licensed in Section 3.1 (h) and 3.1(m).
2.27 "PeopleSoft.Net " means any electronic commerce
service operated by PeopleSoft that includes as a
component the MarketSite Software provided by
agreement to third parties but hosted by PeopleSoft
or Commerce One.
2.28 "Branded MarketSite Service" shall mean the service
offered by PeopleSoft to End Users via the MarketSite
Software operated by PeopleSoft but which is
separately branded with a third party's identifying
marks. Commerce One currently anticipates changing
the name of Branded MarketSite service to `Commerce
Portal'.
2.29 "Transaction Revenues" shall mean all revenues
received by PeopleSoft which have been derived
directly from transactions performed by End Users
using the MarketSite Software.
-2-
<PAGE>
2.30 "Blended Transaction Rate" shall mean the average
transaction fee for each transaction type during the
same period, for transactions performed using the
MarketSite Software or the MarketSite Auction
Software. The Blended Transaction Rate shall be
calculated quarterly based on contracts entered into
by both parties in the prior quarter and shall be
subject to adjustment by mutual agreement of the
parties. In the event that the parties are unable to
agree on an adjustment to the Blended Transaction
Rate, the prior quarter's Blended Rate shall govern
until such time as the parties are able to resolve
their dispute.
2.31 "Blended License Fee" shall mean the average of
Commerce One Net Fees and PeopleSoft Net Fees (during
the same period), for the BuySite Products and
PeopleSoft Products, respectively. The Blended
License Fee shall be calculated on a quarterly basis
and shall compare license fees for substantially
equivalent license grants, including comparisons of
number of seats licensed, to the extent applicable.
2.32 "Documentation" means any on-line help files or
written instruction manuals regarding the use of the
MarketSite Software and MarketSite Auction Software.
2.33 "Supplier" means an entity that provides or offers to
provide products and/or services to End Users.
2. As of the Amendment Effective Date, the following
provisions of Article 3 shall be amended as follows and all of
the amendments in this Section 3 shall be subject to the terms
and conditions of this Agreement, as amended.:
(a) Section 3.1(f) shall be deleted in its entirety and
replaced with the words "intentionally omitted."
(b) Section 3.1(h) is hereby deleted in its entirety and shall
be replaced with the following:
3.1(h)(i) COMMERCE ONE MARKETSITE LICENSE. (i) Commerce One
hereby grants to PeopleSoft, a non-exclusive,
non-transferable, worldwide right and license to use the
MarketSite Software, including any and all localizations and
translations thereto which Commerce One owns or has a right to
license and PeopleSoft shall reimburse any license fees
associated with such localizations or translations owed by
Commerce One to any unrelated third parties as a result of
PeopleSoft's use, to: (a) install the MarketSite Software on
computer hardware servers owned or operated by PeopleSoft or a
related entity (each such physical location (which may include
one or more adjacent buildings) an "Installation"); (b)
provide an unlimited number of End Users and Suppliers with
remote access to the MarketSite Software via such servers; and
(c) use the Documentation in connection with such use of the
MarketSite Software. The scope of the MarketSite Software
license grant in this Section 3.1(h) shall include the
-3-
<PAGE>
right to integrate independently developed business services
in the MarketSite Software using Commerce One XML Commerce
Connectors licensed to PeopleSoft as part of the MarketSite
Software license. This license transfers to PeopleSoft neither
title nor any proprietary or intellectual property rights to
the MarketSite Software, Documentation, or any copyrights,
patents, or trademarks, embodied or used in connection
therewith, except for the rights expressly granted herein.
PeopleSoft shall have the right to an unlimited number of
Installations, provided that no Installations outside the
United States (the "International Installations") shall be
installed prior to January 1, 2001. and provided further that
none of the International Installations shall be located in
any Territory which is set forth in EXHIBIT B of Amendment One
("Territory") until the later to occur of January 1, 2001 or
the expiry of such Global Trading Web Partner's exclusivity in
such Territory. Notwithstanding the foregoing, such
International Installations may be located in the United
Kingdom beginning any time after August 1, 2000. For all
International Installations installed by PeopleSoft in excess
of two (2) International Installations, PeopleSoft shall be
required to pay to Commerce One a licensing fee as set forth
in Section 12.2 of Attachment B.
3.1(h)(iii) Commerce One shall issue to PeopleSoft, as soon as
practicable, one (1) machine-readable copy of the MarketSite
Software and MarketSite Auction Software, along with one (1)
copy of the on-line Documentation. Commerce One will provide
PeopleSoft with written copies of the Documentation at
Commerce One's standard charges. PeopleSoft may copy the
Documentation.
3.1(h)(iv) PeopleSoft will be entitled to make a reasonable
number of machine-readable copies of the MarketSite Software
and MarketSite Auction Software for backup or archival
purposes and for the Installations as permitted by Section 3.1
above. PeopleSoft shall maintain accurate and up-to-date
records of the number and location of all copies of the
MarketSite Software and inform Commerce One in writing of such
location(s). All copies of the MarketSite Software will be
subject to all terms and conditions of this Agreement.
Whenever PeopleSoft is permitted to copy or reproduce all or
any part of the MarketSite Software, all titles, trademark
symbols, copyright symbols and legends, and other proprietary
markings must be reproduced.
3.1(h)(v) The parties shall have good faith discussions
regarding reasonable End User license language for the
protection of both Commerce One and PeopleSoft. Commerce One
hereby grants PeopleSoft a nontransferable, nonexclusive,
worldwide right and license under Commerce One's Trademarks as
defined in Section 10 of the Agreement, as amended, and set
forth in Attachment C of the Agreement to display the Commerce
One icon in connection with the provision and promotion of the
MarketSite Service.
2. Section 3.1(i) shall be added as follows:
-4-
<PAGE>
3.1(i) BRANDED MARKETSITE DISTRIBUTION LICENSE. Commerce One
hereby grants and PeopleSoft hereby accepts, a non-exclusive,
nontransferable, worldwide right and license to Distribute the
Branded MarketSite Service to or for use by End Users.
Section 3.1(j) shall be added as follows:
3.1(j) COMMERCE ONE MARKETSITE AUCTION SERVICES LICENSE.
Commerce One grants to PeopleSoft during the term of this
Agreement, a non-exclusive, non-transferable, worldwide right
and license to use the MarketSite Auction Software, including
any and all localizations and translations thereto which
Commerce One owns or has a right to license and PeopleSoft
shall reimburse any license fees associated with such
localizations or translations owed by Commerce One to any
unrelated third parties as a result of PeopleSoft's use, for
use in conjunction with the MarketSite Software for the
purpose of providing Auction Services and to Distribute
directly or by sublicense the MarketSite Auction Service.
Within sixty (60) days of the FCS of the MarketSite Auction
Software, Commerce One shall deliver the MarketSite Auction
Software to PeopleSoft. As of the Amendment Effective Date and
until the delivery of the MarketSite Auction Software to
PeopleSoft, Commerce One shall host the Auction Sites on
servers owned or controlled by Commerce One, for PeopleSoft's
use and Distribution. As soon as technically and commercially
practical after the delivery of the MarketSite Auction
Software to PeopleSoft, PeopleSoft shall assume control of
hosting the Auction Sites on servers owned or controlled by
PeopleSoft or its related entities. The MarketSite Auction
Software shall contain an Administrative Module for the
Auction Site through which PeopleSoft can control the Auction
Services parameters. PeopleSoft will determine the look and
feel of the User Interfaces for the Auction Sites. PeopleSoft
shall be responsible to utilize the Administrative Module to
program all HTML code to create and/or customize the User
Interface. Commerce One will use commercially reasonable
efforts to assist PeopleSoft in developing the User Interface
for the Auction Site. As used in this section, the following
definitions shall apply:
"Auction Services" mean services using the MarketSite Auction
Software where bidders set the ultimate sales price of the
goods or services offered for sale on the Auction Sites,
including without limitation, auctions of all types (e.g.,
traditional, Dutch, English, reverse, quick-win).
"Auction Site" means the web site operated by Commerce One or
PeopleSoft and created by Commerce One on behalf of PeopleSoft
pursuant to this Agreement where, among other things,
AuctionSite End Users can buy and sell items through Auction
Services.
"MarketSite Auction Software" means the computer software
programs, to be developed by Commerce One.
"User Interface" means the area where the overall site
navigation, banner advertising and look and feel associated
with each Auction Site is displayed.
-5-
<PAGE>
Section 3.1(k) shall be added as follows:
3.1(k) ENTERPRISE PORTAL DISTRIBUTION LICENSE. Commerce One
hereby grants and PeopleSoft hereby accepts, a non-exclusive,
nontransferable, worldwide right and license to Distribute the
Enterprise Portal Service (as defined below) to or for use by
End Users. Enterprise Portal Service shall be defined as a
Branded MarketSite Service which is restricted by the terms of
the associated license to permit only the licensee's own
direct or indirect procurement of goods and services through
PeopleSoft.Net or any other MarketSite Service.
Section 3.1(l) shall be added as follows:
3.1(l) ENTERPRISE BUYSITE LICENSE. Commerce One hereby grants,
and PeopleSoft hereby accepts, a non-exclusive,
non-transferable, world-wide license to operate BuySite
Products internally in Object Code format for PeopleSoft's own
direct or indirect procurement of goods and services through
PeopleSoft.Net or any other MarketSite Service.
Section 3.1(m) shall be added as follows:
3.1(m) The licenses granted in Subsections 3.1(g) to 3.1(l)
above shall include the most current version of the MarketSite
Software, MarketSite Auction Software or software related to
MarketSite Software. Modifications, enhancements or versions
(which contain substantially equivalent functionality) shall
be offered to PeopleSoft on terms comparable to those offered
to third parties, when such modifications, enhancements or
versions are offered to two or more third parties for license
or use. In addition, Commerce One shall provide all updates
and upgrades made available to Commerce One customers under
Support and Maintenance agreements to PeopleSoft. The parties
shall enter into a MarketSite Software Source Code Escrow
Agreement and a MarketSite Auction Software Escrow Agreement
(which MarketSite Auction Software source code will not be
required to be deposited until within thirty (30) days after
FCS) within thirty (30) days of the Amendment Effective Date.
If the parties are unable to agree on terms and conditions of
such Source Code Escrow Agreement, the parties will agree to
be bound by Commerce One's outside escrow agent's standard
terms and conditions. At a minimum, MarketSite Software and/or
MarketSite Auction Software Source Code release shall be
triggered upon bankruptcy or failure to support and maintain
the MarketSite Software and/or MarketSite Auction Software.
4. AS OF THE AMENDMENT EFFECTIVE DATE, THE FOLLOWING PROVISIONS OF
ARTICLE 4 SHALL BE AMENDED AS FOLLOWS:
Section 4.1 shall be replaced in its entirety with the following:
4.1 PEOPLESOFT.NET ACCESS DISTRIBUTION LICENSE. Subject to
the terms and conditions of this Agreement, as amended,
and commencing with the First Commercial
-6-
<PAGE>
Shipment of PeopleSoft.Net, PeopleSoft hereby grants to
Commerce One and Commerce One accepts a non-exclusive
nontransferable, worldwide right and license to
Distribute access to PeopleSoft.Net.
5. AS OF THE AMENDMENT EFFECTIVE DATE, THE FOLLOWING PROVISIONS OF
ARTICLE 5 SHALL BE AMENDED AS FOLLOWS:
Section 5.1.
(a) All references in this Section to January 1, 2001
shall be replaced with the words "one (1) year from
the First Commercial Shipment of the PeopleSoft
Product."
(b) Section 5.1(a) shall cease to be of further force and
effect.
(c) Add the words "other than the Branded MarketSite
Service and Auction Service or as otherwise necessary
for PeopleSoft to exercise its rights hereunder."
immediately after the words "shall use the MarketSite
Services as its exclusive MRO Portals and PeopleSoft
shall not Distribute or develop any other hosted MRO
Portals" in lines 4 and 5. In addition, add the words
" Notwithstanding the foregoing, PeopleSoft has the
right to connect PeopleSoft.Net and any other
PeopleSoft portal to any other MRO Portal in order to
conduct business and can enter into any agreement to
reasonably facilitate connection to such other
portal." immediately after the words "during the
period of this exclusivity." in lines 6 and 7.
Section 5.2
(a) Section 5.2 shall cease to be of further force and
effect.
Section 5.3
(a) All references in this Section to January 1, 2001
shall be replaced with the words "one (1) year from
the First Commercial Shipment of the PeopleSoft
Product."
As of the Amendment Effective Date, Section 5.5 shall be
amended in its entirety as follows:
5.5(a) Commerce One agrees to promote the PeopleSoft
consulting services as a preferred implementor of Commerce One
Products in the PeopleSoft Named Accounts, as amended.
Commerce One agrees to include PeopleSoft, at no additional
fee, as a member of Commerce One's Preferred Global Consulting
Partner program. This program is currently referred to as the
Premier Alliance Partner program.
5.5(b) The parties agree to negotiate in good faith to make
the PeopleSoft Product the only procurement product that
Commerce One directly Distributes following the First
Commercial Release of the PeopleSoft Product and following
product due diligence
-7-
<PAGE>
by Commerce One of the features and functionality of
PeopleSoft Product and its applicability to Commerce One
End Users, which due diligence will not be unreasonably
delayed. If the parties do not enter into a definitive
agreement regarding the foregoing within ninety (90) days
after the commencement of negotiations, subject to
Section 18.13(c), neither party shall have any further
obligations under this Section 5.5(b).
6. AS OF THE AMENDMENT EFFECTIVE DATE, ARTICLE 7 SHALL BE AMENDED BY DESIGNATING
THE FIRST PARAGRAPH OF ARTICLE 7 AS SECTION "7.1" AND THE FOLLOWING NEW
PARAGRAPH IS ADDED AS SECTION 7.2:
7.2 PEOPLESOFT LOCKUP RELEASE AND INCLUSION IN REGISTERED
OFFERING. Commerce One hereby releases PeopleSoft from, and shall
obtain a release from Credit Suisse First Boston to release PeopleSoft
from, the market stand-off provisions of Section 6.1 of that certain
Share Purchase and Master Strategic Relationship Agreement, dated June
5, 1999, by and between Commerce One and PeopleSoft and any "lock-up"
agreement executed by PeopleSoft in connection with Commerce One's
initial public offering. In the event that, prior to June 5, 2000,
Commerce One files a registration statement with the Securities and
Exchange Commission to register a public, underwritten public offering
of its common stock for cash, Commerce One shall, at such time, use all
reasonable efforts to obtain the approval of its registration rights
holders and the underwriters of such offering to PeopleSoft's sale of
up to fifteen percent of the secondary shares of Commerce One common
stock offered as part of the offering. In the event such approvals are
obtained, if required, PeopleSoft shall be permitted to participate in
the offering to the extent described above, subject to the same general
terms and conditions applicable to other selling stockholders
participating in the offering (including, without limitation, terms and
conditions relating to the right of the underwriters to cutback the
number of shares of common stock to be sold by selling stockholders in
the offering).
7. AS OF THE AMENDMENT EFFECTIVE DATE, ARTICLE 9 SHALL BE AMENDED BY ADDING
THE FOLLOWING IN ITS ENTIRETY AS SECTION 9.7:
9.7 TARGET PEOPLESOFT.NET LAUNCH DATE. Commerce One and
PeopleSoft shall establish a target date of sixty (60) days from the
Amendment Effective Date for the launch of PeopleSoft.Net on the
MarketSite Software platform (the "Target Date"). Each party shall use
all reasonable efforts to achieve such date, including the allocation
of technical and business resources and personnel. Notwithstanding the
foregoing, Commerce One shall be obligated to contribute professional
services equal to [*] dollars ([*]) in value (calculated
using Commerce One's standard professional services rates) based on
work performed consistent with the workplan described below and as
otherwise reasonably requested by PeopleSoft. All additional
professional services charges on the part of Commerce One shall be
reimbursable at Commerce One's standard professional services rates.
Commerce One agrees to staff such professional services with
individuals with Commerce One implementation experience and Commerce
One shall use reasonable efforts to ensure that the majority of such
professional services individuals are Commerce One employees.
PeopleSoft shall have the right to reasonably request that Commerce One
remove
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-8-
<PAGE>
and replace particular service professionals provided under this
subsection. In the event the parties are unable to achieve the Target
Date, the parties shall agree to complete the launch no later than
one-hundred and twenty (120) days from the Amendment Effective Date,
provided however, the foregoing dates are contingent upon the parties
mutually agreeing to a workplan. For each day that the launch is
delayed beyond one hundred twenty (120) days of the Amendment Effective
Date and such delay is attributable to Commerce One, the duration of
the effectiveness of Section 5.1 shall be reduced by a like number of
days. If the parties do not agree upon a reasonable workplan within
fourteen (14) days of the Amendment Effective Date, the foregoing dates
are moved out by one full day for each full day in excess of fourteen
(14) days that it takes to complete the workplan, subject to Section
18.13(c).
8. As of the Amendment Effective Date, Article 10 shall be
amended in its entirety by adding the following as Section 10.3:
10.3. COMMERCE ONE LOGO. PeopleSoft shall have the
right but not the obligation to place the Commerce One
Trademark or logo on the PeopleSoft Product.
9. As of the Amendment Effective Date, Section 11.1 shall be
amended by designating the first paragraph of Section 11.1 as Section
"11.1(a)" and the following new paragraph is added as Section 11.1(b):
(b) COMMERCE ONE PROPRIETARY RIGHTS. Title to and ownership of
all copies of the Enterprise BuySite, Hosted BuySite,
MarketSite Software, Branded MarketSite Service, Auction
Software and Auction Service and associated software whether
in machine-readable or printed form, and including, without
limitation, Derivative Works thereof provided by Commerce One
hereunder, compilations, or collective works thereof and all
related technical know-how and all intellectual property
rights therein (including without limitation rights in
patents, copyrights, and trade secrets applicable thereto),
are and shall remain the exclusive property of Commerce One
and its suppliers. PeopleSoft shall not take any action to
jeopardize, limit or interfere in any manner with Commerce
One's ownership of and rights with respect to the Enterprise
BuySite, Hosted BuySite, MarketSite Software, Branded
MarketSite Service, MarketSite Auction Software and Auction
Service. PeopleSoft shall have only those rights in or to the
Enterprise BuySite, Hosted BuySite, MarketSite Software,
Branded MarketSite Service, MarketSite Auction Software and
MarketSite Auction Service and associated software granted to
it pursuant to this Agreement. Notwithstanding the foregoing,
title to and ownership of (i) all software, documentation,
data and other intellectual property, and all rights therein
(including without limitation rights in patents, copyrights,
know-how and trade secrets applicable thereto) developed by
PeopleSoft or for PeopleSoft or licensed by PeopleSoft (other
than from Commerce One) are and shall remain the exclusive
property of PeopleSoft and its licensors and suppliers, as
applicable. In addition, and notwithstanding the foregoing,
PeopleSoft will own all rights in and to the PeopleSoft.Net
after removal of the MarketSite Software.
-9-
<PAGE>
10. As of the Amendment Effective Date, Article 18 shall be amended by
adding the following new paragraphs as Section 18.17 and 18.18
respectively:
18.17 As of the Amendment Effective Date, the provisions of
sections 11.2, 13.1, 13.1, 13.3, 14.2, 14.3, 14.5, 15.1, and
17.1 shall apply MUTATIS MUTANDIS to Enterprise BuySite,
Hosted BuySite, MarketSite Software, Branded MarketSite
Service, MarketSite Auction Software and Auction Service.
18.18 As of the Amendment Effective Date, the provisions of
sections 14.1, 14.4, 14.5, and 17.1 shall apply MUTATIS
MUTANDIS to PeopleSoft.Net.
AMENDMENTS TO ATTACHMENT B
1. AS OF THE AMENDMENT EFFECTIVE DATE, SECTION 6 IN ATTACHMENT B SHALL BE
AMENDED AS FOLLOWS:
(c) Section 1 of Attachment B shall be amended in its entirety
as follows:
"PeopleSoft Net Fees" means the actual amount of license fees,
royalties or other consideration received by PeopleSoft with respect to
the BuySite Products or PeopleSoft Products, or with respect to the
licensing, sublicensing, or other Distribution of the BuySite Products
or the PeopleSoft Product. In each case set forth above, PeopleSoft Net
Fees shall exclude sales, use and value-added taxes, third party
software royalty payments (excluding royalties owed herein), imputed
fees for bundled maintenance, and training and consulting services (not
to exceed PeopleSoft's standard published prices for such services). In
addition, barter, equity or other noncash consideration received shall
be valued at fair market value; provided however, PeopleSoft's internal
Use of the BuySite Product shall not be included in the calculation of
PeopleSoft Net Fees.
"Commerce One Net Fees" means the actual amount of license
fees, royalties or other consideration received by Commerce One with
respect to the BuySite Products, or with respect to the licensing,
sublicensing, or other Distribution of the BuySite Products. In each
case set forth above, Commerce One Net Fees shall exclude sales, use
and value-added taxes, third party software royalty payments (excluding
royalties owed herein), imputed fees for bundled maintenance, and
training and consulting services (not to exceed Commerce One's standard
published prices for such services). In addition, barter, equity or
other noncash consideration received shall be valued at fair market
value.
(d) Section 6. ADVANCE ROYALTY. The second and third sentences
of Section 6 in Attachment B shall be amended in its entirety as follows:
6.1 Beginning on the Amendment Effective Date, PeopleSoft's
right to credit against prepaid Product Royalties shall expire at the
following rate: (a)$[*] upon the expiration of the first half of
the calendar year of 2000 (b) an additional $[*] upon the
expiration of the third calendar quarter of 2000, and (c) the remaining
advance prepaid royalty at the end of the fourth calendar quarter of
2000. PeopleSoft has paid total advance
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-10-
<PAGE>
Product royalties of [*] dollars ([*]) and Commerce One
acknowledges receipt of such payment. For greater clarity, royalties
due and payable by PeopleSoft to Commerce One pursuant to Section 6.2
shall be set-off against any prepaid royalties remaining. Only in the
event that such royalties payable by PeopleSoft are less than the
amounts set forth above during the corresponding period, then such
prepaid royalties shall expire in accordance with the expiration
schedule as set forth above.
6.2 The following payments shall be credited against the
advanced royalty payment described in paragraph 6.1 above: PeopleSoft
Net Fees from: BuySite Products, PeopleSoft Product, Branded
MarketSite, the first year of the MarketSite license Maintenance Fee
and royalties based on Transaction Revenues.
6.3 PeopleSoft and Commerce One shall use good faith efforts
to work cooperatively to manage sales activities including, when
requested by the other, providing reasonable sales support, on a time
and materials basis, and coordinating sales activities.
Subsections (b) and (c) of Section 6 in Attachment B shall be deleted
in their entirety and shall be of no further force or effect.
2. AS OF THE AMENDMENT EFFECTIVE DATE, SECTION 7 OF ATTACHMENT B
SHALL BE AMENDED IN ITS ENTIRETY AS FOLLOWS:
(a) "ROYALTIES FOR BUYSITE PRODUCTS. PeopleSoft shall pay
Commerce One a royalty of [*] percent ([*]) of all
PeopleSoft Net Fees received solely for the license or
sublicense of the BuySite Product beginning on the Effective
Date of this Amendment and continuing one year from the date
of PeopleSoft Product FCS. Commerce One shall pay PeopleSoft a
royalty of [*] percent ([*]) of all Commerce One Net Fees
received solely for the Distribution of the BuySite Product to
a PeopleSoft Named Account beginning on the Effective Date of
this Amendment and continuing one year from the date of
PeopleSoft Product FCS. Neither party shall be entitled to any
royalty on revenues received by the other from sharing in
Hosted BuySite subscription revenues generated by third party
licensees or any other subscription revenue from any other
products. In addition, Commerce One will not be entitled to a
share of any revenue received by PeopleSoft for providing
hosting services to licensees of Hosted BuySite.
Notwithstanding the foregoing, any Commerce One Net. Fees
received from a Grandfathered Reseller as a result of a
license into a PeopleSoft Named Account, as amended, shall not
be subject to such royalty split, and in such case, Commerce
One shall not owe a royalty to PeopleSoft in relation thereto.
(b) BRANDED MARKETSITE LICENSE ROYALTY. PeopleSoft shall pay
to Commerce One a royalty for each Branded MarketSite Services
license entered into by and between PeopleSoft and third party
licensees equal to the greater of [*] percent ([*]) of the
actual sales price for the Branded MarketSite Services license
or [*] percent ([*]) of the Average Sales Price (ASP) for
substantially equivalent Branded MarketSite
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-11-
<PAGE>
Services licensed by either Commerce One or its Distributors
in the prior fiscal quarter. Notwithstanding the foregoing,
PeopleSoft shall have the right to request a report
summarizing the license fees paid to Commerce One and
Distributors by third party licensees of the Branded
MarketSite Services during the prior fiscal quarter. For
purposes of determining ASP, factors such as geography,
size of entity licensed and scope of other service offerings
shall be considered in evaluating similar transactions.
(c) MARKETSITE AUCTION SERVICES ROYALTY. PeopleSoft agrees to
pay a royalty to Commerce One during the term of the Agreement
equal to [*] percent ([*]) of all Blended Transaction
Revenues generated using the MarketSite Auction Services.
3. AS OF THE AMENDMENT EFFECTIVE DATE, SECTION 8 OF ATTACHMENT B
SHALL BE AMENDED IN ITS ENTIRETY AS FOLLOWS:
(a) ROYALTIES FOR PEOPLESOFT PRODUCTS. Subject to Section 14.2
of Attachment B, the royalties payable by PeopleSoft to
Commerce One for licensing or sublicensing the PeopleSoft
Products pursuant to Section 3 of the Agreement shall be equal
to only [*] percent ([*]) of all PeopleSoft Net Fees
beginning on the Effective Date of this Amendment and
continuing one year from the date of the PeopleSoft Product
FCS. For the avoidance of doubt, Commerce One shall not
receive any royalty on revenues received by PeopleSoft from
sharing in Hosted PeopleSoft Product subscription revenues
generated by third party licensees or any revenue received by
PeopleSoft for providing hosting services to licensees of the
PeopleSoft Product.
2. AS OF THE AMENDMENT EFFECTIVE DATE, SECTION 12 IN ATTACHMENT B
SHALL BE AMENDED BY ADDING THE FOLLOWING:
PEOPLESOFT NET ACCESS FEE
Commerce One shall pay to PeopleSoft a royalty equal to [*]
percent ([*]) of all consideration received by Commerce One for
Distribution of access to PeopleSoft.Net
MARKETSITE ROYALTIES: For purposes of clarity, where a royalty shall be
payable to Commerce One under Section 12 (d)-(f) below, the royalty shall be
determined by reference to only one of the following calculations and no single
transaction shall be subject to more than one royalty calculation.
(d) PeopleSoft shall pay to Commerce One [*] percent ([*])
of all Transaction Revenues (calculated using the appropriate Blended
Transaction Rate) received through operation of PeopleSoft.Net
including all International Installations.
(e) PeopleSoft shall pay to Commerce One [*] percent ([*])
of all Transaction Revenues (calculated using the appropriate
Blended Transaction Rate) received from third party licensees
of the Branded MarketSite Service or the Enterprise Portal
Services.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-12-
<PAGE>
(f) For customers that connect to the MarketSite Services
through the PeopleSoft Product, Commerce One shall pay a
royalty to PeopleSoft of [*] percent ([*]) of all
Transaction Revenues (calculated using the appropriate Blended
Transaction Rate).
(g) The International Installation licensing fee shall be
calculated as follows: [*]percent ([*]) off of the mean
price charged by Commerce One for all similar installations
of MarketSite Software licensed by Commerce One in the prior
quarter. In the event there are no similar installations of
MarketSite Software licensed by Commerce One in the prior
quarter, the licensing fee shall be based on, at PeopleSoft's
sole option, either the mean price charged by Commerce One
for all installations of MarketSite Software licensed by
Commerce One in the prior quarter or a fee to be negotiated
in good faith by the parties.
All other provisions of Section 12 shall cease to be of any further
force and effect.
3. As of the Amendment Effective Date, Section 13 in Attachment B shall
be amended in its entirety to read as follows:
PeopleSoft shall pay to Commerce One for support and
maintenance of the MarketSite Software an annual maintenance fee (the
"Maintenance Fee"). The Maintenance Fee shall be [*]
dollars ([*]) annually; provided, however, the parties
agree to review the Maintenance Fee on an annual basis on or before the
anniversary of the Amendment Effective Date. Notwithstanding the
foregoing, in the event the parties do not agree on the Maintenance Fee
prior to the anniversary of the Amendment Effective Date for any given
year, the Maintenance Fee shall remain at [*] dollars ([*]) per
annum. The Maintenance Fee shall be due annually within thirty (30)
days of the anniversary of the Amendment Effective Date.
PeopleSoft shall report the Maintenance Fee in the first quarterly
royalty report, as required under this Agreement, of each
year. Commerce One and PeopleSoft shall within thirty (30) days of the
Amendment Effective Date execute a maintenance agreement with terms and
conditions at least as favorable as those offered to others.
4. As of the Amendment Effective Date, Section 14 in Attachment B shall
be amended by adding the following:
14.2 Minimum Royalties for BuySite Products and PeopleSoft
Products. The minimum royalty payable to either Commerce One or
PeopleSoft under Sections 7 and 8 of Attachment B shall be equal to
[*] percent ([*]) of the Blended License Fee. The minimum royalty
shall be subject to review and if necessary adjustment by mutual
agreement of the parties. In the event that the parties are unable to
agree that the [*] percent ([*]) of the Blended License Fee is the
appropriate minimum royalty for any particular quarter, the prior
quarter's minimum royalty shall govern until such time as the parties
are able to resolve their dispute.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-13-
<PAGE>
5. As of the Amendment Effective Date, the following shall be added to
the end of Attachment B as Section 17:
17 With respect to Blended Transaction Rate, Blended License
Fee, or other similar provisions, the Parties recognize that the
products and services included herein are typically Distributed in
complex transactions involving multiple products, services and
occasionally other consideration. In determining amounts attributable
to equivalent products or services the Parties shall make fair and
reasonable allocations of the fees received or to be received to all of
the elements included in the transaction.
AMENDMENTS TO ATTACHMENT C
AS OF THE AMENDMENT EFFECTIVE DATE ATTACHMENT C SHALL BE
AMENDED BY ADDING THE FOLLOWING:
MARKETSITE AUCTION SERVICES
AMENDMENTS TO ATTACHMENT F
AS OF THE AMENDMENT EFFECTIVE DATE, EXHIBIT F AMENDED IN ITS ENTIRETY
BY ADDING THE FOLLOWING:
The PeopleSoft Product is what is currently known as PeopleSoft
eProcurement in its current form or as subsequently modified, (and
shall include subsequent versions thereof), which offers web-based
procurement capabilities designated to enable companies to reduce their
indirect goods purchasing costs while increasing their overall supply
chain efficiency. Cost reductions are achieved through user-friendly
application functionality designed to reduce off-contract, or "rogue,"
purchases, automate manual processes, improve leverage with suppliers
and provide links to a dynamic trading community.
The PeopleSoft Product currently incorporates parts of the BuySite
Product Source Code or Derivative Works thereof. Future versions of the
PeopleSoft Product may also be developed without any such BuySite
Product Source Code or Derivative Works thereof. PeopleSoft shall be
entirely free to determine the features and functionality of the
PeopleSoft Product using internal resources, contracted resources or
through acquisition either in whole or in part.
For the avoidance of doubt, PeopleSoft Product shall not include the
PeopleSoft Purchasing product, or any versions, modifications, or
updates thereof, provided such PeopleSoft Purchasing product is
primarily targeted at purchasing professional and not directed at
casual users and provided that PeopleSoft's eProcurement product is
marketed as the preferred procurement/purchasing solution directed at
casual users and non-purchasing professionals within an organization.
For greater clarity, nothing in this definition of the PeopleSoft
Product shall include any and all other PeopleSoft products developed
by or on behalf of
-14-
<PAGE>
PeopleSoft including but not limited to PeopleSoft ERP products,
analytic products and other products not explicitly defined above.
The PeopleSoft Product, as it is currently known and as it may be
further developed and enhanced, is distinct from the BuySite product,
which is a Commerce One marketed and sold product and PeopleSoft shall
not owe a royalty both under Sections 2(a) and 3(a) of Section 7, as
amended, for the same product.
5. As of the Amendment Effective Date, Attachment I of the Agreement
shall be deleted in its entirety and replaced by the words "Intentionally
Omitted."
6. As of the Amendment Effective Date, Attachment G of the Agreement
shall be amended by deleting the list of PeopleSoft Named Accounts in its
entirety and replacing such list of PeopleSoft Named Accounts with the list set
forth in EXHIBIT A to this Amendment One. Commerce One accepts the list of
PeopleSoft Named Accounts set forth in EXHIBIT A to this Amendment One provided
that PeopleSoft shall, within thirty (30) days of the Amendment Effective Date,
provide further information to Commerce One detailing the scope of the license
grant contained in the accounts agreements with PeopleSoft and the names of the
entity entitled to such license within the thirty (30) PeopleSoft Named Accounts
set forth in EXHIBIT C and provided further that the scope of the licenses
granted and the names of the entity entitled to such license within the thirty
(30) PeopleSoft Named Accounts shall be used for the purposes of defining
PeopleSoft Named Accounts in Section 7(a) of Attachment B, as amended.
7. Except as provided below PeopleSoft hereby acknowledges that no fees
or royalties or payments of any kind are due and payable from Commerce One to
PeopleSoft based on the license of BuySite and/or MarketSite to General Motors
and its affiliates (which shall be defined as any company in which General
Motors has a forty-nine percent (49%) interest) and to Banacci. Notwithstanding
the foregoing, both parties acknowledge and agree that any other distribution
made pursuant to this Agreement which were completed and effective on or before
the Amendment Effective Date shall be governed by the Agreement as it existed
prior to the execution of this Amendment One. Notwithstanding the foregoing, on
revenues received by Commerce One from Banacci for the Distribution of BuySite
into the PeopleSoft Named Accounts, Commerce One shall pay to PeopleSoft a [*]
percent ([*]) royalty on revenues received by Commerce One.
8. As of the Amendment Effective Date, Attachment H of the Agreement
shall be amended by adding the names "MRO.com, Vertical.net, and Aspect
Development" to the end of the list of Commerce One Specified Companies and
adding the name "JD Edwards, Evolve, Icarian" to the end of the list of
PeopleSoft Specified Companies.
9. Commerce One agrees to grant PeopleSoft a membership in the Global
Trade Web (GTW) and PeopleSoft agrees to become a member of the GTW, which seat
shall at a minimum be equivalent to that granted to any other counsel member,
and to abide by the revenue sharing and global cooperation policies of the GTW.
PeopleSoft shall have the right to withdraw from the GTW at any time.
Notwithstanding the foregoing, PeopleSoft agrees to use commercially reasonable
efforts work with the GTW members to establish technical and business
relationships.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-15-
<PAGE>
10. As of the Amendment Effective Date, Commerce One shall grant
PeopleSoft a seat on the Global Trading Web Counsel.
11. In the event of any inconsistency or conflict between this
Amendment One and the Agreement, the terms, conditions and provisions of this
Amendment One shall govern and control.
12. This Amendment One and the Agreement constitute the entire and
exclusive agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter are
superceded by the Agreement and Amendment One.
IN WITNESS WHEREOF, the parties hereto have caused duly authorized
representatives to sign this Amendment One as of the Amendment Effective Date.
PEOPLESOFT COMMERCE ONE
By:_________________________ By:_______________________
Title:______________________ Title:____________________
Date:_______________________ Date:_____________________
-16-
<PAGE>
EXHIBIT A
PEOPLESOFT NAMED ACCOUNTS
[See Attached Page]
[*]
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT B
GLOBAL TRADING WEB PARTNERS
[*]
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C
SPECIFIC PEOPLESOFT NAMED ACCOUNTS
[*]
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-2-
<PAGE>
COMMERCE ONE, INC.
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANTS
<TABLE>
<CAPTION>
State of
Name of or Country
Subsidiary of Incorporation
--------------------------------- ------------------
<S> <C>
Commerce One Europe Switzerland
Commerce One United Kingdom (subsidiary of Commerce One Europe) United Kingdom
Commerce One Deutschland (GMBH) (subsidiary of Commerce One Europe) Germany
Commerce One France (SARL) (subsidiary of Commerce One Europe) France
Veo Systems, Inc. California
CommerceBid, Inc. Delaware
Mergent Systems, Inc. California
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements on Form S-8 No. 333-82051 pertaining to the 1997 Incentive Stock
Option Plan, 1999 Employee Stock Purchase Plan, and 1999 Director Option
Plan; No. 333-92671 pertaining to the CommerceBid.Com, Inc. 1999 Equity
Incentive Plan; No. 333-95171 pertaining to the Mergent Systems, Inc. 1999
Stock Option Plan; No. 333-96505 pertaining to the 1997 Incentive Stock
Option Plan; No. 333-33324 pertaining to the 1999 Nonstatutory Stock Option
Plan; and No. 333-76987 pertaining to the 1999 Employee Stock Purchase Plan,
of Commerce One, Inc. of our report dated January 24, 2000, with respect to
the consolidated financial statements and financial statement schedule of
Commerce One, Inc. included in this annual report (Form 10-K) for the year
ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
March 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS INCLUDED IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDING DECEMBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 51,792
<SECURITIES> 72,814
<RECEIVABLES> 15,845
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,107
<PP&E> 15,992
<DEPRECIATION> (4,100)
<TOTAL-ASSETS> 384,610
<CURRENT-LIABILITIES> 67,627
<BONDS> 0
0
0
<COMMON> 423,839
<OTHER-SE> (107,118)
<TOTAL-LIABILITY-AND-EQUITY> 316,721
<SALES> 0
<TOTAL-REVENUES> 33,557
<CGS> 16,070
<TOTAL-COSTS> 79,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,302
<INCOME-PRETAX> (59,134)
<INCOME-TAX> 4,188
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,322)
<EPS-BASIC> (2.62)
<EPS-DILUTED> (2.62)
</TABLE>
