<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2000
REGISTRATION NO. 333-93439
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NIKU CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 77-0473454
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
NIKU CORPORATION
305 MAIN STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 298-4600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FARZAD DIBACHI
CHIEF EXECUTIVE OFFICER
NIKU CORPORATION
305 MAIN STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 298-4600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DENNIS R. DEBROECK, ESQ. ALAN F. DENENBERG, ESQ.
JEFFREY R. VETTER, ESQ. SHEARMAN & STERLING
FENWICK & WEST LLP 1550 EL CAMINO REAL
TWO PALO ALTO SQUARE MENLO PARK, CALIFORNIA 94025
PALO ALTO, CALIFORNIA 94306 (650) 330-2200
(650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(2) FEE
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Common Stock, $0.0001 par
value....................... 9,200,000(1) $12.00 $110,400,000 $29,145.60(3)
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</TABLE>
(1) Includes 1,200,000 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
(3) $30,360 was paid in connection with the original filing on December 22,
1999.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED JANUARY 31, 2000.
8,000,000 Shares
NIKU CORPORATION LOGO
Niku Corporation
Common Stock
----------------------
This is an initial public offering of shares of common stock of Niku
Corporation. All of the 8,000,000 shares of common stock are being sold by us.
Prior to this offering, there has been no public market for our common
stock. Niku anticipates that the initial public offering price per share will be
between $10.00 and $12.00. Niku has applied for approval for quotation of our
common stock on the Nasdaq National Market under the symbol "NIKU."
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of our common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Niku Corporation.............. $ $
</TABLE>
To the extent that the underwriters sell more than 8,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
1,200,000 shares from Niku at the initial public offering price, less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares on , 2000.
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
----------------------
Prospectus dated , 2000.
<PAGE> 3
[Description of graphics for inside front cover]
The graphic consists of three sets of screen shots for eNiku, xNiku and
iNiku. Each set consists of three individual screen shots overlapping one
another in different arrangements.
(a) eNiku Screen Shot - consists of a parent frame and two child frames,
one behind the parent on the left side and one in front of the
parent on the right side. Below the screen shots is the sentence
"Our ENIKU Internet software enables organizations to automate core
business processes such as management of resources, knowledge and
information on their corporater intranets, internal Internet-based
networks." At the top of each of the screen shots are navigational
buttons for Home, Engagements, Knowledge Store, Practice Management,
Resource Management, Sales & Marketing and Service Lines. On the
left side of each side of these screens is the Niku logo with
hyperlinks listed vertically below it.
(b) xNiku Screen Shot - consists of a parent frame and two child frames,
with the child frames in front of the left hand and right hand
corners of the parent frame. To the right of the screen shots is the
sentence "Our XNIKU Internet software allows organizations to
collaborate with customers, partners and suppliers using extranets,
private Internet-based networks reaching beyond the enterprise." At
the top of each of the screen shots are navigational buttons for
Home, Engagements, Knowledge Store, Practice Management, Resource
Management, Sales & Marketing and Service Lines. On the left side of
each screen is a vertical list of hyperlinks.
(c) iNiku Screen Shot - consists of a parent frame and two child frames,
with one child frame in the back of the parent on the left side and
the other child frame in front of the left hand corner of the parent
frame. To the left and above the screen shots is the sentence "Our
iNiku website enables small businesses and individual professionals
to access relevant content and services and to operate their
businesses online." At the top of each of the screen shots are two
sets of navigational buttons. The top set of navigational buttons
are for Help, Email, Account Info, Support, Feedback, Site Map and
Logout. The bottom set of navigational buttons are for Home, Do
Work, Find Work, Network, Services and Magazine. On the left side of
each screen is a vertical list of hyperlinks.
[Description of graphics on inside front cover gatefold]
The inside front cover gatefold contains two pages of graphics. The
graphic on the first page is entitled "A Common Platform for the Sourcing,
Management and Delivery of Professional Services." Directly below the title is
the sentence "Our eNiku, xNiku, and iNiku products are designed to be used in an
integrated fashion, with users in large enterprises collaborating with smaller
businesses and individual professionals." In the center of the page a circle
with the phrase "Niku Services Marketplace" inside of it. On the upper left side
of the circle, a cylindrical line connects the circle a depiction of a seven
story office building, which is labeled "Large Enterprises." To the left of the
office building depiction is the phrase "eNiku- Enterprises using corporate
intranets, internal Internet-based networks." On the lower left side of the
circle in the center of the page is a set of four cylindrical lines. The
uppermost cylindrical line connects the circle to a three story office building
labeled "Partners." The next cylindrical line is shorter in length than the top
cylindrical line and it connects the circle to a three story office building
labeled "Customers." The next cylindrical line is the same length as the first
one and it connects the circle to a depiction of a lap-top computer which is
labeled "Remote Users." The last cylindrical line is shorter in length than the
cylindrical line above it and connects the circle to a three story office
building labeled "Suppliers." This set of graphical depictions sit on top of a
map of the world. Below this set of four cylindrical lines is the phrase "xNiku
- - Partners, customers and suppliers connecting via extranets, private
Internet-based networks reaching beyond the enterprise." On the upper right side
of the circle in the center of the page is a set of three cylindrical lines. The
top and bottom cylindrical lines connect the circle to depictions of a lap-top
computer which is labeled "Individual Professionals." The cylindrical line in
the middle of the set is longer in length than the other two cylindrical lines
and it connects the circle to a depiction of a desktop computer labeled "Small
Businesses." Below this set of three cylindrical lines is the phrase "iNiku -
Individuals accessing an Internet website." The eNiku, xNiku and iNiku
depictions that surround the center circle are connected to each other by
double-sided arrows that arc around the center circle to form a larger circle.
The arrow connecting the eNiku set and xNiku set is labeled "Communication." The
arrow connecting the xNiku set and iNiku set is labeled "Community." The arrow
connecting the iNiku set and eNiku set is labeled "Collaboration." The Niku logo
is in the bottom left hand corner of the page. At the bottom right hand corner
are the sentences "The Niku Services Marketplace is designed to be a marketplace
for buyers and sellers of professional services. Individuals seeking work can
post profiles showing skills, certifications and experience. Organizations
seeking resources can post project specifications, requirements and terms.
Because users of eNiku, xNiku and iNiku are all working with Niku products, they
can easily participate in the Niku Services Marketplace."
[Insert Picture]
[Description of graphic on page 49]
This graphic is entitled "Niku Application Framework." Under the title is
a cloud-shaped object with the word "Browser" written in the middle of it. Below
the cloud shape is a large rectangle with several smaller horizontal rectangles
arranged top to bottom and two vertical rectangles towards the sides inside of
it. A small arrow points upwards from the outside of the top of the rectangle to
the cloud shape. Another small arrow points downwards from the inside of the box
to a smaller rectangle within the box which is labeled "FrontWorks." Directly
below and connected to this rectangle is a smaller rectangle labeled
"Application Modules." Directly below this rectangle is another rectangle of the
same size labeled "Niku Adaptable KnowledgeStore." Directly below this rectangle
are three small rectangles lined up from left to right. The rectangle on the
left is labeled "Relational Database Management System." The middle rectangle is
labeled "File System." The rectangle on the right is labeled "Search Engine."
From the left hand side of the inside of the large rectangle is a small arrow
pointing to the right that is directed towards a vertical rectangle labeled
"ImportWorks." From the right hand side of the inside of the large rectangle is
a small arrow pointing to the left that is directed towards a vertical rectangle
labeled "Datalink Adapters." On the left hand side of the graphic, on the
outside of the large rectangle, is a rectangle with arced edges. Inside this
rectangle are the words, in order from top to bottom, "Web," "E-mail," "Fax" and
"Other." On the right hand side of the graphic, on the outside of the large
rectangle, a small arrow points towards a rectangle with arced edges. Inside
this rectangle are the words, in order from top to bottom, "Enterprise Resource
Planning," "Document Management," "Groupware" and "Other."
<PAGE> 4
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our consolidated financial statements and
accompanying notes appearing elsewhere in this prospectus. Unless otherwise
indicated, all information contained in this prospectus assumes (1) no exercise
of the underwriters' over-allotment option, (2) the conversion of each
outstanding share of preferred stock into one share of common stock and (3) no
exercise of outstanding stock options or warrants.
NIKU
We provide Internet software products and offer an online marketplace for
the sourcing, management and delivery of professional services. Professional
services include consulting, financial services, medicine, law, engineering,
advertising and other industries in which knowledge and information, or
intellectual capital, are an important element of the services.
According to the U.S. Department of Commerce, the gross domestic product of
the professional services industry, including business, health, legal and
educational services, exceeded $900 billion in 1997. Unlike product-oriented
businesses, which produce finished goods from raw materials and component parts
and sell these goods on a per-item basis, professional services businesses
create information-based deliverables using human resources that are often
billed at time-based rates. As a result of these characteristics, professional
services businesses require sophisticated applications to manage knowledge and
information, including unstructured data, and human resources. The market for
business-to-business electronic commerce for services is large and growing, with
Forrester Research estimating that it will increase from approximately $22
billion in 1999 to approximately $220 billion by 2003, representing a compound
annual growth rate of approximately 78%.
We offer a set of Internet software products, eNiku, xNiku and iNiku, which
are designed to automate the core business processes of professional services
organizations, professional services providers within enterprises, and small
businesses and individual professionals. eNiku enables organizations to manage
knowledge, human resources and projects, track time and expenses and analyze
business performance on their corporate "intranets," internal Internet-based
networks. xNiku enables organizations to extend the functions and features of
eNiku to business partners, customers and suppliers using corporate "extranets,"
private Internet-based networks reaching beyond the enterprise. iNiku, our
website for individual professionals and small businesses, allows users to gain
access to relevant content and services and operate their businesses over the
Internet. We have designed our products to be used in an integrated fashion. For
example, an organization using eNiku on its intranet could work with business
partners through its xNiku extranet and supplement its resources with
contractors who are part of the iNiku community. The common technology linking
eNiku, xNiku and iNiku also allows users to easily participate in our Niku
Services Marketplace, a marketplace for buyers and sellers of professional
services.
We believe key benefits to users of our products and services include:
- significantly enhanced client service;
- substantially expanded revenue opportunities;
- increased profitability; and
- improved recruitment and retention of employees and contractors.
Customers who have licensed our Internet software products include
consulting organizations as well as enterprises such as Adecco, Business
Objects, Comdisco, Computer Associates, EMC, Gateway, Neon, SalesLogix, Sybase,
Tibco, Trilogy, USinternetworking and Xerox. As of January 31, 2000, our iNiku
website had over 21,000 registered users.
3
<PAGE> 5
Our goal is to be the leading provider of Internet software products and an
online marketplaces for the sourcing, management and delivery of professional
services in a number of professional services industries. Key elements of our
strategy to achieve this goal are as follows:
- target leading enterprise customers;
- enhance our iNiku website;
- expand the Niku Services Marketplace;
- target additional professional services industries, including financial
services, medicine, law and advertising;
- pursue acquisitions of complementary businesses, products and
technologies; and
- expand our global operations in Europe and the Asia-Pacific region,
where we currently have approximately 25 employees.
An investment in our common stock involves risks which are described in the
section entitled "Risk Factors" on page 7 as well as elsewhere in this
prospectus. We have incurred net losses of $3.0 million for our fiscal year
ended January 31, 1999 and $13.5 million for the nine months ended October 31,
1999. As of October 31, 1999, we had an accumulated deficit of $16.6 million. We
expect to incur net losses for the foreseeable future. We have only recently
introduced the latest versions of our Internet software products. For the
foreseeable future, we expect that our revenues and operating results will
depend upon sales of licenses of our primary Internet software product, eNiku.
For the nine months ended October 31, 1999, we derived approximately 50% of our
revenues from three customers and we expect that for the foreseeable future our
revenues will continue to be concentrated in a relatively small number of
customers. Therefore, our operating results could suffer if we cannot market
eNiku successfully and obtain larger numbers of additional customers. We operate
in a competitive industry in which a number of companies offer products that
provide some of the functionality of our products. Other risks of an investment
in our common stock include our limited operating history, the potential for
fluctuations in our operating results, the long sales cycle for our products,
our need to expand our sales channels, the fact that our products have not been
deployed on a large scale, the complexity of implementation of our products for
large customers and our ability to effectively integrate recent acquisitions.
Other risks also include risks related to the Internet industry in which we
operate and risks related to this offering.
We were incorporated in Delaware in January 1998. In December 1999, we
acquired Proamics Corporation, a provider of project accounting,
time-and-expense and billing solutions for the professional services industry.
In January 2000, we acquired Legal Anywhere, Inc., a provider of Internet
collaboration software for the legal profession. Our principal executive offices
are located at 305 Main Street, Redwood City, California 94063. Our telephone
number at this location is (650) 298-4600. The information on our web site does
not constitute a part of this prospectus. The Niku logo, Niku, eNiku, iNiku,
xNiku, Niku Adaptable KnowledgeStore, NAKS and Niku Services Marketplace are our
trademarks. All other brand names and trademarks appearing in this prospectus
are the property of their respective owners.
4
<PAGE> 6
THE OFFERING
Common stock offered....... 8,000,000 shares
Common stock to be
outstanding after the
offering................. 69,046,435 shares
Use of proceeds............ For general corporate purposes, capital
expenditures and working capital. See "Use of
Proceeds."
Proposed Nasdaq National
Market symbol............ "NIKU"
The number of shares of our common stock to be outstanding after the
offering is based on the number of shares outstanding as of January 29, 2000.
The number of shares to be outstanding excludes as of January 29, 2000:
- 5,407,454 shares of our common stock subject to outstanding options and
warrants; and
- 788,730 shares of our common stock to be available for future grant under
our stock plans.
- options to purchase shares of Legal Anywhere common stock representing
options to purchase up to 141,283 shares of our common stock, which were
assumed in connection with our acquisition of Legal Anywhere.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
NINE
NINE MONTHS MONTHS
YEAR ENDED ENDED OCTOBER 31, YEAR ENDED ENDED
JANUARY 31, ------------------ JANUARY 31, OCTOBER 31,
1999 1998 1999 1999 1999
----------- ------- -------- ----------- -----------
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ $ 15 $ -- $ 2,976 $ 10,933 $ 12,332
------- ------- -------- -------- --------
Gross profit............................ 11 -- 2,373 5,772 6,287
------- ------- -------- -------- --------
Operating expenses...................... 3,161 1,721 16,084 25,154 35,943
------- ------- -------- -------- --------
Operating loss.......................... (3,150) (1,721) (13,711) (19,382) (29,656)
------- ------- -------- -------- --------
Net loss................................ $(3,020) $(1,665) $(13,533) $(19,743) $(29,674)
Basic and diluted net loss per share.... $ (0.62) $ (0.35) $ (2.31) $ (1.26) $ (1.77)
Shares used in computing basic and
diluted net loss per share............ 4,882 4,800 5,871 15,729 16,718
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 19,329 $ 63,323 $144,163
Working capital............................................. 10,323 53,619 134,459
Total assets................................................ 28,738 135,510 216,350
Long-term obligations, less current portion................. 968 3,341 3,341
Redeemable convertible preferred stock...................... 28,580 100,966 --
Total stockholders' equity (deficit)........................ (13,828) 13,419 195,225
</TABLE>
See note 1 of notes to our financial statements for a description of the
method that we used to compute the net loss per share amounts. Niku's operations
for the period from January 8, 1998 (inception) through January 31, 1998, were
not significant and are included in Niku's results of operations for the year
ended January 31, 1999.
The unaudited pro forma combined statement of operations data give effect
to our acquisition of Proamics Corporation in December 1999 and Legal Anywhere
in January 2000 as if the acquisitions had occurred on February 1, 1998 and does
not assume the conversion of the shares of our outstanding preferred stock into
common stock upon the closing of this offering. The unaudited pro forma combined
balance sheet data gives effect to (1) our acquisition of Proamics, (2) our
acquisition of Legal Anywhere and (3) the sale of 7,998,012 shares of our Series
D preferred stock in November 1999 for proceeds of approximately $39.9 million
as if the acquisitions and sale both occurred on October 31, 1999. The pro forma
as adjusted balance sheet data give effect to the conversion of all outstanding
shares of our preferred stock into common stock upon the closing of this
offering and the sale of the 8,000,000 shares of common stock that we are
offering under this prospectus, at an assumed initial public offering price of
$11.00 per share, and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses. See "Capitalization."
Pro forma net loss for the nine months ended October 31, 1999 excludes an
extraordinary gain on early extinguishment of long-term debt of $2.4 million
recorded by Proamics.
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock.
The occurrence of any of the following risks could materially and adversely
affect our business, financial condition and operating results. In this case,
the trading price of our common stock could decline and you might lose all or
part of your investment.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY STAGE COMPANY WHICH MAKES IT DIFFICULT TO EVALUATE OUR CURRENT
BUSINESS
We were incorporated in January 1998 and have a limited operating history.
We began licensing our Internet software in December 1998 and introduced the
latest version of this software and our iNiku website in November 1999.
Therefore, we have only a limited operating history upon which to base an
evaluation of our current business and prospects.
DUE TO OUR LIMITED OPERATING HISTORY, IT IS DIFFICULT TO PREDICT OUR FUTURE
OPERATING RESULTS
Due to our limited operating history, it is difficult or impossible for us
to predict future results of operations. For example, we cannot forecast
operating expenses based on our historical results because we have recently
introduced the latest version of iNiku, acquired Proamics Corporation, or
Proamics, and Legal Anywhere, Inc., or Legal Anywhere, and begun to pursue
additional markets, and we are required to forecast expenses in part based on
future revenue projections.
WE HAVE INCURRED LOSSES DURING OUR OPERATING HISTORY AND WE EXPECT TO INCUR
FUTURE LOSSES FOR THE FORESEEABLE FUTURE
We have experienced operating losses in each quarterly and annual period
since we were formed and we expect to incur significant losses in the future. We
incurred net losses of $3.0 million for the year ended January 31, 1999 and
$13.5 million for the nine months ended October 31, 1999. As of October 31,
1999, we had an accumulated deficit of $16.6 million. Proamics has never been
profitable, and as of September 30, 1999, it had an accumulated deficit of $13.4
million. Legal Anywhere has never been profitable and as of December 31, 1999,
it had an accumulated deficit of $1.7 million. We expect to significantly
increase our research and development, sales and marketing, and general and
administrative expenses, in part as a result of our recent acquisition of
Proamics. In addition, as a result of our acquisitions of Proamics and Legal
Anywhere, we will record for the quarter ended January 31, 2000 approximately
$57.0 million of goodwill and other intangible assets, which will result in
non-cash charges as these assets are amortized over the next three to five
years. Further, we will incur substantial stock-based compensation expense in
future periods, which represents non-cash charges incurred as a result of the
issuance of stock and stock options prior to this offering. As a result of these
factors, we will need to significantly increase our revenues to achieve and
maintain profitability. We may not be able to sustain our recent revenue growth
rates. In fact, we may not have any revenue growth, and our revenues could
decline. Our failure to significantly increase our revenues would seriously harm
our business and operating results.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND IF
OUR FUTURE RESULTS ARE BELOW THE EXPECTATIONS OF INVESTORS, THE PRICE OF OUR
COMMON STOCK WILL DECLINE
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sales and marketing expenses to promote our
products and services. Our quarterly operating results are likely to be
particularly affected by the number of customers licensing our products during
any quarter as well as sales and marketing and other expenses for a particular
quarterly period.
7
<PAGE> 9
Other factors that could affect our quarterly operating results include:
- our ability to attract new customers, including Proamics' customers, and
retain current customers;
- the announcement or introduction of new products or services by us or our
competitors;
- changes in the pricing of our products and services or those of our
competitors;
- variability in the mix of our products and services revenues in any
quarter; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business.
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in some
future periods, our results of operations may be below the expectations of
investors. If this occurs, the price of our common stock will decline.
For a discussion of our quarterly operating results, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations."
WE EXPECT TO FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO FLUCTUATE
We expect to experience seasonality in the sales of our products and
services. For example, we anticipate that sales may be lower in our first fiscal
quarter due to patterns in the capital budgeting and purchasing cycles of our
current and prospective customers as well as due to our sales commission
structure. We also expect that sales may decline during summer months,
particularly in European markets. These seasonal variations in our sales may
lead to fluctuations in our quarterly operating results.
OUR PRODUCTS HAVE A LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO PREDICT OUR
QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY SIGNIFICANTLY
The sales cycle for our products is long, typically from three to six
months, making it difficult to predict the quarter in which we may recognize
revenue from a sale, if at all. Our products often are part of a significant
strategic decision by our customers regarding their information systems.
Accordingly, the decision to license our products typically requires significant
pre-purchase evaluation. We spend substantial time educating and providing
information to prospective customers regarding the use and benefits of our
products. During this evaluation period, we may expend significant funds in
sales and marketing efforts.
Our lengthy sales cycle may cause license revenues and operating results to
vary significantly from period to period. If anticipated sales from a specific
customer for a particular quarter are not realized in that quarter, our
operating results may vary significantly.
IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, OUR ABILITY TO
INCREASE REVENUES WILL BE LIMITED
In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
both our direct and indirect sales channels. Our failure to do so could harm our
ability to increase revenues. We currently receive substantially all of our
revenues from direct sales, but intend to increase sales through indirect sales
channels in the future. We need to expand our direct sales force by hiring
additional salespersons and sales management. We are seeking to hire at least 40
more of these types of personnel in the current fiscal year. There is strong
competition for qualified sales personnel in our business, and we may not be
able to attract and retain sufficient new sales personnel to expand our
operations.
We intend to derive some of our revenues from our indirect sales channels,
which involves selling our software through value added resellers and other
third parties. Currently, five of these
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other companies market our products. These resellers offer our software products
to their customers together with consulting and implementation services or
integrate our software solutions with other software. We also intend to offer
our Internet software through application service providers, who install our
software on their own computer servers and charge their customers for access to
our software. We are seeking to expand our indirect sales channel to involve at
least 20 relationships with third parties in the current fiscal year and we may
not be able to do so successfully.
TO DATE, CUSTOMERS HAVE NOT DEPLOYED OUR PRODUCTS ON A LARGE-SCALE AND WE MAY
EXPERIENCE CUSTOMER DISSATISFACTION AND LOST SALES IF OUR PRODUCTS DO NOT
ACCOMMODATE LARGE SCALE DEPLOYMENTS
Our software must be able to accommodate substantial increases in the
number of people using our products. To date, however, only eight of our
customers have deployed our Internet software. Thus, our products have not been
tested in the context of large-scale customer implementations. If our customers
cannot successfully implement large-scale deployments, or if they determine that
our products cannot accommodate large-scale deployments, we could lose some or
all of our existing customers and be unable to obtain new customers.
IMPLEMENTATION OF OUR PRODUCTS BY LARGE CUSTOMERS MAY BE COMPLEX AND CUSTOMERS
COULD BECOME DISSATISFIED IF IMPLEMENTATION OF OUR PRODUCTS PROVES DIFFICULT,
COSTLY OR TIME-CONSUMING
Our products must integrate with many existing computer systems and
software programs used by our customers. Integrating with many other computer
systems and software programs can be complex, time-consuming and expensive and
cause delays in the deployment of our products. Because we are one of the first
companies to offer products designed for professional services automation, many
customers will be facing these integration issues for the first time in the
context of professional services automation software. Customers could become
dissatisfied with our products if implementations prove to be difficult, costly
or time-consuming.
WE EXPECT TO DEPEND ON LICENSES OF OUR ENIKU INTERNET SOFTWARE PRODUCT FOR
SUBSTANTIALLY ALL OF OUR REVENUES FOR THE FORESEEABLE FUTURE
Revenues from licenses of our Internet software products, particularly
eNiku products, and related services revenues accounted for all of our revenues
for our fiscal year ended January 31, 1999, and for the nine months ended
October 31, 1999. We anticipate that revenues from the license of these products
and related services revenues, as opposed to transactional and other revenues
from iNiku and the Niku Services Marketplace, will continue to constitute the
vast majority of our revenues for the foreseeable future. Consequently, a
decline in the price of or demand for these products and related services, or
their failure to achieve broader market acceptance, would seriously harm our
business.
WE MAY NOT BE ABLE TO SELL OUR NIKU PRODUCTS TO PROAMICS' CUSTOMERS OR
EFFECTIVELY UTILIZE THE PROAMICS PROFESSIONAL SERVICES PERSONNEL
We acquired Proamics in December 1999. For the nine months ended October
31, 1999, Proamics' revenues of $9.2 million accounted for 75% of our total pro
forma revenues of $12.3 million. Proamics revenue primarily consisted of $2.5
million of software licenses and approximately $6.7 million of services.
However, we do not intend to separately market the Proamics product line.
Although we plan to market Niku products incorporating functionality contained
in Proamics' products to Proamics' customers, we do not know whether any
Proamics' customer will purchase any Niku products. In addition, a large portion
of Proamics' business consisted of software implementation services. If we are
unable to successfully market our products to Proamics' customers or effectively
utilize the Proamics professional services personnel, our business will be
harmed and we may not meet investors' expectations, either of
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which could adversely affect our operating results and cause a drop in the
market price of our common stock.
WE HAVE SOLD OUR PRODUCTS TO COMPANIES AS PART OF BROADER BUSINESS RELATIONSHIPS
AND REVENUES FROM THESE CONTRACTS MAY NOT BE INDICATIVE OF FUTURE REVENUES
We have licensed our products to companies from whom we have purchased
products and services under separate arrangements. During the nine months ended
October 31, 1999, we derived approximately $1.2 million of our total revenues
from these types of customer licenses. In addition, members of our Niku Partners
Network are also our customers and we have committed that most of these Niku
Partners would receive a minimum dollar value of future professional services
work from us. Revenues attributable to these Niku Partners were approximately
$574,000 of our total revenues for the nine months ended October 31, 1999.
Because these transactions are part of a broader relationship, revenues
recognized under these types of arrangements may not be indicative of future
revenues. We intend to enter into these types of relationships in the future,
although we anticipate that revenues related to these types of relationships
will decline as a percentage of total revenues. However, we cannot assure you
that we will be successful in licensing our products to customers without having
to enter into broader relationships with them.
For an additional discussion of how we recognize revenue and how we
calculate the amount of revenue we recognize from these types of arrangements,
see note 1 of the notes to our consolidated financial statements.
WE EXPECT REVENUES FROM OUR PRODUCTS TO BE CONCENTRATED IN A RELATIVELY SMALL
NUMBER OF CUSTOMERS
For the nine months ended October 31, 1999, three Niku customers,
USinternetworking or USi, Sybase and SalesLogix, accounted for 18%, 22% and 10%
of Niku's total revenues. In addition, each of USi and Sybase, had an officer
and/or director serving on our board of directors. We expect to derive a
significant portion of our revenues from a relatively small number of customers
for the foreseeable future. As a result, if we lose a major customer, our
quarterly and annual results of operations could be harmed. We cannot be certain
that customers that have accounted for significant revenues in past periods,
individually or as a group, will continue to purchase products or renew our
services in any future period.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS NEWLY EMERGING AND CUSTOMERS MAY NOT
ACCEPT OUR PRODUCTS AND SERVICES
The market for professional services automation software products and
services is newly emerging. Services businesses have not traditionally automated
the management of their business processes. We cannot be certain that this
market will continue to develop and grow or that companies will elect to utilize
our products and services rather than attempt to develop applications internally
or through other sources. In addition, the use of the Internet, as well as
corporate intranets and extranets, has not been widely adopted for professional
services automation. Companies that have already invested substantial resources
in other methods may be reluctant to adopt a new approach that may replace,
limit or compete with their existing systems or methods. We expect that we will
need to continue intensive marketing and sales efforts to educate prospective
customers about the uses and benefits of our products and services. Therefore,
demand for and market acceptance of our products and services will be subject to
a high level of uncertainty.
DEFECTS IN OUR PRODUCTS OR SERVICES COULD RESULT IN LOSS OF OR DELAY IN
REVENUES, LOSS OF MARKET SHARE, FAILURE TO ACHIEVE MARKET ACCEPTANCE OR
INCREASED COSTS
Products and services as complex as those we offer or develop frequently
contain undetected defects or errors. Despite internal testing and testing by
our customers or potential
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customers, defects or errors may occur in our existing or future products and
services, including year 2000 errors. For example, from time to time in the
past, versions of our software that have been delivered to customers have
contained errors. In these instances, we have resolved the errors. In the
future, if we are not able to detect and correct errors prior to release, we may
experience a loss of or delay in revenues, loss of market share, failure to
achieve market acceptance or increased costs to remediate errors, any of which
could significantly harm our business.
Defects or errors could also result in tort or warranty claims. Although we
attempt to reduce the risk of losses resulting from any claims through warranty
disclaimers and liability limitation clauses in our customer agreements, these
contractual provisions may not be enforceable in every instance. Furthermore,
although we maintain errors and omissions insurance, this insurance coverage may
not adequately cover us for claims. If a court refused to enforce the
liability-limiting provisions of our contracts for any reason, or if liabilities
arose that were not contractually limited or adequately covered by insurance,
our business could be harmed.
THE LATEST VERSION OF OUR INIKU WEBSITE WAS ONLY RECENTLY INTRODUCED, IS AT AN
EARLY STAGE OF DEVELOPMENT AND MAY NOT ACHIEVE MARKET ACCEPTANCE
We introduced the latest version of our iNiku website in November 1999.
Broad and timely acceptance of iNiku is an important part of our success. We may
not be able to attract a sufficient number of users to iNiku and therefore we
may never derive significant revenues from iNiku.
IF WE CANNOT BUILD A CRITICAL MASS OF BUYERS AND SELLERS FOR OUR NIKU SERVICES
MARKETPLACE, THE MARKETPLACE WILL NOT BE SUCCESSFUL
The success of the Niku Services Marketplace depends in large part on our
ability to build a critical mass of buyers and sellers of services for our Niku
Services Marketplace. To attract sellers of services, we must build a critical
mass of buyers interested in obtaining services. However, buyers must perceive
value in the Niku Services Marketplace, which, in part, depends upon the breadth
of the offerings from sellers of services. If we are unable to increase the
number of buyers and sellers of services, the Niku Services Marketplace will not
be successful.
WE HAVE FOCUSED ON THE IT CONSULTING INDUSTRY AND OUR EFFORTS TO EXPAND SALES OF
OUR PRODUCTS AND SERVICES TO OTHER SERVICE INDUSTRIES MAY NOT SUCCEED
To date, our products and services have been targeted for the information
technology, or IT, consulting industry and our primary product has been eNiku
for IT Consulting. However, we intend to develop and market our products and
services in other professional services industries. For example, with our
acquisition of Legal Anywhere in January 2000, we began to offer products to the
legal profession. Businesses may be less likely to use our products and services
outside of the IT consulting industry. Even if they do, we may need to develop
additional expertise or industry-specific knowledge which we may not be able to
do in a timely manner. Therefore, we may not succeed in marketing our products
and services for use outside of the IT consulting industry. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new or enhanced products and services for new
professional services industries in the future. In addition, those products and
services may not meet the requirements of the marketplace in these new markets
and may not achieve market acceptance.
SYSTEM FAILURE MAY CAUSE INTERRUPTION OF OUR SERVICES
The performance of our web site servers and networking hardware and
software infrastructure is critical to iNiku, our hosted professional services
automation solutions and our ability to provide high quality customer service.
Currently, our infrastructure and systems for iNiku, our hosted applications and
our corporate web site are located at one site maintained by USi, at its data
center in Milpitas, California. The California hosting site is in an area
susceptible
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to earthquakes. We depend on this single-site infrastructure and any disruption
to this infrastructure resulting from a natural disaster or other event could
result in an interruption in our services.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan or alternative provider
of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. In the past
we have experienced temporary outages with respect to our iNiku website. These
outages have ranged from several minutes to several hours. The latest outage
occurred in December 1999. Any system failure that causes an interruption in
service or a decrease in responsiveness of our Internet-based services, if
sustained or repeated, could harm our reputation and the attractiveness of our
brand name.
WE DEPEND ON DISTRIBUTION, MARKETING AND TECHNOLOGY RELATIONSHIPS AND IF OUR
CURRENT AND FUTURE RELATIONSHIPS ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE HARMED
We rely on distribution, marketing and technology relationships with a
variety of companies. These distribution, marketing and technology relationships
include relationships with:
- the Niku Partners Network of consulting firms;
- operators of high traffic web sites such as CNET; and
- vendors of e-commerce and Internet software, such as Allaire, Fulcrum,
Microsoft, Oracle and Seagate Software, whose products or technologies we
incorporate into or integrate with our products, such as development
tools, databases and search engines.
We depend on these companies to promote our products, provide our direct
sales force with customer leads, attract users to iNiku and the Niku Services
Marketplace, integrate and implement our products with those of customers or
provide enhanced functionality to our products. Some of these relationships are
not documented in writing, or are governed by agreements that can be terminated
by either party with little or no prior notice or do not provide for minimum
payments to us. Our Internet marketing relationships also require us to make
significant cash payments.
Companies with which we have a distribution, marketing or technology
relationship may promote products or services of several different companies,
including, in some cases, products or services that compete with ours. These
companies may not devote adequate resources to selling or promoting our products
and services. We may not be able to maintain these relationships or enter into
additional relationships in the future. For example, our agreements with USi
have terms of three years, and our agreement with CNET has a term of two years.
We cannot assure you that we can renew our agreements with USi and CNET on
reasonable terms, or at all.
MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES MAY SUFFER IF WE ARE UNABLE TO
INCORPORATE THE RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY INTO OUR PRODUCTS
Rapidly changing technology and standards may impede market acceptance of
our products and services. Our current products and services have been designed
based upon currently prevailing technology. If new technologies emerge that are
incompatible with our products, our key products and services may become
obsolete and our existing and potential customers may seek alternatives to our
products and services. We may not be able to quickly adapt to any new Internet
technology.
Additionally, we have designed our products to work with databases such as
Oracle Enterprise Server and Microsoft SQL Server and operating systems such as
Windows NT and Sun Solaris. Any changes to those databases or systems, or
increasing popularity of other
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databases or systems, could require us to modify our products or services and
could cause us to delay releasing future products and enhancements. As a result,
uncertainties related to the timing and nature of new product announcements,
introductions or modifications by vendors or operating systems, databases, web
servers and other enterprise and Internet-based applications could delay our
product development, increase our product development expenses or cause
customers to delay evaluation, purchase and deployment of our products.
BECAUSE WE HAVE EXPANDED OUR OPERATIONS, OUR SUCCESS WILL DEPEND ON OUR ABILITY
TO MANAGE OUR EXPECTED GROWTH, IMPROVE OUR EXISTING SYSTEMS AND IMPLEMENT NEW
SYSTEMS, PROCEDURES AND CONTROLS
We have rapidly and significantly expanded our operations and expect to
continue to expand our operations. This growth has placed, and is expected to
continue to place, a significant strain on our managerial, operational,
financial and other resources. For example, we have grown to approximately 400
employees as of January 29, 2000 from less than 50 employees as of January 31,
1999. We are seeking to hire at least an additional 200 employees in the current
fiscal year. Our ability to compete effectively and to manage future expansion
of our operations, if any, will require us to continue to improve our financial
and management controls, reporting systems and procedures on a timely basis. We
expect to hire additional new employees to support our business and to implement
and integrate new accounting and control systems. We may not be able to manage
our growth efficiently.
THE PROAMICS AND LEGAL ANYWHERE ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS
We acquired Proamics in December 1999 and Legal Anywhere in January 2000.
The acquisitions of Proamics and Legal Anywhere as well as future acquisitions
could create risks for us, including:
- amortization of expenses related to goodwill and other intangible assets,
such as the approximately $47.8 million relating to our acquisition of
Proamics and the approximately $9.2 million relating to our acquisition
of Legal Anywhere;
- difficulties in assimilating the acquired personnel, operations,
technologies or products of Proamics or Legal Anywhere;
- our ability to effectively market and sell our products to Proamics'
customers;
- unanticipated costs associated with the acquisitions;
- the need to manage geographically-dispersed operations, such as Proamics'
operations in Illinois and Legal Anywhere's operations in Oregon;
- diversion of management's attention from other business concerns;
- the inability to retain the acquired employees of Proamics or Legal
Anywhere; and
- adverse effects on our, Proamics' or Legal Anywhere's existing business
relationships.
If we fail to effectively integrate Proamics or Legal Anywhere, we may face
disruptions to our business activities and our business may be seriously harmed.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT MAY BE DIFFICULT FOR US TO INTEGRATE
OR OTHERWISE HARM OUR OPERATING RESULTS
As part of our business strategy, we may make acquisitions of complementary
businesses, products or technologies. If we acquire a company, we may face
issues which similar to those we are facing with respect to our acquisitions of
Proamics and Legal Anywhere. If we experience difficulties in assimilating
acquired businesses, products or technologies, our ongoing business could be
disrupted, our management and employees could be distracted and we could incur
increased expenses. Furthermore, we may issue equity securities to pay for any
future acquisitions, which could be dilutive to our existing stockholders. We
may also incur debt or assume unknown liabilities in connection with
acquisitions.
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THERE IS COMPETITION IN OUR MARKET, WHICH COULD MAKE IT DIFFICULT TO ATTRACT
CUSTOMERS, CAUSE US TO REDUCE PRICES AND RESULT IN REDUCED GROSS MARGINS OR LOSS
OF MARKET SHARE
The market for our products and services is competitive, dynamic and
subject to frequent technological changes. The intensity of competition and the
pace of change are expected to increase in the future. Our products and services
primarily compete with solutions that have been developed by potential
customers' in-house developers and IT departments. In addition, we face
competition from a number of competitors offering products and services that
vary in functionality. These include:
- developers of professional services automation software and related
Internet-based applications;
- providers of hosted software for IT consultants;
- operators of Internet-based job boards;
- developers of project management software; and
- enterprise resource planning software companies that may decide to
develop software or applications for the professional services industry.
We believe that there are a number of companies that offer products that
provide some of the functionality of our products. However we do not believe any
one company has a dominant position in our market as a whole.
We expect additional competition from other established and emerging
companies as the professional services automation market continues to develop.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business. We may not be able to compete successfully against current and future
competitors.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS
Our future success depends upon the continued service of our executive
officers, who are listed in the section entitled "Management," particularly
Farzad Dibachi, our chief executive officer. None of our executive officers is
bound by an employment agreement for any specific term or which prevents them
from terminating their employment at any time. Our business would be seriously
harmed if we lost the services of one or more of our executive officers or if
one or more of them decide to join a competitor or otherwise compete directly or
indirectly with us.
IN ORDER TO GROW OUR BUSINESS, WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL AT
A TIME WHEN COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE
We are seeking to hire at least an additional 200 employees in the current
fiscal year. We may be unable to attract, assimilate or retain highly qualified
employees. In particular, we believe that we will need to hire additional
engineering personnel. We have from time to time in the past experienced, and we
expect in the future to continue to experience, difficulty in hiring highly
skilled employees with appropriate qualifications as a result of our rapid
growth and expansion. Attracting and retaining qualified personnel with
experience in the software and Internet industries is an additional challenge
for us. There is a shortage of qualified technical personnel and competition for
this personnel is intense in our industry, particularly in the San Francisco Bay
Area, where our headquarters is located. We may not be able to attract,
assimilate or retain and motivate new personnel.
OUR INCREASED INTERNATIONAL ACTIVITIES MAY NOT RESULT IN INCREASED REVENUES
We only recently expanded our operations into Canada, the United Kingdom,
The Netherlands, Germany and Australia. In the future, we intend to expand our
operations into other areas, particularly in the Asia-Pacific region. We believe
we must expand the sales of our products and services outside the United States
and hire additional international personnel. In
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connection with this expansion, we also will need to develop internationalized
versions of our products. Therefore, we expect to commit significant resources
to expand our international sales, marketing and development. We may not be
successful in marketing our products and services to customers in markets
outside the United States, where adoption of the Internet and electronic
commerce may evolve slowly or may not evolve at all.
INCREASED INTERNATIONAL ACTIVITIES WILL EXPOSE US TO ADDITIONAL OPERATIONAL
CHALLENGES THAT WE MIGHT NOT OTHERWISE FACE
If we succeed in increasing our international activities, we will be
exposed to additional operational challenges that we would not otherwise face if
we conducted our operations only in the United States. These include:
- currency exchange rate fluctuations, particularly if we sell our products
in denominations other than U.S. dollars;
- seasonal fluctuations in purchasing patterns in other countries,
particularly declining sales during summer months in European markets;
- tariffs, export controls and other trade barriers;
- difficulties in collecting accounts receivable in foreign countries;
- the burdens of complying with a wide variety of foreign laws;
- reduced protection for intellectual property rights in some countries,
particularly in Asia; and
- the need to develop internationalized versions of our products.
WE MIGHT NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
We regard substantial elements of our products and services as proprietary
and attempt to protect them by relying on patent, trademark, service mark,
copyright and trade secret laws and restrictions, as well as confidentiality
procedures and contractual provisions. Any steps we take to protect our
intellectual property may be inadequate, time consuming and expensive.
Furthermore, despite our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property, which could harm
our business.
We have applied for four U.S. patents. It is possible that no patents will
issue from our currently pending patent applications. Moreover, new patent
applications may not result in issued patents and may not provide us with any
competitive advantages over, or may be challenged by, third parties.
We have applied for registration of our Niku, iNiku and NAKS trademarks
with the U.S. Patent and Trademark Office. We have not applied for registration
of our logo or our eNiku, xNiku or Niku Services Marketplace trademarks.
Although we rely on copyright laws with respect to our software, we have not
made any copyright registration with any government entity with respect to our
software.
Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in software or Internet-related
industries are uncertain and still evolving, and the future viability or value
of any of our intellectual property rights is uncertain. Effective trademark,
copyright and trade secret protection may not be available in every country in
which our products are distributed or made available. Furthermore, our
competitors may independently develop similar technologies that substantially
limit the value of our intellectual property or design around patents issued to
us.
Substantially all of our iNiku users' usage of our services is governed by
Internet-based license agreements, rather than by means of a formal, written
contract. Users "click" on a dialog box and are deemed to agree to the terms and
conditions that are posted on iNiku, and our relationship with these customers
is then governed by these terms and conditions. There is a
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possibility that a court, arbitrator or regulatory body could deem this type of
agreement to be invalid or determine that the terms and conditions governing the
agreement do not fully protect our intellectual property rights.
THIRD PARTIES MIGHT BRING INFRINGEMENT CLAIMS AGAINST US OR OUR THIRD-PARTY
SUPPLIERS THAT COULD HARM OUR BUSINESS
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in our
software and Internet industries. We could become subject to intellectual
property infringement claims as the number of our competitors grows and our
products and services overlap with competitive offerings. These claims, even if
not meritorious, could be expensive and divert management's attention from
operating our company. If we become liable to third parties for infringing their
intellectual property rights, we could be required to pay a substantial damage
award and to develop noninfringing technology, obtain a license or cease selling
the products that contain the infringing intellectual property. We may be unable
to develop noninfringing technology or obtain a license on commercially
reasonable terms, if at all.
In addition, as part of our product licenses, we agree to indemnify 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.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS
We may need to raise additional funds in order to fund more rapid
expansion, expand our marketing activities, develop new or enhance existing
services or products, respond to competitive pressures or acquire complementary
businesses, products or technologies. We may also need to raise funds in the
future to meet our working capital needs. Additional financing may not be
available on terms favorable to us, or at all. If we issue additional equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of the
then existing holders of our common stock.
OUR BUSINESS MIGHT BE HARMED IF THE SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT
OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING PATTERNS AS A
RESULT OF THE YEAR 2000 PROBLEM
Although January 1, 2000 has occurred, our information technology systems
could be impaired or cease to operate due to the year 2000 problem.
Additionally, we rely on technology supplied by third parties. These third
parties may experience year 2000 related problems. Any year 2000 problems
experienced by us or any of these third parties could harm our business.
Additionally, the Internet could face serious disruption arising from the year
2000 problem.
Further, any year 2000 problems with respect to our products could lead to
claims from our customers asserting liability, including liability for breach of
warranties related to our products, which could result in large settlements or
judgments against us.
RISKS RELATED TO THE INTERNET INDUSTRY
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE ADOPTION OF THE INTERNET FOR
ELECTRONIC COMMERCE AND COMMUNICATIONS
Our business is based on providing software for the sourcing, management
and delivery of professional services using the Internet. Therefore, in order
for our business to be successful, the Internet must be widely adopted, in a
timely manner, as a means of electronic commerce and communication relating to
professional services. Because electronic commerce and
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communication over the Internet are new and evolving, it is difficult to predict
the size of this market and its sustainable growth rate. To date, many
businesses and consumers have been deterred from utilizing the Internet for a
number of reasons, including, but not limited to:
- potentially inadequate development of network infrastructure;
- security concerns, including the potential for fraud or theft of stored
data and information communicated over the Internet;
- inconsistent quality of service, including well publicized down times for
popular web sites;
- lack of availability of cost-effective, high-speed service;
- limited numbers of local access points for corporate users;
- delay in the development of enabling technologies or adoption of new
standards;
- inability to integrate business applications with the Internet;
- the need to operate with multiple and frequently incompatible products;
and
- a lack of tools to simplify access to and use of the Internet.
INCREASING GOVERNMENTAL REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR
OUR PRODUCTS AND SERVICES
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, such as user privacy,
taxation of goods and services provided over the Internet, pricing, content and
quality of products and services. Legislation could dampen the growth in
Internet usage and decrease or limit its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the market
for our products and services. In addition, existing laws could be applied to
the Internet, including consumer privacy laws. Legislation or application of
existing laws could expose companies involved in electronic commerce, to
increased liability, which could limit the growth of electronic commerce
generally.
SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS AND
SERVICES
A fundamental requirement to conduct Internet-based electronic commerce is
the secure transmission of confidential information over public networks.
Failure to prevent security breaches of our customers' networks, or well
publicized security breaches affecting the Internet in general, could
significantly harm our business. 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 security measures
of our products and services or our iNiku business portal. 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.
NEW TAX TREATMENT OF COMPANIES ENGAGED IN INTERNET COMMERCE MAY ADVERSELY AFFECT
THE INTERNET INDUSTRY
Tax authorities on the international, federal, state and local levels are
currently reviewing the appropriate tax treatment of companies engaged in
Internet commerce. New state tax regulations may subject companies engaged in
electronic commerce to additional state sales, income and other taxes. A
recently passed federal law places a temporary moratorium on certain types of
taxation on electronic commerce. We cannot predict the effect of current
attempts to impose sales, income or other taxes on commerce over the Internet;
although, if imposed, these taxes would likely increase our cost of doing
business.
17
<PAGE> 19
RISK RELATED TO THIS OFFERING
OUR OFFICERS, DIRECTORS AND OTHER EXISTING STOCKHOLDERS WILL OWN APPROXIMATELY
60% OF OUR VOTING STOCK AFTER THIS OFFERING AND WILL BE ABLE TO CONTROL US
As of January 29, 2000, our officers, directors and 5% or greater
stockholders beneficially owned or controlled, directly or indirectly,
41,193,526 shares of our capital stock, which in the aggregate represented
approximately 67.5% of the outstanding shares of our common stock on an as
converted to common stock basis. After this offering and assuming no additional
issuances of common stock, our officers, directors and 5% or greater
stockholders will beneficially own or control, directly or indirectly,
approximately 59.7% of the outstanding shares of our common stock. As a result,
if these persons act together, they will have the ability to influence all
matters submitted to our stockholders for approval, including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our assets. This ability to exercise influence over all
matters requiring stockholder approval could prevent or significantly delay
another company or person from acquiring or merging with us.
THE MARKET PRICE FOR OUR COMMON STOCK, LIKE OTHER TECHNOLOGY STOCKS, MIGHT BE
VOLATILE AND COULD RESULT IN A DECLINE IN THE VALUE OF YOUR INVESTMENT
We believe that the market price of our common stock, like other
early-stage Internet-related companies, could be volatile. The value of your
investment in our common stock could decline due to the impact of any of the
following factors upon the market price of our common stock:
- variations in our quarterly operating results;
- announcements of new product or service offerings by us or our
competitors;
- announcement of new customer relationships by us or our competitors;
- changes in market valuations of Internet-related companies;
- additions to, or departures of, our executive officers; and
- conditions and trends in the Internet and electronic commerce industries.
Further, the stock markets, particularly the Nasdaq National Market on
which we have applied to have our common stock listed, have experienced
substantial price and volume fluctuations. These fluctuations have particularly
affected the market prices of equity securities of many technology and
Internet-related companies and have often been unrelated or disproportionate to
the operating performance of those companies. The trading prices of many
technology companies' stocks are at or near historical highs. These high trading
prices may not be sustained.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
Sales of a large number of shares of our common stock in the market after
this offering, or the belief that these sales could occur, could cause a drop in
the market price of our common stock. Upon completion of this offering, we will
have outstanding 69,046,435 shares of common stock. All of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless the shares are purchased
by our "affiliates," as that term is defined under the Securities Act. The
remaining 61,046,435 shares of common stock outstanding upon completion of this
offering will be "restricted securities," as that term is defined under Rule 144
of the Securities Act. Of these shares;
- 42,714,464 shares will become eligible for resale beginning 180 days
after the date of this prospectus;
- 7,998,012 shares will become freely tradeable after November 17, 2000;
and
- 9,993,141 shares will become freely tradeable after December 8, 2000.
18
<PAGE> 20
See "Shares Eligible For Future Sale."
PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DELAY OR PREVENT A TAKEOVER OF US, EVEN IF DOING SO WOULD BENEFIT OUR
STOCKHOLDERS
Provisions of Delaware law, our certificate of incorporation and bylaws
could have the effect of delaying or preventing a third party from acquiring us,
even if a change in control would be beneficial to our stockholders. These
provisions include:
- authorizing the issuance of preferred stock without stockholder approval;
- providing for a classified board of directors with staggered, three year
terms;
- prohibiting cumulative voting in the election of directors;
- requiring two-thirds of the outstanding shares to approve amendments to
some provisions of our certificate of incorporation and bylaws;
- requiring a majority of the stockholders to call stockholders meetings;
and
- prohibiting stockholder actions by written consent.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION FROM THIS
OFFERING
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing stock in this offering will experience
an immediate dilution in the net tangible book value of the common stock of
$9.04 per share, based on the number of outstanding shares as of October 31,
1999, assuming conversion of all outstanding shares of our preferred stock into
our common stock, and an assumed initial public offering price of $11.00 per
share. In the past, we issued options to acquire our common stock at prices
significantly below the initial offering price. To the extent these outstanding
options are ultimately exercised, there will be further dilution to investors in
this offering.
MANAGEMENT DOES NOT HAVE A SPECIFIC PLAN FOR USING THE PROCEEDS OF THIS OFFERING
AND MIGHT APPLY THE NET PROCEEDS FROM THIS OFFERING TO USES THAT DO NOT INCREASE
OUR OPERATING RESULTS OR MARKET VALUE
The net proceeds from the sale of our common stock in this offering will be
added to our general working capital. We have not reserved or allocated the net
proceeds for any specific purpose, and we cannot specify with certainty how we
will use these proceeds. Consequently, our management will have broad discretion
with respect to the application of the proceeds from this offering, and you will
not have the opportunity, as part of your investment in our common stock, to
assess whether the proceeds are being used appropriately. The net proceeds may
be used for corporate purposes that do not increase our operating results or
market value. Pending application of the proceeds, they might be placed in
investments that do not produce income or that lose value.
INVESTORS SHOULD NOT EXPECT TO RECEIVE DIVIDENDS
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. In
addition, our loan agreements prohibit us from paying cash dividends without the
consent of our lenders. Therefore, investors should not expect us to declare
dividends on our common stock.
19
<PAGE> 21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks" and "estimates," and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this prospectus. Except as required by law, we undertake no obligation
to update any forward-looking statement, whether as a result of new information,
future events or otherwise.
20
<PAGE> 22
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 8,000,000 shares of
common stock that we are offering will be approximately $80.8 million, at an
assumed initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $93.1 million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to enhance our ability to
acquire other businesses, products or technologies and to facilitate future
access to public equity markets. We intend to use the net proceeds for working
capital purposes. We may also use a portion of the net proceeds from this
offering to acquire or invest in businesses, products or technologies that are
complementary to our business. We currently have no commitments or agreements
with respect to any future acquisitions or investments. We have not determined
the amounts we plan to spend on any of the uses described above or the timing of
these expenditures. Pending our use of the net proceeds, we intend to invest
them in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. In
addition, our loan agreements prohibit us from paying cash dividends without the
consent of the lenders.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (1) the issuance of 3,501,938 shares of
our common stock and 6,491,203 shares of our Series D preferred stock in
connection with our acquisition of Proamics in December 1999, (2) the
sale of 7,998,012 shares of our Series D preferred stock in November 1999
for aggregate proceeds of approximately $39.9 million and (3) the
issuance of 853,717 shares of our common stock in connection with our
acquisition of Legal Anywhere; and
- on a pro forma as adjusted basis to reflect the conversion of all
outstanding shares of our preferred stock into our common stock upon the
closing of this offering and the sale of our common stock in this
offering, at an assumed initial public offering price of $11.00 per
share, after deducting estimated underwriting discounts and commissions
and our estimated offering expenses.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations.................... $ 5,502 $ 6,388 $ 6,388
======== ======== ========
Long-term obligations, less current portion................. $ 968 $ 3,341 $ 3,341
-------- -------- --------
Redeemable convertible preferred stock and warrants, $0.0001
par value, 34,272,843 shares authorized, 33,130,282 shares
issued and outstanding, actual; 51,910,282 shares
authorized, 47,619,497 shares issued and outstanding, pro
forma; no shares authorized, issued or outstanding, pro
forma as adjusted......................................... 28,580 100,966 --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; no shares authorized,
issued or outstanding, actual; 10,000,000 shares
authorized no shares issued or outstanding, pro forma
and pro forma as adjusted............................... -- -- --
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 7,106,118 shares issued and outstanding,
actual; 100,000,000 shares authorized, 11,461,773 shares
issued and outstanding, pro forma; 250,000,000 shares
authorized, 67,081,270 shares issued and outstanding,
pro forma as adjusted................................... 1 1 7
Additional paid-in capital................................ 10,100 37,347 219,147
Treasury stock............................................ (30) (30) (30)
Deferred stock-based compensation......................... (7,238) (7,238) (7,238)
Notes receivable from stockholders........................ (108) (108) (108)
Accumulated deficit....................................... (16,553) (16,553) (16,553)
-------- -------- --------
Total stockholders' equity (deficit)............... (13,828) 13,419 195,225
-------- -------- --------
Total capitalization............................... $ 15,720 $117,726 $198,566
======== ======== ========
</TABLE>
The share numbers above exclude:
- 3,629,127 shares of our common stock subject to options outstanding under
our 1998 Stock Plan as of October 31, 1999, at a weighted average
exercise price of $0.26 per share;
- 2,302,250 shares of our common stock available for future grant under our
1998 Stock Plan as of October 31, 1999;
22
<PAGE> 24
- 6,000,000 shares of our common stock to be available for future grant
under our 2000 Equity Incentive Plan and 1,000,000 shares of our common
stock to be available for future grant under our 2000 Employee Stock
Purchase Plan; and
- 630,000 shares of our Series B preferred stock issuable upon the exercise
of outstanding warrants as of October 31, 1999, at a weighted average
exercise price of $0.75 per share.
Subsequent to October 31, 1999 and through January 29, 2000, we granted
options to purchase 1,604,960 shares of our common stock under our 1998 Stock
Plan at a weighted average exercise price of $2.61 per share, issued 365,193
shares of our common stock pursuant to exercise of options and grants of
restricted shares under our 1998 Stock Plan, and cancelled options to purchase
91,440 shares of our common stock under the 1998 Stock Plan and issued 1,600,000
shares of our common stock to employees under stock purchase agreements at a
weighted average purchase price of $1.00 per share. In connection with our
acquisition of Legal Anywhere, we assumed options to purchase shares of Legal
Anywhere common stock which represent options to purchase 141,283 shares of our
common stock.
You should read this table together with "Management -- Director
Compensation," "-- Employee Benefit Plans," "Description of Capital Stock,"
"Certain Transactions" and notes 6 and 9 of the notes to our consolidated
financial statements.
23
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of October 31, 1999 was $13.9
million or approximately $0.35 per share, assuming the conversion of all
outstanding shares of our preferred stock into shares of our common stock. Pro
forma net tangible book value per share is determined by dividing the pro forma
number of outstanding shares of our common stock into our net tangible book
value, which is our total tangible assets less total liabilities. After giving
effect to the receipt of the estimated net proceeds from this offering, based
upon an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and our estimated
offering expenses, our pro forma net tangible book value as of October 31, 1999
would have been approximately $94.8 million, or $1.96 per share. This represents
an immediate increase in pro forma net tangible book value of $1.61 per share to
existing stockholders and an immediate dilution in net tangible book value of $
9.04 per share to new investors purchasing shares at the initial public offering
price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
------
Pro forma net tangible book value per share as of October
31, 1999.................................................. $0.35
-----
Increase per share attributable to new investors............ 1.61
-----
Pro forma net tangible book value per share after
offering.................................................. 1.96
------
Dilution per share to new investors......................... $ 9.04
======
</TABLE>
The following table summarizes as of October 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of our common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and our estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -----------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------ -------
<S> <C> <C> <C> <C>
Existing stockholders...................... 40,236,400 83.4% $ 28,775,000 24.6%
New investors.............................. 8,000,000 16.6 88,000,000 75.4
---------- ----- ------------ -----
Total...................................... 48,236,400 100.0% $116,775,000 100.0%
========== ===== ============ =====
</TABLE>
In November 1999, we sold 7,998,012 shares of our Series D preferred stock
for aggregate proceeds of approximately $39.9 million, or a purchase price of
approximately $5.00 per share. In December 1999, in connection with our
acquisition of Proamics, we issued 3,501,938 shares of our common stock and
6,491,203 shares of our Series D preferred stock in exchange for all of the
outstanding capital stock of Proamics. In January 2000, in connection with our
acquisition of Legal Anywhere, we issued 853,717 shares of our common stock in
exchange for all of the outstanding capital stock of Legal Anywhere and assumed
options which are exercisable for 141,283 shares of our common stock.
As of October 31, 1999, there were options outstanding to purchase a total
of 3,629,127 shares of our common stock at a weighted average exercise price of
$0.26 per share, and warrants outstanding to purchase a total of 630,000 shares
of our Series B preferred stock at a weighted average exercise price of $0.75
per share. Subsequent to October 31, 1999 and through January 29, 2000, we
granted options to purchase 1,604,960 shares of our common stock under our 1998
Stock Plan at a weighted average exercise price of $2.61 per share and issued
1,600,000 shares of our common stock to employees under stock purchase
agreements at a weighted average purchase price of $1.00 per share. To the
extent that any options or warrants are exercised, there will be further
dilution to new public investors. See "Capitalization," "Management -- Employee
Benefit Plans," "Description of Capital Stock," "Certain Transactions" and notes
6 and 9 of the notes to our financial statements.
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes to our financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
consolidated statement of operations data for the year ended January 31, 1999,
and the nine months ended October 31, 1999, and the balance sheet data as of
January 31, 1999 and October 31, 1999, are derived from, and are qualified by
reference to, our audited financial statements included elsewhere in this
prospectus, which have been audited by KPMG LLP, independent auditors. The
unaudited statement of operations data for the nine months ended October 31,
1998, is derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared the unaudited information on the same basis as the
audited consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for these
periods. Niku's operations for the period from January 8, 1998 (inception)
through January 31, 1998, were not significant and are included in Niku's
results of operations for the year ended January 31, 1999, and nine months ended
October 31, 1998.
The historical results are not necessarily indicative of results to be
expected in any future period and results for the nine months ended October 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year.
The unaudited pro forma combined condensed statement of operations data
presents our consolidated statement of operations for the fiscal year ended
January 31, 1999, combined with the consolidated statement of operations of
Proamics and the statement of operations of Legal Anywhere for the year ended
December 31, 1998, and our consolidated statement of operations for the nine
months ended October 31, 1999, combined with the consolidated statement of
operations for Proamics and the statement of operations for Legal Anywhere for
the nine months ended September 30, 1999, giving effect to our acquisitions of
Proamics and Legal Anywhere as if they had occurred on February 1, 1998. The
unaudited pro forma combined condensed balance sheet data gives effect to the
acquisitions as if the transactions occurred on October 31, 1999, and combines
our consolidated balance sheet as of October 31, 1999, with the consolidated
balance sheet of Proamics and the balance sheet of Legal Anywhere as of
September 30, 1999, and gives effect to the sale of our Series D preferred stock
as if the sale had occurred on October 31, 1999.
The unaudited pro forma combined condensed information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or financial position of the combined companies.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements.
25
<PAGE> 27
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
YEAR NINE MONTHS ENDED NINE MONTHS
ENDED OCTOBER 31, YEAR ENDED ENDED
JANUARY 31, ------------------- JANUARY 31, OCTOBER 31,
1999 1998 1999 1999 1999
----------- ------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................................... $ -- $ -- $ 1,962 $ 3,198 $ 4,576
Services.......................................... 15 -- 1,014 7,735 7,756
------- ------- -------- -------- --------
Total revenues.............................. 15 -- 2,976 10,933 12,332
------- ------- -------- -------- --------
Cost of revenues.................................... 4 -- 603 5,161 6,045
------- ------- -------- -------- --------
Gross profit........................................ 11 -- 2,373 5,772 6,287
Operating expenses:
Research and development.......................... 1,610 849 6,062 3,050 8,367
Sales and marketing............................... 290 75 5,983 2,978 9,417
General and administrative........................ 996 720 1,837 3,409 4,369
Stock-based compensation.......................... 245 77 2,018 245 2,018
Amortization of goodwill and other intangible
assets.......................................... 20 -- 184 15,472 11,772
------- ------- -------- -------- --------
Total operating expenses.................... 3,161 1,721 16,084 25,154 35,943
------- ------- -------- -------- --------
Operating loss.................................. (3,150) (1,721) (13,711) (19,382) (29,656)
Interest and other.................................. 130 56 178 (361) (18)
------- ------- -------- -------- --------
Loss before extraordinary gain...................... $(3,020) $(1,665) $(13,533) (19,743) (29,674)
======= ======= ======== ======== ========
Basic and diluted net loss before extraordinary gain
per share......................................... $ (0.62) $ (0.35) $ (2.31) $ (1.26) $ (1.77)
======= ======= ======== ======== ========
Shares used in computing basic and diluted net loss
before extraordinary gain per share............... 4,882 4,800 5,871 15,729 16,718
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF
JANUARY 31, OCTOBER 31, OCTOBER 31,
1999 1999 1999
----------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 5,147 $ 19,329 $ 63,323
Working capital............................................. 4,786 10,323 53,619
Total assets................................................ 6,555 28,738 135,510
Long-term obligations, less current portion................. -- 968 3,341
Redeemable convertible preferred stock...................... 8,259 28,580 100,966
Accumulated deficit......................................... (3,020) (16,553) (16,553)
Total stockholders' equity (deficit)........................ (2,363) (13,828) 13,419
</TABLE>
Pro forma net loss for the nine months ended October 31, 1999 excludes an
extraordinary gain on early extinguishment of long-term debt of $2.4 million
recorded by Proamics.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following Management's Discussion and Analysis of
Financial Condition and Results of Operations together with the consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We provide Internet software products and offering online marketplace for
the sourcing management and delivery of professional services. Our principal
products are eNiku, xNiku and iNiku. We commenced operations in January 1998.
From January 1998 through November 1998, we were in the development stage,
conducting research and developing our initial products. In December 1998, we
began offering our Internet software products and related services and currently
offer them in the United States and, to a lesser extent, in Europe and the
Asia-Pacific region. We currently market our products primarily through our
direct sales force and other channels, such as resellers. In November 1999, we
introduced the most recent version of our iNiku website. In December 1999, we
acquired Proamics, a provider of project accounting, time-and-expense and
billing software for the professional services industry. In January 2000, we
acquired Legal Anywhere, a provider of Internet collaboration software for the
legal profession.
OUR HISTORY OF LOSSES
Although our revenues have increased from quarter to quarter, we incurred
significant costs to develop our technology and products and to recruit and
train personnel for our engineering, sales, marketing, professional services and
administrative organizations. As a result, we incurred net losses for the nine
months ended October 31, 1999 and for the year ended January 31, 1999 of $13.5
million and $3.0 million. We expect to incur net losses in the foreseeable
future. As of October 31, 1999, we had an accumulated deficit of $16.6 million.
We believe our success is contingent on increasing our customer base, on
continuing to develop our eNiku, xNiku and iNiku products, related services and
the Niku Services Marketplace and on expanding our market presence into new
professional services industries. We intend to continue to invest heavily in
sales, marketing and research and development. We also expect to incur
substantial non-cash charges relating to the amortization of goodwill and other
intangible assets and stock-based compensation.
Pro forma amortization of the October 31, 1999 balance of goodwill, other
intangible assets and stock-based compensation will result in pro forma expense
totaling approximately $2.4 million for the three months ending January 29,
2000, $19.4 million for the 2001 fiscal year, $17.2 million for the 2002 fiscal
year, $15.5 million for the 2003 fiscal year, $5.7 million for the 2004 fiscal
year and $4.6 million for the 2005 fiscal year. We also expect to record at
least $5.0 million of additional deferred stock-based compensation related to
stock options granted during the three months ending January 29, 2000. Due to
these and other factors, we expect to continue to incur substantial operating
losses for the foreseeable future.
SOURCES OF REVENUES AND REVENUE RECOGNITION POLICY
Through October 31, 1999, our revenues were principally derived from the
sale of licenses of our Internet software products, the provision of maintenance
and support and the delivery of implementation consulting services. In the
future we intend to pursue revenues from a third source -- our iNiku website and
the Niku Services Marketplace.
Customers who license eNiku receive a per seat, or user, license and all of
the applicable modules and adapters to interface with existing enterprise
systems. License fees are generally based upon the number of seats licensed by
the customer. Customers may also license eNiku
27
<PAGE> 29
under a server capacity license, the fee for which is based upon the customer's
estimated annual volume of users or "billable consultants" requiring access to
the applications. Capacity or "site" licensing allows customers to scale the
total cost of eNiku to their initial estimated volume requirements and they can
purchase additional capacity.
Customers who license our Internet software products generally enter into
maintenance and support agreements which allow for application version upgrades
and technical support for a stated term of generally one year. Customers may
purchase implementation services from us or from third-party consulting
organizations. In the future, we expect to rely in significant part on
third-party consulting organizations to deliver these services. We also offer
fee-based training to our customers. Currently, our standard iNiku website
offering is available to users free of charge.
We have adopted the provisions of Statement of Position, or SOP No. 97-2
Software Revenue Recognition, as amended by SOP No. 98-9, modification of SOP
97-2, Software Revenue Recognition with Respect to Certain Transactions. Revenue
recognized from multiple-element software arrangements are allocated to each
element of the arrangement based on fair values of the elements, such as
software products, maintenance and support and consulting services. The
determination of fair value is based on objective evidence which is specific to
us.
We recognize license revenues when persuasive evidence of an arrangement
exists, delivery of the product has occurred, no significant company obligations
with regard to installation or implementation of the software remain, the fee is
fixed or determinable and collectibility is probable. We consider all
arrangements with payment terms extending beyond three months and other
arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. As payments become due from the customer,
the initial amounts are first allocated to deferred revenue elements such as
maintenance and support and consulting services. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Arrangements that include consulting services are evaluated to determine whether
those services are essential to the functionality of other elements of the
arrangement. When services are considered essential, revenue under the agreement
is recognized using contract accounting. When services are not considered
essential, the revenue allocable to the software services is recognized as the
services are performed. Maintenance and support revenue is deferred and
recognized on a straight-line basis over the life of the related agreement,
which is typically one year.
REVENUE RECOGNITION FOR NONMONETARY EXCHANGES AND TRANSACTIONS WITH NIKU
PARTNERS
We have entered into a number of customer agreements involving the
licensing of our products and services to companies from whom we have purchased
products under separate agreements. Although these transactions are governed by
individual and distinct contracts, some are viewed as "nonmonetary" for
accounting purposes. For the nine months ended October 31, 1999, approximately
$1.2 million of our total revenues were derived from these types of transactions
were considered to be nonmonetary.
We recognize revenue for arrangements involving nonmonetary exchanges of
our products for customer products or services when the following three
conditions have been met: (1) the fair value of the products received is
objectively determinable; (2) the product received will not be incorporated into
or integrated with our products; and (3) the product received will be used
internally by us in a manner consistent with its fair value.
In addition, members of our Niku Partners Network are also our customers.
In most of our Niku Partner alliance arrangements we have committed that these
Niku Partners would receive a minimum dollar value of professional services from
us. These transactions are classified as either monetary or nonmonetary,
depending on the amount of value received by us from the Niku Partner. If the
value we receive or pay in the transaction exceeds 25% of the fair value of the
exchange with the Niku Partner, the transaction is considered to be monetary,
otherwise the
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transaction is considered to be nonmonetary for accounting purposes. Revenue
recognized from monetary transactions is limited at any time to the fair value
of the Niku Partner's professional services used by us. Revenue from nonmonetary
transactions is recognized when we use the Niku Partner's professional services
time for internal use as codevelopment experts in developing future versions of
our product functionality. Revenues attributable to monetary transactions with
Niku Partners for the nine months ended October 31, 1999, were $436,000 and
revenues attributable to nonmonetary transactions with Niku Partners were
$138,000.
We believe that these arrangements have expanded our presence in key
markets and have helped us to ensure that consulting organizations are trained,
experienced and available to perform implementation work at our customers' sites
and offer our products for resale. We intend to enter into these types of
relationships in the future, although we anticipate that revenues related to
these relationships will decline as a percentage of our total revenues. Please
see note 1 of our notes to our consolidated financial statements for a
description of the nature of these contracts and our related revenue recognition
accounting policies.
DEFERRED REVENUES
Deferred revenues include amounts billed to customers for which revenues
have not been recognized which generally results from the following: (1)
deferred maintenance and support; (2) consulting services not yet rendered; (3)
amounts billed to third parties for products not yet sold through to end-user
customers; (4) amounts billed to customers with extended payments terms which
are not yet due; and (5) amounts billed under monetary Niku Partner customer
arrangements in excess of Niku Partner professional services used by us. Of our
$1.9 million of deferred revenues as of October 31, 1999, $342,000, was
attributable to nonmonetary transactions with our customers within the
categories described above.
COST OF REVENUES
Our cost of revenues includes costs of our license revenues and costs of
our services revenues. Our cost of license revenues includes royalties due to
third parties for technology products integrated into our software products, the
cost of manuals and product documentation, production media and shipping costs.
Our cost of service revenues include salaries and related expenses for our
customer support, implementation and training organizations, as well as the
costs of third parties contracted to provide consulting services to our
customers. Because our cost of service revenues is greater than cost of license
revenues, cost of revenues may fluctuate based on the mix of products and
services sold.
OPERATING EXPENSES
Our operating expenses are classified into three general operational
categories: sales and marketing, research and development and general and
administrative. In addition, our operating expenses include two non-cash
categories: stock-based compensation and amortization of goodwill and other
intangible assets. We classify all charges to the sales and marketing, research
and development and general and administrative expense categories based on the
nature of the expenditures. Although each of these three categories includes
expenses that are unique to the category type, there are commonly recurring
expenditures that are typically included in these categories, such as salaries,
employee benefits, sales commissions, travel and entertainment costs, allocated
communication, rent and facilities costs, and third party professional service
fees. The sales and marketing category of operating expenses also includes
expenditures specific to the marketing group such as public relations and
advertising, trade shows and marketing collateral materials.
We allocate the total cost of overhead and facilities to each of the
functional areas that use overhead and facilities based upon their respective
headcount. These allocated charges include facility rent for the corporate
office, communications charges and depreciation expense for office furniture and
equipment.
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In connection with the granting of stock options to, and restricted stock
purchases by, our employees through October 31, 1999, we recorded deferred
stock-based compensation totaling approximately $9.3 million. This amount
represents the difference between the exercise or purchase price, as applicable,
and the deemed fair value of our common stock for accounting purposes on the
date these stock options were granted or purchase agreements were signed. This
amount is included as a component of stockholders' equity and is being amortized
on an accelerated basis by charges to operations over the vesting period of the
options consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28. The stock options and restricted stock purchases
generally vest at a rate of 25% upon the first anniversary of the option grant
date or restricted stock purchase date and 2.083% each month thereafter for
three years. We expect to record additional substantial stock-based compensation
for stock options granted subsequent to October 31, 1999. Amortization of the
October 31, 1999 balance of deferred stock-based compensation will result in
charges to operations of $1.3 million, $3.7 million, $1.5 million, $613,000 and
$75,000 for the three months ending January 29, 2000 and for fiscal years 2001,
2002, 2003 and 2004, respectively.
ACQUISITION OF ALYANZA, PROAMICS AND LEGAL ANYWHERE
In December 1998, we completed the acquisition of Alyanza, a privately held
software company in San Diego, California. We issued 525,000 shares of common
stock and paid $135,000 in cash for all of Alyanza's outstanding capital stock.
The transaction was accounted for as a purchase. The purchase price of
approximately $735,000 is being amortized over a three year period as
amortization of goodwill and other intangible assets.
In connection with our acquisition of Proamics in December 1999, we
acquired all of the outstanding capital stock of Proamics in exchange for
3,501,938 shares of our common stock and 6,491,203 shares of our Series D
preferred stock. In addition, subsequent to the transaction, we issued options
to purchase 960,380 shares of our common stock to the former employees of
Proamics who became our employees. Our acquisition of Proamics will be accounted
for as a purchase. Of the approximately $50.5 million purchase price, we expect
to record goodwill and other intangible assets of approximately $47.8 million to
be amortized over the next three to five years. The acquisition of Proamics may
have an adverse effect on our future operating results if we are unable to
market our products to Proamics customers or effectively utilize the Proamics
professional services consultants.
In connection with our acquisition of Legal Anywhere in January 2000, we
acquired all of the outstanding capital stock of Legal Anywhere in exchange for
853,717 shares of our common stock. In addition, we assumed options to purchase
shares of Legal Anywhere common stock which are exercisable for 141,283 shares
of our common stock. Our acquisition of Legal Anywhere will be accounted for as
a purchase. Of the approximately $10.2 million purchase price, we expect to
record goodwill and other intangible assets of approximately $9.2 million to be
amortized over the next three years.
MANAGEMENT OF GROWTH
We had approximately 400 full-time employees as of January 29, 2000, as
compared to less than 50 employees at January 31, 1999. We also intend to hire a
significant number of employees in the future. This expansion places significant
demands on our management and operational resources. To manage this rapid
growth, we must invest in scalable operational systems, procedures and controls.
We must also be able to recruit qualified candidates to manage our expanding
operations. We expect future expansion to continue to challenge our ability to
hire, train, manage and retain our employees. Additional personnel will increase
our operating expenses in the foreseeable future.
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LIMITED OPERATING HISTORY
Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of our
operating results should not be relied upon as predictive of future performance.
Our prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early state of development,
particularly companies in new and rapidly evolving markets, such as the Internet
and Internet software. We may not be successful in addressing these risks and
difficulties. Although we have experienced significant growth in revenues in
recent periods, we do not believe that prior growth rates are sustainable or
indicative of our future operating results.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1999
REVENUES
License. Our license revenues increased from no revenues for the period
ended October 31, 1998 to $2.0 million for the nine months ended October 31,
1999. This increase is attributable to an increase in sales to new customers
resulting from increased headcount in our sales force and, to a lesser extent,
the commencement of international operations. Sales to new customers accounted
for all of the license revenues, of which international operations accounted for
$20,000 for the nine months ended October 31, 1999. Pro forma license revenues
were $4.6 million for the nine months ended October 31, 1999, which primarily
consist of sales to the Proamics' customers. We do not intend to separately
market the Proamics product line in the future. Although we plan to market Niku
products to Proamics customers incorporating functionality contained in Proamics
products, we do not know whether any of these customers will purchase Niku
products. Therefore, prior levels of Proamics software license revenues are not
necessarily indicative of our future results.
Services. Our services revenues increased from no revenues for the period
ended October 31, 1998 to $1.0 million for the nine months ended October 31,
1999. This increase is attributable to the increased activity described above,
which resulted in increased revenues from customer implementations and
maintenance contracts. Pro forma services revenues were $7.8 million for the
nine months ended October 31, 1999, which included Proamics' services revenues
derived from installation, implementation and customization work for its license
customers. Although we plan to deploy Proamics services personnel on new Niku
installations, implementation and customization engagements, we do not know
whether we will be able to offset an expected decline in services revenues
derived from existing Proamics customers in the future.
During the nine months ended October 31, 1999, Sybase accounted for 22%,
USi accounted for 18% and SalesLogix accounted for 10% of total revenues. One of
our directors is a director of USi and a second director is an officer and
director of Sybase.
COST OF REVENUES
Cost of revenues increased from no cost of revenues for the period ended
October 31, 1998 to $603,000 for the nine months ended October 31, 1999. This
increase in the cost of revenues is primarily attributable to royalty agreements
for technology incorporated into our products and the cost of manuals, media,
product documentation and shipping costs related to product sales to new
customers as well as the shipment of product updates to existing customers. We
recorded cost of license revenues of $174,000 for the nine months ended October
31, 1999. Additionally, included in these costs are costs of services associated
with implementation, training and technical support personnel, which increased
from two people at January 31, 1999 to 13 people at October 31, 1999. We
recorded cost of service revenues of $429,000 for the nine months ended October
31, 1999. Pro forma cost of revenues was $6.0 million for the nine months ended
October 31, 1999 which includes Proamics' costs of packaging, distribution and
third-party royalties related to product sales to customers.
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Additionally, included in the pro forma costs are costs associated with
Proamics' implementation, training and technical support personnel, which
included 50 people as of October 31, 1999. We anticipate that the cost of
revenues will increase in future periods, primarily as a result of the addition
of Proamics services personnel.
GROSS PROFIT
We had no revenues, cost of revenues or gross profit for the period ended
October 31, 1998. Our gross profit was $2.4 million for the nine months ended
October 31, 1999 primarily due to the incremental amounts of revenues that we
recognized in each quarter. Gross profit margin was 79.7% for the nine months
ended October 31, 1999. Pro forma gross profit was $6.3 million for the nine
months ended October 31, 1999 which includes Proamics' gross margins derived
from sales of Proamics software licenses and delivery of services. We expect
that our gross margins will decline at least in the near term as a result of the
addition of services personnel from Proamics. Pro forma gross profit margin was
51.0%, largely influenced by the relatively high mix of Proamics services.
OPERATING EXPENSES
Research and development. Research and development expenses increased from
$849,000 for the period ended October 31, 1998 to $6.1 million for the nine
months ended October 31, 1999. This increase is primarily attributable to an
increase in the number of research and development personnel. Headcount
increased from 23 as of January 31, 1999 to 71 as of October 31, 1999. To date,
all software development costs have been expensed in the period incurred. Pro
forma research and development expenses were $8.4 million for the nine months
ended October 31, 1999. We believe that continued investment in research and
development is critical to attaining our strategic objectives, and we anticipate
that research and development expenses will continue to increase in absolute
dollars due to our internal product development efforts and the addition of 29
Proamics research and development personnel. We do not anticipate developing
separate new or enhanced versions of Proamics products, and therefore, we expect
these personnel to be deployed in development activities for Niku products.
Sales and marketing. Sales and marketing expenses increased from $75,000
for the period ended October 31, 1998 to $6.0 million for the nine months ended
October 31, 1999. This increase primarily resulted from the addition of
personnel in our sales and marketing departments, and related costs, such as
increased sales commissions. Pro forma sales and marketing expenses were $9.4
million for the nine months ended October 31, 1999. We anticipate that these
sales and marketing expenses will increase in absolute dollar amounts in future
periods as we continue to expand our sales and marketing efforts. We added
approximately 30 Proamics sales and marketing personnel. Other than the costs
associated with this increase in personnel and costs associated with marketing
Niku products to Proamics customers, we do not expect to incur significant
additional sales and marketing expenses as a result of the Proamics acquisition,
as we do not intend to market Proamics' product line separately.
General and administrative. General and administrative expenses increased
from $720,000 for the period ended October 31, 1998 to $1.8 million for the nine
months ended October 31, 1999. This increase is attributable to an increase in
the number of administrative and professional services fees, and to a lesser
extent, communications costs, particularly to our remote offices and facility
costs. The number of employees engaged in general and administrative functions
increased from 7 as of January 31, 1999 to approximately 30 as of October 31,
1999. Pro forma general and administrative expenses were $4.4 million for the
nine months ended October 31, 1999. We expect general and administrative
expenses to increase in absolute dollars as we add personnel to support the
expansion of our operations, incur additional expenses related to the
anticipated growth of our business, and assume the responsibilities of a public
company. We also added approximately 10 Proamics administrative personnel, which
will contribute to our future general and administrative expenses.
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Stock-based compensation. During the nine months ended October 31, 1999, we
recorded approximately $2.0 million of stock-based compensation amortization
expense, representing $17,000 cost of revenues, $597,000 research and
development, $1.1 million sales and marketing and $264,000 general and
administrative expenses. During the nine month period ended October 31, 1998, we
recorded $77,000 of stock-based compensation amortization expense. Amortization
of the October 31, 1999 balance of deferred stock-based compensation for the
three months ending January 29, 2000, and for the fiscal years 2001, 2002, 2003
and 2004 will be approximately $1.3 million, $3.7 million, $1.5 million,
$613,000 and $75,000, respectively.
Amortization of goodwill and other intangible assets. Amortization of
goodwill and other intangible assets was zero for the period ended October 31,
1998 and $184,000 for the nine months ended October 31, 1999. Pro forma
amortization of goodwill and other intangible assets as of October 31, 1999,
including amounts from the Proamics and Legal Anywhere acquisitions, will result
in pro forma expense totaling approximately $1.1 million, $15.7 million, $15.7
million, $14.9 million, $5.6 million and $4.6 million, for the three months
ending January 29, 2000, and the fiscal years 2001, 2002, 2003, 2004 and 2005,
respectively.
INTEREST AND OTHER
Interest and other consists of interest income, interest expense and other
non-operating expenses. Interest and other increased from $56,000 for the period
ended October 31, 1998 to $178,000 for the nine months ended October 31, 1999.
This increase is attributable primarily to interest income from average invested
cash proceeds from financing activities, partially offset by interest expense
related to equipment loans and subordinated debt, the proceeds of which were
used to purchase computer equipment and office furniture and equipment.
NET LOSSES
Net losses were $1.7 million and $13.5 million for the nine months ended
October 31, 1998 and 1999, respectively. Our losses are a result of costs
incurred to develop our technology, our products and iNiku website and to
recruit and train personnel for our engineering, sales, marketing, professional
services and administrative organizations. We expect to incur net losses in the
foreseeable future.
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QUARTERLY RESULTS OF OPERATIONS
The following tables set forth consolidated statement of operations data
for each of the three quarters in the period ended October 31, 1999. This
information has been derived from our unaudited consolidated financial
statements that, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information. In addition, this information does not give
effect to our acquisition of Proamics, which is expected to affect our future
operating results. You should read this information in conjunction with our
annual audited consolidated financial statements and related notes appearing
elsewhere in this prospectus. We have experienced and expect to continue to
experience fluctuations in operating results from quarter to quarter. We
incurred net losses in each of the last three quarters and expect to continue to
incur losses in the foreseeable future. You should not draw any conclusions
about our future results from the results of operations for any quarter, as
quarter results are not indicative of the results for a full fiscal year or any
other period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
APRIL 30, JULY 31, OCTOBER 31,
1999 1999 1999
--------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
License.............................................. $ 241 $ 355 $ 1,366
Services............................................. 132 232 650
------- ------- -------
Total revenues.................................... 373 587 2,016
Cost of revenues....................................... 89 187 327
------- ------- -------
Gross profit........................................... 284 400 1,689
------- ------- -------
Operating expense:
Research and development............................. 1,088 2,226 2,748
Sales and marketing.................................. 808 2,019 3,156
General and administrative........................... 325 464 1,048
Stock-based compensation............................. 313 596 1,109
Amortization of goodwill and other intangible
assets............................................ 61 61 62
------- ------- -------
Total operating expenses.......................... 2,595 5,366 8,123
------- ------- -------
Operating loss......................................... (2,311) (4,966) (6,434)
Interest and other..................................... (45) 127 96
------- ------- -------
Net loss............................................... $(2,356) $(4,839) $(6,338)
======= ======= =======
</TABLE>
THREE QUARTERS IN THE PERIOD ENDED OCTOBER 31, 1999
REVENUES
License. License revenues increased in each of the three quarters in the
period ended October 31, 1999. Our sales headcount increased from six at April
30, 1999 to 27 at July 31, 1999, and to 51 at October 31, 1999 which led to the
increase in the number of our customers.
Services. Services revenues increased in each of the three quarters in the
period ended October 31, 1999. During this time, we provided implementation
services at most of our customer locations. Our services revenues increased as
the number of active implementations increased during this three quarter period.
Revenues from nonmonetary exchanges of our products for customer products
or services were $282,000 for the three months ended April 30, 1999, $343,000
for the three months ended July 31, 1999 and $746,000 for the three months ended
October 31, 1999.
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COST OF REVENUES
Cost of revenues increased in each of the three quarters in the period
ended October 31, 1999. In the three months ended April 30, 1999, we began to
hire implementation and technical support personnel. In each subsequent quarter,
we hired additional implementation and technical support employees. In the three
months ended October 31, 1999, we began to hire training personnel to provide
training services to customers and third-party implementation partners. Our
implementation, technical support and training personnel increased from two at
April 30, 1999 to 15 at July 31, 1999, and to 21 at October 31, 1999.
OPERATING EXPENSES
Research and development. Research and development expenses increased in
each of the three quarters in the period ended October 31, 1999. Personnel
expenses, the largest single component of this expense category, increased from
$721,000 for the three months ended April 30, 1999 to $1.2 million for the three
months ended July 31, 1999, and to $1.5 million for the three months ended
October 31, 1999. During this time, we consistently increased our research and
development staff to develop subsequent releases of eNiku and to develop the
iNiku business portal. The market for qualified people in the San Francisco Bay
Area is competitive and costs associated with hiring and retaining key personnel
are high. The increased number of personnel and the increased cost per person
have contributed to the increase in research and development expenses.
Sales and marketing. Sales and marketing expenses increased in each of the
three quarters in the period ended October 31, 1999. This increase is primarily
attributable to increased sales compensation, increased marketing expenses, the
expansion of regional sales offices and the establishment of international
locations. Sales and marketing personnel costs increased from $383,000 for the
three months ended April 30, 1999 to $1.3 million for the three months ended
July 31, 1999, and to $1.6 million for the three months ended October 31, 1999.
Other sales and marketing costs increased primarily from advertising and
marketing facilities and travel and entertainment, from $425,000 for the three
months ended April 30, 1999 to $719,000 for the three months ended July 31,
1999, and to $1.6 million for the three months ended October 31, 1999.
General and administrative. General and administrative expenses increased
in each of the three quarters in the period ended October 31, 1999 as a result
of additional finance, human resource, legal, information technology and
administrative professionals required to create the business infrastructure.
During this time, general and administrative costs increased from $325,000 for
the three months ended April 30, 1999 to $464,000 for the three months ended
July 31, 1999, and to $1.0 million for the three months ended October 31, 1999.
Stock-based compensation. Stock-based compensation was $313,000 for the
three months ended April 30, 1999, $596,000 for the three months ended July 31,
1999 and $1.1 million for the three months ended October 31, 1999.
Amortization of goodwill and other intangible assets. Amortization of
goodwill and other intangible assets was $61,000 in each of the three months
ended April 30 and July 31, 1999 and $62,000 in the three months ended October
31, 1999.
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sales and marketing expenses to promote our brand
and our products and services. Therefore, our quarterly operating results are
likely to be particularly affected by the number of customers licensing our
products during any quarter as well as sales and marketing, research and
development and other expenses for a particular period. If revenues fall below
our expectations, we will not be able to reduce our spending rapidly in response
to the shortfall.
We expect to experience seasonality in the sales of our products and
services. Seasonal variations in our sales may lead to fluctuations in our
quarterly results. For example, we expect
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that sales may decline during summer months, particularly in European markets.
We also anticipate that sales may be lower in our first fiscal quarter due to
patterns in the capital budgeting and purchasing cycles of our current and
prospective customers as well as due to our sales commission structure. We also
anticipate that our sales will have long sales cycles. Therefore, the timing of
future customer contracts could be difficult to predict, making it very
difficult to predict revenue between quarters and, our operating results may
vary significantly.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- our ability to attract new customers, including Proamics customers, and
retain current customers which could lead to changes in our revenues;
- the announcement or introduction of new products or services by us or our
competitors which could also lead to changes in our revenues;
- changes in the pricing of our products and services or those of our
competitors;
- variability in the mix of our products and services revenues in any
quarter which could affect our margins; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business.
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in some
future periods, our results of operations may be below the expectations of
investors. If this occurs, the price of our common stock may decline.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
capital stock, with net proceeds of $28.8 million through October 31, 1999, bank
loans and equipment leases. As of October 31, 1999, we had $19.3 million in
cash, cash equivalents and short-term investments and $10.3 million in working
capital. In November 1999, we sold 7,998,012 shares of Series D preferred stock
for $5.00 per share for total cash proceeds of approximately $39.9 million.
Net cash used in operating activities was $2.8 million in the period ended
January 31, 1999 and $8.8 million in the nine months ended October 31, 1999. Net
cash flows from operating activities in each period reflect increasing net
losses and, to a lesser extent, accounts receivable offset in part by increases
in accrued compensation and liabilities. Net cash flows from operating
activities in the period ended October 31, 1999 reflects $1.4 million of
deferred revenue from customers that were not recognized as revenue.
Net cash used in investing activities was $366,000 in the period ended
January 31, 1999 and $5.6 million in the nine months ended October 31, 1999.
Cash used in investing activities reflects purchases of property and equipment
in each period and purchases of short-term investments in the nine months ended
October 31, 1999.
Capital expenditures were $193,000 in the period ended January 31, 1999 and
$2.9 million in the nine months ended October 31, 1999. Our capital expenditures
consisted of purchases of operating resources to manage our operations,
including computer hardware and software, office furniture and equipment and
leasehold improvements. We expect that our capital expenditures will continue to
increase in the future. Since inception, we have generally funded capital
expenditures either through the use of working capital or with capital leases.
Net cash from financing activities was $8.3 million in the period ended
January 31, 1999 and $26.4 million in the nine months ended October 31, 1999.
These cash flows reflect primarily proceeds from private sales of preferred
stock.
In September 1999, we entered into a loan and security agreement with a
bank providing a line of credit of up to $4.0 million. Any borrowings under the
line of credit bear interest at the
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bank's prime lending rate plus 1.0%. As of October 31, 1999, we had borrowed
$3.8 million under the line of credit with an interest rate of 8.25% as of
October 31, 1999, and $200,000 was available for borrowing. The agreements for
these loans contain covenants requiring that we satisfy certain financial ratios
and maintain a minimum tangible net worth. As of October 31, 1999, we were in
material compliance with these covenants. This loan is secured by our assets.
In February 1999, we entered into a term loan with another lender,
providing us with a bridge loan of up to $3.0 million. Any borrowings under this
term loan bear interest at 12.0%. As of October 31, 1999, we had borrowed $2.8
million under this term loan, and $200,000 was available for borrowing. Also in
February 1999, we entered into a lease line with the same institution, providing
us with an equipment lease line of credit of up to $500,000. Any drawings under
this lease line bear interest at 8.0%. As of October 31, 1999, we had leased
$345,000 of equipment under this lease line, and $155,000 was available. We
issued warrants to purchase shares of our preferred stock to this institution.
Using the Black-Scholes methodology, the warrants were valued at $510,000,
increasing our effective interest rate by approximately 5%. These loans are
secured by our assets.
As of September 30, 1999 Proamics had debt obligations of approximately
$3.2 million. In connection with the acquisition of Proamics, $2.5 million was
repaid using Proamics' cash on hand. In addition, as of September 30, 1999,
Proamics had $349,000 of reserves for doubtful accounts receivable and as of
October 31, 1999, Niku had $100,000 of reserves for doubtful accounts
receivable.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses, as well as planned capital expenditures,
will constitute a material use of our cash resources. In addition, we may
utilize cash resources to fund acquisitions or investments in complementary
businesses, technologies or product lines. We believe that cash from operations
and existing cash will be sufficient to meet our working capital and expense
requirements for at least the next 12 months. After that time, we may find it
necessary to obtain additional equity or debt financing. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all. If we raise additional funds through the issuance of equity securities, the
percentage ownership of our stockholders would be reduced. Furthermore, these
equity securities may have rights, preferences and privileges senior to our
common stock.
YEAR 2000 READINESS
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we may be affected by it.
We designed all of our products to be Year 2000 compliant when configured
and used in accordance with related documentation, and provided that the
underlying operating system of the host machine and any other software and
hardware used with or in the host machine or our products are Year 2000
compliant. Additionally, we have tested Niku products for Year 2000 compliance
and determined they are Year 2000 compliant.
Prior to the acquisitions of Proamics and Legal Anywhere, we determined
that Proamics and Legal Anywhere had tested their currently deployed products
for Year 2000 compliance. We also obtained representations and warranties from
Proamics and Legal Anywhere in the respective merger agreement relating to the
Proamics and Legal Anywhere acquisitions.
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We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- Respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
- Store and provide output of date information in ways that are unambiguous
as to century if that date elements in interfaces and data storage
specify the century; and
- Recognize year 2000 as a leap year;
provided that all other products such as hardware, software and firmware, used
with our products properly exchange and recognize date data.
We have tested software obtained from third parties that is incorporated
into our products as to their Year 2000 compliance and to date, we have not
experienced any material Year 2000 issues with respect to this software. Despite
testing by us and current and potential customers, and assurances from
developers of products incorporated into our products, our products may contain
undetected errors or defects associated with Year 2000 date functions. Known or
unknown errors of defects in our products could result in delay of loss of
revenues, diversion of development resources, damage to our reputation,
increased service and warranty costs, or liability from our customers, any of
which could seriously harm our business. Furthermore, our software products
either interact with or are integrated into customers' computer systems, which
often involve sophisticated hardware and complex software that we cannot
guarantee for Year 2000 compliance. Although we have not received any Year
2000-related claims to date, we could face claims based on Year 2000 problems in
other companies' products, or issues arising from integration of multiple
products within an overall system, even if our products are otherwise Year 2000
compliant.
We have completed an assessment of our material internal information
systems and believe them to be Year 2000 compliant. We have not initiated an
assessment of our non-information and technology systems, although we have
received a favorable assessment of the Year 2000 compliance of our new
headquarters in Redwood City, California. We have completed testing of our
information technology systems. To the extent that we have not been able to test
the technology provided by third-party vendors, we are seeking assurances from
these vendors that their systems are Year 2000 compliant. To date, we have not
experienced any material Year 2000 issues with respect to these systems. In
addition, we have not experienced any, and we are not currently aware of any
material operational issues or costs associated with preparing our internal
information technology and non-informational technology systems for the Year
2000. However, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000
compliance status of our customers, however, to date we have not been informed
of any material Year 2000 issues of our customers. Our current or future
customers may incur significant expenses to achieve Year 2000 compliance. If our
customers are not Year 2000 compliant, they may experience material costs to
remedy problems, or they may face litigation costs. In either case, Year 2000
issues could reduce or eliminate the budgets that current or potential customers
could have for, or delay purchases of, our products and services. As a result,
our business could be seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We may incur
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<PAGE> 40
additional costs related to the Year 2000 plan for administrative personnel,
outside contractor assistance, technical support for our products, product
engineering and customer satisfaction if we experience material Year 2000
issues. Although we have not experienced any material Year 2000 problems to
date, we may experience material problems and costs in connection with the Year
2000 compliance that could seriously harm our business.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not anticipate the need to do so. The cost of developing
and implementing such a plan may itself be material. Finally, we are also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failure
interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
- the inability of our customers to use our products and services to
procure and manage their operating resources;
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and
- our inability to manage our own business.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative securities
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. We do not believe this will have a material
effect on our operations as we do not engage in hedging activities.
Implementation of this standard has recently been delayed by the FASB for a
12-month period. We will now adopt SFAS No. 133 as required for its first
quarterly filing of fiscal year 2002.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent, Europe and the Asia-Pacific region. As a
result, our financial results could be affected by factor such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As all sales are currently made in U.S. dollars, a strengthening of the dollar
could make our products less competitive in foreign markets. We do not expect
any material adverse effect on our consolidated financial position, results of
operations or cash flows due to movements in any specific foreign currency. We
currently do not use financial instruments to hedge operating expenses by our
European and Asia-Pacific subsidiaries. We intend to assess the need to utilize
financial instruments to hedge currency exposures on an ongoing basis. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we believe that
there is no material risk exposure. Therefore no quantitative tabular
disclosures are required.
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<PAGE> 41
BUSINESS
OVERVIEW
We provide Internet software products and offer an online marketplace for
the sourcing, management and delivery of professional services. Professional
services include consulting, financial services, medicine, law, engineering,
advertising and other industries in which intellectual capital is an important
element of the services provided. Our Internet software products are designed to
automate the core business processes of professional services organizations,
professional services providers within enterprises, and small businesses and
individual professionals. Our customers include consulting organizations as well
as enterprises such as Adecco, Business Objects, Comdisco, Computer Associates,
EMC, Gateway, SalesLogix, Sybase, Tibco, Trilogy, USinternetworking and Xerox.
As of January 29, 2000, our iNiku website had over 21,000 registered users.
Across industries, service businesses have common core requirements,
including the creation, storage and reuse of knowledge and information, the
management of human resources and projects, the tracking of time and expenses
and the analysis of resource utilization and productivity. We address these
requirements through an integrated set of products, eNiku, xNiku and iNiku.
Because of the common technology linking users of eNiku, xNiku and iNiku, all of
them can easily participate in the Niku Services Marketplace, a marketplace for
buyers and sellers of professional services. While we currently deliver our
products primarily to the IT consulting industry, we are extending these product
offerings to other service industries, including financial services, medicine,
law and advertising.
INDUSTRY BACKGROUND
THE GLOBAL SERVICES ECONOMY
Service businesses generated more than $2 trillion in revenues and employed
more workers than any other sector in the United States in 1997, according to
the Encyclopedia of American Industries. The professional services industry
represents a large part of the service economy. According to the U.S. Department
of Commerce, the gross domestic product of the professional services industry,
including business, legal, health and educational services, exceeded $900
billion in 1997. We believe the professional services industry will grow
rapidly, both in the United States and internationally, due to a number of
factors, including:
- the increasing importance of knowledge and information to business
success;
- the growing complexity and pace of business projects;
- the increasing need for specialization; and
- the growing acceptance of outsourcing, both in the United States and
internationally.
The professional services industry is undergoing significant change. To
succeed, service businesses must increasingly manage their knowledge,
information and human resources effectively. We believe the need for effective
business management in the professional services industry is becoming more
intense as a result of a number of key factors, including:
- increasing competition;
- growing project complexity;
- shorter project time frames;
- increasing collaboration requirements, particularly for small businesses
and individual professionals;
- growing use of non-employee consultants; and
- globalization of business.
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<PAGE> 42
NEED FOR INTERNET-BASED SOFTWARE IN THE PROFESSIONAL SERVICES INDUSTRY
Unlike product-oriented businesses, which produce finished goods from raw
materials and component parts and sell these goods on a per-item basis,
professional services businesses create information-based deliverables using
human resources that are often billed at time-based rates. As a result,
professional services businesses require sophisticated applications that can
manage knowledge and information, including unstructured data, and their human
resources. However, service businesses often lack standardized and
cost-effective applications for core business processes such as:
- INTELLECTUAL CAPITAL MANAGEMENT -- Creation, storage and reuse of
knowledge, information and work product such as implementation plans,
case histories, proposals and contracts;
- RESOURCE MANAGEMENT -- Sourcing, hiring and training personnel and
allocating them across clients, projects and locations;
- PROJECT MANAGEMENT -- Tracking client communications, project status and
deliverables;
- FINANCE AND OPERATIONS MANAGEMENT -- Management of time and expenses and
billing and collections, and integration of these functions with other
financial systems;
- PRACTICE MANAGEMENT -- Review and analysis of business performance,
including resource utilization and individual and group productivity, and
- BUSINESS DEVELOPMENT -- Identifying potential customers, making proposals
and finalizing contracts.
As a result of the need for these applications, the automation of the
business processes of professional services businesses represents a large market
opportunity. International Data Corporation estimates that the service
industries supply-chain-automation packaged application market will grow from
approximately $600 million in 1999 to approximately $12 billion by 2003,
representing a five-year compound annual growth rate of approximately 108%.
THE INTERNET AS A PLATFORM FOR THE PROFESSIONAL SERVICES INDUSTRY
The advent of the Internet has provided a technology platform for
automation of the professional services industry using Internet software and
online marketplaces. Traditionally, companies seeking to improve their
operations have implemented applications based on computer networks based on a
client-server design, in which a significant portion of an application must be
loaded on each user's computer. With the emergence of the Internet, companies
are now able to make business applications available to internal and external
users without installing software on the many different computers throughout an
organization, allowing significantly broader deployments and constant updating
of content. The Internet also enables applications to be accessed by any device
with a web browser, making it possible for the many mobile professionals in
professional services organizations to benefit from these applications. As a
result of these factors, we believe that applications using the Internet offer
significant advantages over those based on a client-server design.
In addition to these architectural advantages, the Internet provides a
common platform through which organizations and individual professionals can
communicate and collaborate. This platform is particularly important in light of
the emergence of an economy characterized by a geographically dispersed, mobile
and fluid workforce. By enabling increased communication and collaboration, the
Internet creates new ways for businesses to source, manage and deliver services,
and facilitates an efficient marketplace for services. Forrester Research
expects the market for business-to-business electronic commerce for services to
increase from approximately $22 billion in 1999 to approximately $220 billion by
2003, representing a compound annual growth rate of approximately 78%.
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<PAGE> 43
THE NIKU SOLUTION
We provide Internet software products and offer an online marketplace for
the professional services industry, enabling organizations and individual
professionals to efficiently source, manage and deliver professional services.
Our products are designed for deployment on corporate intranets, extranets and
the Internet. These platforms connect people inside and outside organizations,
enable professional services businesses to operate their businesses more
efficiently and facilitate the creation of a marketplace for buyers and sellers
of professional services. Our Internet software products are based on a
proprietary design that eliminates the need for businesses to install software
on multiple computers across an organization using client-server computer
networks. While we currently deliver our products and services primarily to the
IT consulting industry, we are extending and plan to extend them to other
professional services industries, including financial services, medicine, law
and advertising.
We believe our products and services offer the following key benefits to
our users:
SIGNIFICANTLY ENHANCED CLIENT SERVICE. Our Internet software products allow
users to manage their knowledge and information and human resources effectively.
With our products, service businesses can capture, share and reuse information
and provide higher-quality work product to customers. Our products also enable
service businesses to focus the most appropriate resources on projects, allowing
them to provide superior customer service.
SUBSTANTIALLY EXPANDED REVENUE OPPORTUNITIES. Our Internet software
products and online marketplace are designed to allow users to expand their
revenue opportunities. The Niku Services Marketplace is designed to allow
service providers to access a central source of projects and customers within
their area of expertise. Through our knowledge and information management
capabilities, service businesses can create standardized product offerings,
allowing them to provide services to additional customers and accommodate
additional projects. Using the resource and practice management functions of our
products, service businesses can optimize allocation of resources and increase
utilization rates, avoiding downtime and increasing revenues.
INCREASED PROFITABILITY. Our Internet software products are designed to
allow users in our target industries to increase their profitability. Service
businesses can work more efficiently by reducing the time spent on tasks that
cannot be billed to clients. Service providers can also enhance their efficiency
by building upon standardized product offerings. We also offer extensive
practice management capabilities that allow an organization to draw on its
experience, allowing it to present accurate cost estimates and timelines to
customers and to avoid potential problems.
IMPROVED RECRUITMENT AND RETENTION. The Niku Services Marketplace is
designed to allow organizations to reach potential new employees and contractors
with needed expertise and to allow employees and contractors to find new work
opportunities. Companies seeking professional services providers can post
detailed descriptions of projects for which they need assistance or can search
postings of profiles of professional service providers that detail their work
experience, expertise, geographic location and availability. As of January 29,
2000, iNiku had more than 21,000 registered users and, for the month of December
1999, delivered over 350,000 page views. Additionally, in organizations using
our Internet software products, employees can benefit from an environment in
which the amount of time spent on mundane and repetitive tasks is dramatically
reduced, work product can be saved and reused and skills are better matched with
projects.
THE NIKU GROWTH STRATEGY
Our goal is to be the leading provider of Internet software products and
related services for the sourcing, management and delivery of professional
services in a number of professional services industries. Key elements of our
strategy to achieve this goal are as follows:
TARGET LEADING ENTERPRISE CUSTOMERS. We will continue to target leading
enterprise customers. We believe that large enterprises will seek to take
advantage of the Internet to
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efficiently source, manage and deliver professional services and can provide us
with a large and growing source of demand. We also believe that large
enterprises can provide valuable sales references and drive product
enhancements. We intend to market our extranet software products to enterprises
as we believe these customers can drive usage of our products and services among
their business partners, customers and suppliers. We also believe that
enterprise customers, as large users of professional services, can be large
buyers within the Niku Services Marketplace.
ENHANCE iNIKU. We will continue to aggressively expand our iNiku website by
deploying additional content, services and industry-specific functionality. We
have entered into agreements with over 40 providers of content and services
useful to small businesses and individual professionals. In addition, we have
entered into agreements with other web sites, such as CNET, to distribute and
promote iNiku. We intend to continue to aggressively enhance iNiku and pursue
additional distribution and promotion agreements.
EXPAND THE NIKU SERVICES MARKETPLACE. The Niku Services Marketplace is
designed to provide businesses and individual professionals with an online
marketplace for buying and selling professional services. We plan to populate
the Niku Services Marketplace with both enterprise customers and iNiku users. We
believe that the benefits of our Internet software and iNiku will create a
growth cycle that increases the value of the Niku Services Marketplace to both
buyers and sellers of professional services over time. As buyers benefit from
the efficiencies of our online marketplace, we believe sellers will be drawn to
the marketplace by the aggregated purchasing power of the buyers participating
in that marketplace. As more sellers offer services through the marketplace,
more buyers will be encouraged to join the marketplace.
TARGET ADDITIONAL PROFESSIONAL SERVICES INDUSTRIES. We currently deliver
our products and services primarily to the IT consulting industry. However, our
products are designed in a flexible, modular format and we plan to leverage this
architecture to deliver our products and services to other professional services
industries. For example, in January 2000, we acquired Legal Anywhere, a provider
of Internet collaboration software for the legal profession.
PURSUE ACQUISITIONS OF COMPLEMENTARY BUSINESSES. We believe that strategic
acquisitions can provide us with access to additional customers, domain
expertise and technology that will enhance our existing solutions and allow us
to enter new markets. We recently acquired Proamics, a provider of finance and
operations software to the professional services industry as well as Legal
Anywhere. We plan to continue pursuing acquisitions of complementary businesses,
products and technologies.
EXPAND GLOBAL OPERATIONS. With the global reach of the professional
services industry, we believe that there are significant opportunities to
deliver our products and services in Europe and the Asia-Pacific region, where
we have approximately 25 employees. We intend to grow our presence in Europe and
the Asia-Pacific region by expanding our field sales, marketing and service
organizations. We also plan to continue to expand our other operations needed to
support us as a global concern, including administrative infrastructure,
technology infrastructure, facilities and services.
NIKU PRODUCTS AND SERVICES
Our products and services enable users to source, manage and deliver
professional services. We currently deliver our solutions to the IT consulting
industry and plan to extend these solutions to other professional services
industries. The core functionality available across our products is divided into
the following modules:
- INTELLECTUAL CAPITAL MANAGEMENT. Our intellectual capital management
module provides extensive functionality for capturing, managing,
retrieving and utilizing the knowledge and experience of an organization
that is contained in documents such as implementation plans, case
histories, proposals and contracts. Unlike legacy document management
systems, our intellectual capital management module utilizes a
data-tagging feature to
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capture documents or other work products as they are created. This module
employs an easy-to-use search engine for information retrieval, allowing
users to retrieve and leverage organizational knowledge regardless of
where or when they need it.
- RESOURCE MANAGEMENT. Our resource management module offers extensive
capabilities for ensuring that the right people are working on the right
projects at the right time at the right billing rate. This module also
allows users to view and manage project and resource schedules and
reserve and assign resources in real time through a browser-based
interface. More effective resource management offers better business
predictability and increased client satisfaction, personnel utilization
and employee job satisfaction.
- PROJECT MANAGEMENT. Our project management module allows users to manage
projects from origination to completion. This module brings the employee
and non-employee participants, such as consultants or other service
providers, together for a project. This module also includes features for
managing ongoing client communications, project status and deliverables.
The project management module interfaces with the resource management
module and allows the sharing of information with third-party project
management applications.
- FINANCE AND OPERATIONS MANAGEMENT. Our finance and operations management
module allows users to capture, manage and report their time spent on
projects, as well as ongoing expenses, through the incorporation in our
products of Extensity time and expense software. This module also
provides capabilities for project and practice accounting, including
functionality for managing project budgets, external contractors, cost
estimates, departmental charges and invoicing. This module can also
integrate with popular third-party back-office financial packages.
- PRACTICE MANAGEMENT. Our practice management module provides users with
information and analysis with respect to important issues such as
variances between standard and actual costs and the profitability of
business units, practice groups and individual personnel. This enables
better resource utilization and implementation of best practices across
the entire organization. The practice management module helps
organizations turn projects into products by capturing detailed
information on deliverables, risks, project changes, personnel and costs.
Using this module, service providers can supply customers with more
accurate project cost estimates and timelines, enhancing customer
satisfaction and enabling increased profitability.
- BUSINESS DEVELOPMENT. Our business development module automates and
manages the business development process, including gathering and
analyzing information on potential customers, creating proposals,
developing sales presentations and creating and finalizing contracts.
We have three integrated product offerings for the sourcing, management and
delivery of professional services. These are designed to provide benefits to the
entire spectrum of professional services providers using the same core
architecture:
- eNIKU. eNiku allows organizations to automate core business processes.
eNiku is deployed on corporate intranets, internal Internet
protocol-based computer networks, allowing the sharing of information,
creation of teams and reduction of costs associated with personnel and
project management across multiple organizations. eNiku customers pay
license fees as well as annual maintenance fees. Licenses and related
services of our eNiku products accounted for all of our total revenues
for the nine months ended October 31, 1999. Prior to that time, we had
not recognized any revenues from licenses of eNiku.
- xNIKU. xNiku allows businesses to extend eNiku to partners, customers and
suppliers using corporate extranets, private Internet protocol-based
networks reaching beyond the enterprise. xNiku enables the delivery of
information to geographically-dispersed offices and remote users, as well
as to users of different computing systems and platforms.
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xNiku customers will pay a license and implementation fee as well as a
monthly subscription fee based on the number of non-employee users.
Through October 31, 1999, we had not derived any revenues for our xNiku
product. Subsequent to that date, we have licensed xNiku to three
customers.
- iNIKU. iNiku is a website which allows small businesses and individual
professionals to access content and services and operate their businesses
online. iNiku allows users to market themselves, find projects, post
projects and perform work. iNiku allows larger organizations to share
information and content with these smaller businesses and individual
professionals, facilitating the creation of a professional services
community. iNiku also provides a suite of online services for running
small businesses, including Internet-based document and file sharing,
project management and collaboration. Pre-packaged templates make it easy
to develop standardized business documents, including project proposals,
contracts and reports. In addition to services offered directly to iNiku
users, we have agreements with over 40 Internet-based content and service
providers, offering small businesses and independent professionals a
single destination where they can find many of the third-party content
and services they require to run their businesses. Content available
through iNiku includes information resources from leading industry
analysts and publishers such as Forrester Research, Gartner Group and
Nolo.com. Services available through iNiku include printing, insurance,
benefits, travel planning, finance, mail services and electronic
commerce. Through October 31, 1999, we have not derived any significant
revenues from iNiku.
THE NIKU SERVICES MARKETPLACE
The Niku Services Marketplace enables users of eNiku, xNiku or iNiku to
participate in a marketplace of buyers and sellers of professional services. The
technology linking eNiku, xNiku and iNiku allows users to participate in this
marketplace without the need to integrate computer systems with each
participant. Through the Niku Services Marketplace, service providers can find
project work in their area of expertise and organizations can find professionals
to complete their projects. Buyers of professional services can post detailed
descriptions of projects, and sellers of professional services can post personal
or business profiles detailing their work experience, preferred project types
and locations, as well as availability.
As of January 29, 2000, the Niku Services Marketplace had more than
approximately 32,000 projects available to its users and more than 21,000 iNiku
registered users. We believe that the benefits of our Internet software and
iNiku will create a growth cycle that increases the value of our the Niku
Services Marketplace to both buyers and sellers of professional services over
time. As buyers benefit from the efficiencies of the marketplace, we believe
sellers will be drawn to the marketplace by the aggregated purchasing power of
the buyers participating in that marketplace. As more sellers offer services
through the Niku Services Marketplace, more buyers are encouraged to join the
marketplace.
PROFESSIONAL SERVICES
We offer professional services to assist in the successful implementation
and use of our Internet software products. Our professional services consultants
assist customers in all aspects of the implementation process, including
requirements assessment, implementation planning and design, content design and
creation, data migration, systems integration, deployment and training. As of
January 29, 2000, we had approximately 70 full-time professional services
consultants.
Our professional services consultants also customize and deliver training
for systems administrators and end-users. We provide technical instruction for
customers, including implementation, deployment and maintenance of our Internet
software products. We also provide comprehensive end-user training programs to
allow professionals to begin using our Internet software products quickly and
easily. Services revenues accounted for all of our total revenues
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for the fiscal year ended January 31, 1999 and approximately 34% of our total
revenues for the nine months ended October 31, 1999.
We have created the Niku Partners Network to extend our ability to deliver
professional services to our customers. This network includes IT consultants
with expertise in implementing and customizing our Internet software products.
Current Niku Partners include Bristlecone, DataStudy, Management Share, Neptune
Technologies, Net-Centric Consulting Group, SE Technologies, ShaktiSoft, Sierra
Atlantic, Softgate Technologies, Sogyo Information Engineering and
Technopreneurs.
STRATEGIC RELATIONSHIPS
We have entered into a number of strategic relationships to expand our
business, including the following:
USINTERNETWORKING
We have entered into a three-year hosting agreement with USi, a leading
application service provider which hosts business applications over the Internet
for a fee. Under our hosting agreement with USi, entered into in June 1999, and
amended in September 1999, USi will host and manage iNiku and our corporate web
site. We will pay USi a monthly service fee during the term of the hosting
agreement for USi's hosting and servicing of our web sites, and will pay
additional monthly fees if we request upgrade components to the USi services we
use. The hosting agreement may be extended beyond the initial term upon mutual
written agreement of the parties. In addition, in August 1999, we entered into a
separate three-year agreement with USi under which USi will promote and market
eNiku for IT Consulting to potential customers. Under our managed services
agreement with USi, we license to USi the right to install and use our eNiku
product on one of their servers so that they may provide the product to USi
customers. We will provide maintenance services for the eNiku product and will
train USi's sales force on the product. USi will provide initial levels of
customer support on the product for USi customers, and we will provide higher
level support. USi will pay us license, customer support and service fees. The
managed services agreement will automatically be extended for one year periods
unless either party terminates the agreement on 60 days prior written notice. We
have also entered into a software license agreement with USi to license our
eNiku product for their internal use. For the nine months ended October 31,
1999, $441,000 of revenues had been recorded relating to license sales to USi
for its internal use under our software license agreement.
CNET
We have entered into an agreement with CNET, a leading computer information
network, to deliver a co-branded edition of the iNiku website to CNET users.
According to Media Metrix, CNET had over nine million unique Internet users in
October 1999. The co-branded site, www.iniku.cnet.com, offers CNET users all the
features of iNiku, such as online business applications, content and business
services. The promotion agreement, entered into in September 1999, has a
two-year term from the date that the co-branded site was made generally
available to CNET users but may be terminated on July 5, 2000 if the co-branded
web site fails to meet performance standards that are mutually agreed upon.
Under our promotion agreement with CNET, we will host the co-branded site on our
servers. In addition, we will purchase certain amounts of standard promotions on
Internet sites operated by CNET, CNET will purchase standard promotions on our
iNiku website, and CNET will also purchase promotions for the co-branded site on
third-party websites and through other media. The promotion agreement will
continue following its initial term on a month-to-month basis unless terminated
by either party upon 30 days prior written notice. CNET participated in our
Series D preferred stock financing in November 1999. No revenues were derived
from the co-branded website as of October 31, 1999.
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CONTENT AND SERVICE PROVIDERS
We have contracts with over 40 Internet-based content and service providers
for iNiku. These content and service providers promote their offerings on iNiku.
These contracts typically provide that we will receive a percentage, typically
between 5% and 10%, of any revenues generated by these parties from customers
directed through iNiku. However, to date, we have not generated any significant
revenues from these relationships. These agreements are typically terminable by
either party either at any time or upon giving up to 90 days prior notice. These
content and service providers include:
<TABLE>
<S> <C> <C>
1-800-Gift Certificate Fatbrain.com Net-Temps
Accompany Forrester Research NewsReal
Amazon.com Gartner Group NextCard
AmeriCom General Magic Nolo.com
Beyond.com Goto.com onlineofficesupplies.com
Bigstep.com Informative PalmOrganizers.com
CNET InsWeb Qspace.com
Compubank iPrint.com SmartAgreements
Cyberian Outpost JFAX.com SPARC Product Directory
Dell LendingTree TimeBills.com
Device Driver Guide Maps.com Travelocity.com
Economist Mastering Linux TSCentral
ELetter Net Earnings Tutorials.com
</TABLE>
CUSTOMERS
We target independent professional services organizations, professional
services providers within enterprises and small businesses and individual
professionals. Our customers who have purchased more than $25,000 of Niku
products, and customers who purchased at least $75,000 of the Proamics finance
and operations management module, and related services, include:
<TABLE>
<S> <C> <C>
IT CONSULTING COMPUTER SOFTWARE COMPUTER HARDWARE
Analysts International* Business Objects EMC
Bristlecone Computer Associates* Gateway 2000
Comdisco* Geac* OTHER
DataStudy Neon Adecco
DST International* NetDialog (Kana Communications) Clear Ink
Information Systems Management* Pixion
Inteliant* Project Software Development*
Jansen MI Consultants SalesLogix
Management Share Sybase
MicroAge Canada* Tibco
Navisys* Trilogy
Net-Centric Consulting USinternetworking
SE Technologies Vantive (PeopleSoft)
Sierra Atlantic Walker Interactive**
Softgate Technologies
Sogyo Information Engineering
Systems America
Tata Consulting
Tier Technologies*
Xerox*
</TABLE>
- ---------------
* Indicates a customer of Proamics.
** Indicates a customer of both Niku and Proamics.
Proamics has additional customers in other industries such as business
consulting, medicine and advertising. Legal Anywhere's customers include law
firms and corporate legal departments.
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USi accounted for approximately 18%, Sybase accounted for approximately 22%
and SalesLogix accounted for approximately 10% of Niku's total revenues for the
nine months ended October 31, 1999.
TECHNOLOGY
The Niku technology platform is comprised of two key components: the Niku
application framework and individual applications that can be tailored to the
key business processes for a specific industry.
The Niku application framework is an Internet-computing environment that
manages unstructured data, including that found in proposals, contracts,
presentations, and status reports as well as structured data such as that found
in staffing or sales forecasts. It enables intellectual assets to be captured
automatically, while enabling accurate measurement, analysis, reporting and
reuse of this unstructured information. This framework is open standards-based,
enabling Niku and its partners to develop customized Niku-based solutions and
extensions of existing Niku applications. These extensions can include
additional application modules or interfaces to legacy applications.
NIKU APPLICATION FRAMEWORK FEATURES
The Niku application framework has the following features:
WEB BROWSER ACCESS TO APPLICATIONS. Our software is accessed through a web
browser, which allows easy access and end-user navigation. The familiar web
browser interface allows users to access the application from any personal
computer, computer network or computing device, such as a personal digital
assistant, independent of physical location. The Niku application framework also
allows updates to software and applications to be made centrally at the server
rather than at each user's computer. This ensures that each user has the latest
application version and significantly reduces distribution and installation
costs.
WALK-UP USER INTERFACE. Our user interface is designed to enable users
throughout an organization, as well as independent professionals, to easily
access the functionality provided by our products and services. Our user
interface is automatically customized to a user's requirements because it is
driven by user-specific parameters, which are defined based on the user's role,
responsibilities and workflow content.
OPEN STANDARDS. Our Internet software is designed to support open
standards. The software we use for the server computers that deliver our
applications is written in the Java programming language. We also support
electronic commerce protocols such as extensible markup language, or XML, and
secure socket layer, or SSL. Our support of open standards allows customers with
disparate computer systems and networks to utilize our applications without the
need to upgrade computer systems, software or equipment.
REMOTE AND OFF-LINE USERS. Professional services personnel often work at
remote locations, and therefore it is important that they be able to access
company or industry-specific knowledge and data from any location. Our
technology provides support for virtual private networks and connections from
the Internet, allowing access to be extended to remote users. Our technology
also facilitates work by users who are not connected to an organization's
network.
MULTI-TIER ARCHITECTURE. The Niku application framework is designed in
components, making it easier for customers to implement solutions engineered
around customized workflows, user interfaces and content. In addition, the
component-based architecture makes it easier to maintain and support the
applications. Using these components, a variety of applications can be written
quickly by changing only the application modules without modifying the entire
system.
DISTRIBUTED PROCESSING. Distributed processing allows a user to communicate
with a group of servers simultaneously in a coordinated way. A customer can
access distributed legacy
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applications, as well as individual Niku applications, through the Niku
application framework, creating a seamless interface for the user. The
distributed processing architecture also enables customers to add users,
computing devices or locations to an application. This architecture also
facilitates the addition of servers and databases to the application, allowing
the application to grow and change with the organization.
DISTRIBUTED OBJECTS SUPPORT. Distributed objects support allows a variety
of functionality, from data storage and access to information content, to be
integrated into an application. The use of distributed objects also allows
applications to use commonly-used software programs in different parts of one
application. This protects investments in existing systems and reduces the need
for redundant storage of programs, while significantly increasing overall
functionality.
NIKU APPLICATION FRAMEWORK COMPONENTS
The Niku application framework has the following main components:
- Niku Adaptable KnowledgeStore, or NAKS;
- Niku FrontWorks;
- Niku ImportWorks;
- Niku DataLink adapters; and
- Industry-specific application modules.
The following diagram illustrates how these components are related in the
Niku application framework.
NIKU APPLICATION FRAMEWORK DIAGRAM
The Niku Adaptable KnowledgeStore coordinates the synchronization of the
information stored in the relational database management system and file system
and coordinates access to relational database management system and the file
system by the search engine. The relational database managed system stores
structured data, such as financial information. The file system stores
unstructured data, such as documents. The search engine allows users to search
the structured data, and unstructured data. The Applications Modules contain the
commands for the operation of the specific application and accesses structured
and unstructured data through the Niku Adaptable KnowledgeStore. The FrontWorks
communicates with the Applications Modules and generates the displays, or user
interfaces, based on user defined preferences and actions. The ImportWorks
allows the importation of external documents into the Niku Adaptable
KnowledgeStore. The DataLink adapters allow the Niku application to communicate
with other third party software products.
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NIKU ADAPTABLE KNOWLEDGESTORE. The foundation of the Niku application
framework is the Niku Adaptable KnowledgeStore, or NAKS. Intellectual assets are
created during everyday business interactions at any place, time or level within
an organization. For this reason, standard communication protocols are used to
ensure that NAKS is easily accessible to all users, regardless of location, and
that information is easily captured and delivered.
Users can contribute information to NAKS by saving a document, forwarding
an e-mail message or leaving a voice message, all without disrupting normal
workflow. To store data and provide services for the other software components,
NAKS combines a data tagging system with a universal repository to capture data
intelligently while managing it flexibly. Data tagging is central to the Niku
solution and provides structure and form to otherwise unstructured data,
allowing information to be stored, measured, queried and shared. Tags are
customized for each set of industry-specific application modules to capture
specific data intelligently and provide a valuable store of otherwise
disconnected types of information. Data and tags can also be customized for an
individual company's needs. Customers can establish document templates, such as
a type of contract, defining specific attributes or data within the document
template, such as pricing terms. As the template documents are used, the
attribute or data is automatically extracted for efficient retrieval and reuse
of information.
Because an organization can produce a diverse range of information, NAKS
supports tags for voice messages, e-mail messages and a wide variety of document
file formats.
NIKU FRONTWORKS. Niku FrontWorks is a collection of reusable components for
building and running end-user applications. FrontWorks supports the unique
functionality of each application module set that comprises a vertical
application, allowing it to share common functionality like security, searching
and user management. In doing so, FrontWorks eliminates duplication of system
resources and provides a consistent interface across applications. FrontWorks
can also dynamically generate a user interface based on user-specific data.
NIKU IMPORTWORKS. Niku ImportWorks automates the input of documents, files
and other types of data into NAKS. ImportWorks supports several document types
and formats. When a user imports a document directly to NAKS, ImportWorks
operates in the background to receive the document, process it if requested, and
store the document in NAKS with the appropriate tags.
NIKU DATALINK ADAPTERS. Niku DataLink adapters provide integration between
NAKS and outside data repositories, including relational databases, document
management systems and file directories. This integration allows legacy
applications to send information directly to NAKS. Data stored in a linked
repository can then be seamlessly incorporated into the Niku application
interface. Niku DataLink adapters are designed to scale smoothly from a
workgroup to an enterprise. Adapters integrate NAKS with existing enterprise
resource planning applications, such as SAP or PeopleSoft, or with groupware and
collaboration solutions, such as Lotus Notes and Microsoft Exchange, enabling
otherwise stand-alone applications to appear as a single application when
presented to the user. Custom DataLink adapters can also be created to interface
with other applications.
SALES AND FIELD OPERATIONS
We market our products and services primarily through our worldwide direct
sales force. In addition, we have a strategic business development group focused
on developing relationships with market-leading organizations and potential
development partners.
We also have dedicated technical pre-sales professionals who assist with
creating customer-tailored business proposals, product demonstrations and
presentations that address the specific needs of each prospective customer. We
have technical pre-sales professionals deployed regionally across the United
States as well as internationally in Canada, The Netherlands, United Kingdom,
Germany and Australia. In addition to the direct sales organization, we have a
small telesales operation, along with external telesales vendors, to develop
qualified
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leads and obtain users for iNiku. As of January 29, 2000, our sales department
had approximately 75 personnel.
CUSTOMER SERVICE AND SUPPORT
We offer multiple customer support options, with customer support
professionals on call 24 hours a day, seven days a week and available through a
toll-free call center. Depending on the support level a customer chooses, we
will also assign a single account management point of contact for the customer
which will oversee all support issues and drive resolution. Our support options
also include proactive account management and new version migration planning.
Our iNiku web site is hosted by USi, which provides additional support services.
As of January 29, 2000, we had approximately 10 customer service and support
personnel.
COMPETITION
The market for our products and services is competitive, dynamic and
subject to frequent technological changes. The intensity of competition and the
pace of change are expected to increase in the future. Our Internet software
products primarily compete with solutions that have been developed by potential
customers' in-house developers and IT departments. In addition, we face
competition from a number of competitors offering products and services that
vary in functionality. These include:
- developers of professional services automation software and related
Internet-based applications;
- providers of hosted software for IT consultants;
- operators of Internet-based job boards;
- developers of project management software; and
- enterprise resource planning software companies that may decide to
develop software or applications for the professional services industry.
We believe that there are a number of companies that offer products that
provide some of the functionality of our products. However, we do not believe
that any one company has a dominant position in our market as a whole.
We expect additional competition from other established and emerging
companies as the professional services automation market continues to develop.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business.
We believe that the primary competitive factors in our market include:
- a significant base of reference customers;
- breadth and depth of the solution;
- critical mass of individual professionals using the solutions;
- product quality and performance;
- customer service and support;
- core technology;
- product features and functionality;
- product usability; and
- ease of implementation.
We believe our current products and services compete favorably with respect
to these factors; however, this market is relatively new and changing rapidly.
We may not be able to maintain our competitive position against current or
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other resources.
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Competitors with these greater resources may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees, distributors, resellers or content
services or other strategic partners.
INTELLECTUAL PROPERTY
We regard substantial elements of our products and services as proprietary,
and protect them by relying primarily on patent, trademark, service mark,
copyright and trade secret laws and restrictions, as well as confidentiality
procedures and contractual provisions.
We license rather than sell all our Internet software products and require
our customers to enter into license agreements, which impose restrictions on
their ability to utilize the software. With respect to iNiku, substantially all
of our iNiku users' usage of our services is governed by Internet-based license
agreements, rather than by a means of a formal, written contract. Users "click"
on a dialog box and are deemed to agree to the terms and conditions posted on
iNiku. Because these agreements are not signed, there is a possibility that a
court, arbitrator or regulatory body could deem this type of agreement to be
invalid or determine that the terms and conditions governing the agreement do
not fully protect our intellectual property rights. Therefore, we cannot assure
you that this user agreement will afford us significant protection. In addition,
we seek to avoid disclosure of our trade secrets through a number of means,
including but not limited to requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We seek to protect our software,
documentation, templates and other written materials and content under trade
secret and copyright laws, which afford only limited protection.
We have applied for four U.S. patents. We cannot assure you that these
applications will be approved, that any patents that may issue will protect our
intellectual property or that any issued patents will not be challenged by third
parties. Furthermore, other parties may independently develop similar or
competing technologies or design around any patents that may be issued. It is
possible that any patent issued to us may not provide any competitive
advantages, that we may not develop future proprietary products or technologies
that are patentable, and that the patents of others may seriously limit our
ability to do business. In this regard, we have not performed any comprehensive
analysis of patents of others that may limit our ability to do business.
We have applied for registration of the trademarks Niku and iNiku with the
U.S. Patent and Trademark Office. In addition, we have applied for trademarks in
foreign countries. These trademark applications are subject to review by the
applicable governmental authority, may be opposed by private parties, and may
not be issued. Therefore, we cannot assure you that these registrations would,
if issued, provide us with significant protection for our trademarks.
We cannot assure you that any of our proprietary rights with respect to our
products or services will be viable or be of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
its software exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States. Our means of
protecting our proprietary rights may not be adequate.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in our
software and Internet industries. We could become subject to intellectual
property infringement claims as the number of our competitors grows and our
products and services overlap with competitive offerings. These claims, even if
not meritorious, could be expensive and divert management's attention from
operating our company. If we become liable to third parties for infringing their
intellectual
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property rights, we could be required to pay a substantial damage award and to
develop noninfringing technology, obtain a license or cease selling the products
that contain the infringing intellectual property. We may be unable to develop
noninfringing technology or obtain a license on commercially reasonable terms,
if at all.
EMPLOYEES
As of January 29, 2000, we had a total of approximately 400 employees,
including approximately 140 in research and development, approximately 120 in
sales and marketing, approximately 10 in customer support, approximately 70 in
professional services and training and approximately 60 in administration and
finance. Of these employees, approximately 370 were located in the United States
and approximately 30 were located outside the United States. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced any work stoppage. We consider our relations with our employees to
be good. Our future success depends on our continuing ability to attract and
retain highly qualified technical, sales and senior management personnel.
FACILITIES
Our principal executive offices occupy 55,870 square feet in Redwood City,
California under a lease that expires in June 2005. We also lease an office in
the Chicago metropolitan area that occupies approximately 21,630 square feet and
have additional facilities in the Atlanta, Amsterdam, Pointe-Claire, Portland,
Quebec and Sydney metropolitan areas. We believe that our current facilities are
adequate to meet our needs for the foreseeable future.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of January 29, 2000
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Farzad Dibachi....................... 35 Chief Executive Officer and Chairman of the Board
Joshua Pickus........................ 38 President, Vertical Markets
Mark Nelson.......................... 40 Chief Financial Officer
Rhonda Dibachi....................... 38 Senior Vice President of Development
Kenneth Johnson...................... 42 Senior Vice President of Sales
Harold Slawik........................ 39 Senior Vice President of Corporate Development
Michael Brooks....................... 54 Director
John Chen............................ 44 Director
Terence Garnett...................... 42 Director
William Raduchel..................... 53 Director
Maynard Webb......................... 44 Director
</TABLE>
Farzad Dibachi has served as the chief executive officer and chairman of
the board of directors of Niku since he co-founded Niku in January 1998. Before
co-founding Niku, from October 1995 to August 1997, Mr. Dibachi was a co-founder
and the president and chief executive officer of Diba, Inc., an information
appliance software company, until it was sold to Sun Microsystems, Inc. in
August 1997. From June 1994 to November 1995, he served as senior vice
president, new media division for Oracle Corporation, a database company. From
June 1993 to June 1994, he was vice president, marketing for Oracle's tools
division and senior director of product development in Oracle's desktop products
division. Mr. Dibachi holds a B.S. in mechanical engineering and a B.A. in
computer science from San Jose State University. Mr. Dibachi is married to
Rhonda Dibachi, senior vice president of development of Niku.
Joshua Pickus has served as president, vertical markets of Niku since
November 1999. Before joining Niku, from April 1999 to November 1999, Mr. Pickus
was a general partner of the Spinnaker Crossover Fund of Bowman Capital
Management, a technology investment firm. From January 1994 to March 1999, he
was a partner at Venture Law Group, a Silicon Valley law firm. Prior to joining
Venture Law Group, Mr. Pickus was a partner at Morrison & Foerster, an
international law firm. Mr. Pickus holds an A.B. from Princeton University and a
J.D. from the University of Chicago Law School.
Mark Nelson has served as the chief financial officer of Niku since August
1999. Before joining Niku, from May 1998 to August 1999, Mr. Nelson was the vice
president, finance and corporate controller at Synopsys, Inc., a software
company. From June 1995 to May 1998, he served as corporate controller and chief
accounting officer at Plantronics, Inc., a telecommunications equipment
manufacturer. From September 1991 to June 1995, he held several director level
positions at Conner Peripherals, Inc., a disk drive manufacturer, most recently
serving as group controller from July 1994 to June 1995. Mr. Nelson holds a B.A.
in accounting from Michigan State University and is a certified public
accountant.
Rhonda Dibachi has served as the senior vice president of development of
Niku since May 1998. Before joining Niku, from October 1997 to April 1998, Ms.
Dibachi was the director of quality assurance at Webvan Group, Inc., an
Internet-based retailer of groceries. From July 1996 to October 1997, Ms.
Dibachi served as a software testing consultant at Software Development
Technologies, a software technology company. From September 1989 to May 1996,
she worked at the applications division of Oracle where she held a number of
positions, including development manager, architect and director of testing. Ms.
Dibachi holds a B.S. in nuclear engineering from Northwestern University and an
M.B.A. from Santa Clara University. Ms. Dibachi is married to Farzad Dibachi,
chief executive officer and chairman of the board of
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directors of Niku, and is the sister-in-law of Harold Slawik, senior vice
president of corporate development of Niku.
Kenneth Johnson has served as the senior vice president of sales of Niku
since January 1999. Before joining Niku, from May 1995 to December 1998, Mr.
Johnson held various positions at Baan Company N.V., a software company, most
recently serving as vice president, electronics industry and western region from
July 1998 to December 1998. From May 1994 to April 1995, Mr. Johnson was a sales
executive at Ramco Systems Corporation, an India-based start-up company. Prior
to joining Ramco Systems, Mr. Johnson was a sales executive at SAP America,
Inc., a software company. Mr. Johnson holds a B.S. in biochemistry from
California Polytechnic State University in San Luis Obispo.
Harold Slawik has served as the senior vice president of corporate
development of Niku since he co-founded Niku in February 1998. Before
co-founding Niku, from August 1997 to February 1998, Mr. Slawik served as
associate general counsel at Sun Microsystems, Inc., a software technology
company. From June 1996 to August 1997, he was vice president and general
counsel at Diba. From July 1995 to April 1996, he served as associate general
counsel at Ensodex, Inc., a software development company. From February 1990 to
July 1995, Mr. Slawik was an attorney in private practice in St. Paul,
Minnesota. Mr. Slawik holds a B.A. in philosophy from the University of St.
Thomas and a J.D. from William Mitchell College of Law. Mr. Slawik is the
brother-in-law of Rhonda Dibachi, senior vice president of development of Niku.
Michael Brooks has been a director of Niku since May 1999. Mr. Brooks has
been a partner of J.H. Whitney & Co., a venture capital firm, since January
1985. He also serves as a director of Pegasus Communications Corporation, Media
Metrix, Inc., Usinternetworking, Inc., VitaminShoppe.com, Inc. and several other
private companies. Mr. Brooks holds a B.A. in history from Yale College and an
M.B.A. from Harvard Business School.
John Chen has been a director of Niku since March 1998. Mr. Chen has been
the president, chief executive officer and the chairman of the board of
directors of Sybase, Inc., a database company, since August 1997. From March
1995 to July 1997, he was president and chief executive officer of the open
enterprise computing division of Siemens Nixdorf, an electrical engineering and
electronics company, as well as president, chief executive officer and chairman
of Siemens Pyramid, a subsidiary of Siemens Nixdorf. Mr. Chen also serves as a
director of Beyond.com Corporation. Mr. Chen holds a B.S. in electrical
engineering from Brown University and a M.S. in electrical engineering from the
California Institute of Technology.
Terence Garnett has been a director of Niku since February 1998. Mr.
Garnett has been a managing director of Garnett Capital since January 2000.
Before joining Garnett Capital, from April 1995 to December 1999, Mr. Garnett
was a venture partner of Venrock Associates, a venture capital firm. From August
1994 to April 1995, Mr. Garnett was a private investor. From October 1991 to
August 1994, he was senior vice president of worldwide marketing and business
development and senior vice president of the new media division at Oracle. He
also serves as a director of Neoforma.com, Inc., CrossWorlds Software, Inc. and
several other private companies. Mr. Garnett holds a B.S. from the University of
California, Berkeley and an M.B.A. from Stanford Graduate School of Business.
Mr. Garnett is the brother-in-law of Angelina Schutz, our vice president of
business development.
William Raduchel has been a director of Niku since January 1999. Mr.
Raduchel has been the senior vice president and chief technology officer of
America Online, Inc. since September 1999. From January 1998 to September 1999,
he was the chief strategy officer at Sun Microsystems. From July 1991 to January
1998, he served variously as vice president of corporate planning and
development, chief financial officer, acting vice president of human resources
and chief information officer at Sun Microsystems. Mr. Raduchel also serves as a
director of MIH Limited, OpenTV, Inc. and Chordiant Software Inc. Mr. Raduchel
holds a B.A. in economics from Michigan State University and a M.A. and Ph.D. in
economics from Harvard University.
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Maynard Webb has been a director of Niku since April 1998. Mr. Webb has
been the president of eBay Technology, a division of eBay Inc., an
Internet-based auction company, since August 1999. Before joining eBay, he was
senior vice president and chief information officer at Gateway 2000 Inc., a
computer company, from July 1998 to August 1999. From April 1995 to July 1998,
he was vice president and chief information officer at Bay Networks, Inc., a
network equipment provider. Mr. Webb also serves as a director of Extensity,
Inc. Mr. Webb holds a B.A. in criminal justice from Florida Atlantic University.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of six
members. The term of each of our current directors will expire at the next
annual meeting of stockholders. Following this offering, the board will consist
of six directors divided into three classes, Class I, Class II and Class III,
with each class serving staggered three-year terms. The Class I directors,
initially Messrs. Brooks and Dibachi, will stand for reelection or election at
the 2000 annual meeting of stockholders. The Class II directors, initially
Messrs. Raduchel and Webb, will stand for reelection at the 2001 annual meeting
of stockholders. The Class III directors, initially Messrs. Chen and Garnett,
will stand for reelection or election at the 2002 annual meeting of
stockholders. Messrs. Garnett and Brooks serve on the board of directors under
the terms of a voting agreement among us and some of our principal stockholders.
This voting agreement will terminate upon completion of this offering.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
Following this offering, our board of directors will also have a transaction
committee.
Compensation Committee. The current members of our compensation committee
are Messrs. Chen and Webb. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers. The compensation committee also administers our stock plans.
Audit Committee. The current members of our audit committee are Messrs.
Brooks, Garnett and Raduchel. Our audit committee reviews and monitors our
financial statements and accounting practices, makes recommendations to our
board regarding the selection of independent auditors and reviews the results
and scope of the audit and other services provided by our independent auditors.
Transaction Committee. Following this offering, the members of our
transaction committee will be Messrs. Dibachi and Garnett. Subject to certain
limitations, our transaction committee will review and authorize acquisitions of
or mergers with other companies, investments in other companies or businesses,
the incurrence of debt, bank financing, or equipment lease financing and other
financing transactions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been an officer or employee of ours. None of our executive officers
currently serves or in the past has served as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on our board or compensation committee. Prior to the creation of our
compensation committee, all compensation decisions were made by our full board.
Mr. Dibachi did not participate in discussions by our board with respect to his
compensation.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending board
and board committee meetings. In March 1998, we granted options to purchase
100,000 shares of our common stock to Mr. Chen
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at an exercise price of $0.10 per share. In April 1998, we granted options to
purchase 100,000 shares of our common stock to Maynard Webb at an exercise price
of $0.10 per share. In January 1999, we granted options to purchase 100,000
shares of our common stock to William Raduchel at an exercise price of $0.10 per
share.
Members of the board who are not employees of Niku, or any parent,
subsidiary or affiliate of Niku, will be eligible to participate in the 2000
Equity Incentive Plan. The option grants under the plan are automatic and
nondiscretionary, and the exercise price of the options is the fair market value
of the common stock on the date of grant.
Each non-employee director who becomes a member of the board on or after
the effective date of the registration statement of which this prospectus forms
a part, will be granted an option to purchase 50,000 shares of our common stock.
Also, each eligible director who became a member of the board prior to the
effective date of the registration statement of which this prospectus forms a
part and who did not receive an option grant will receive an option to purchase
50,000 shares of our common stock. Immediately following each annual meeting of
our stockholders, each eligible director will automatically be granted an
additional option to purchase 25,000 shares of our common stock if the director
has served continuously as a member of the board since the date of the prior
annual meeting. All options to be granted to each eligible director will have an
exercise price equal to the fair market value of our common stock on the date of
grant. The board of directors may make discretionary supplemental grants to an
eligible director who has served for less than one year from the date of such
director's initial grant, provided that no director may receive options to
purchase more than 75,000 shares of our common stock in any calendar year. The
options have 10 year terms, and will terminate three months following the date
the director ceases to be a director or a consultant or 12 months if the
termination is due to death or disability. All options granted under the
directors plan will become exercisable over a three-year period at a rate of
2.778% per month so long as he or she continues as a member of the board or as a
consultant. In the event of our dissolution or liquidation or a "change in
control" transaction, options granted under the plan will become 100% vested and
exercisable in full.
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EXECUTIVE COMPENSATION
The following table presents compensation information for our fiscal year
ended January 29, 2000 paid or accrued by our chief executive officer and each
of our other executive officers. The compensation table excludes other
compensation in the form of perquisites and other personal benefits that
constituted less than 10% of the total annual salary and bonus of each of the
named executive officers in the fiscal year ended January 29, 2000. Mr. Pickus
joined us in November 1999 at an annual base salary of $300,000. Mr. Nelson
joined us in August 1999 at an annual base salary of $200,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ------------------------
ALL OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS
---------------------------- -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Farzad Dibachi................ $180,000 $180,000 -- -- --
Chief Executive Officer
Joshua Pickus................. 75,000 25,000 -- 1,250,000(1) --
President, Vertical Markets
Mark Nelson................... 93,974 45,000 -- 350,000(2) --
Chief Financial Officer
Rhonda Dibachi................ 173,333 100,000 -- -- --
Senior Vice President of
Development
Kenneth Johnson............... 200,000 200,000 -- 250,000(3) --
Senior Vice President
of Sales
Harold Slawik................. 173,333 100,000 -- -- --
Senior Vice President
of Corporate Development
</TABLE>
- ---------------
(1) In November 1999, Mr. Pickus purchased 1,250,000 shares of our restricted
common stock at $1.00 per share. These shares are subject to our right of
repurchase that lapses as to 33.33% of the shares upon the first anniversary
of the grant date and as to 2.77% of the shares each month after that time.
Our right of repurchase lapses as to all of these shares in the event of a
change of control.
(2) In November 1999, Mr. Nelson purchased 350,000 shares of our restricted
common stock at $1.00 per share. These shares are subject to our right of
repurchase that lapses as to 25% of the shares upon the first anniversary of
the grant date and as to 2.083% of the shares each month after that time.
Our right of repurchase lapses as to all of these shares in the event of a
change of control.
(3) In March 1999, Mr. Johnson purchased 250,000 shares of our restricted common
stock at $0.10 per share. These shares are subject to our right of
repurchase that lapses as to 25% of the shares upon the first anniversary of
the grant date and as to 2.083% of the shares each month after that time.
During the fiscal year ended January 29, 2000, we did not grant any stock
options to our chief executive officer or our other executive officers.
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<PAGE> 60
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JANUARY 29, 2000
AND OPTION VALUES AT JANUARY 29, 2000
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during the fiscal year ended January 29,
2000 and the number of shares of our common stock subject to "exercisable" and
"unexercisable" stock options held as of January 29, 2000 by our chief executive
officer and each of our other executive officers. Also presented are values of
"in-the-money" options, which represent the positive difference between the
exercise price of each outstanding stock option and an assumed initial public
offering price of $11.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS
SHARES JANUARY 29, 2000 AT JANUARY 29, 2000
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Farzad Dibachi....... -- $ -- -- -- $ -- $ --
Joshua Pickus........ -- -- -- -- -- --
Mark Nelson.......... -- -- -- -- -- --
Rhonda Dibachi....... -- -- -- -- -- --
Kenneth Johnson...... -- -- -- -- -- --
Harold Slawik........ 167,708 40,250 7,292 175,000 80,139 1,923,250
</TABLE>
EMPLOYEE BENEFIT PLANS
1998 Stock Plan. As of January 29, 2000, options to purchase 4,777,454
shares of our common stock were outstanding under our 1998 Stock Plan and
788,730 shares of our common stock remained available for issuance upon the
exercise of options that may be granted in the future. The options outstanding
as of January 29, 2000 had a weighted average exercise price of $1.03 per share.
Our 1998 Stock Plan will terminate upon this offering, at which time, our 2000
Equity Incentive Plan will become effective. As a result, no options will be
granted under our 1998 Stock Plan after this offering. However, termination will
not affect outstanding options, all of which will remain outstanding and subject
to our 1998 Stock Plan and stock option agreements until exercise or until they
terminate or expire by their terms. Options granted under our 1998 Stock Plan
are subject to terms substantially similar to those described below with respect
to options granted under our 2000 Equity Incentive Plan.
2000 Equity Incentive Plan. Our 2000 Equity Incentive Plan will become
effective on the date of this prospectus and will serve as the successor to our
1998 Stock Plan. We have reserved 6,000,000 shares of our common stock to be
issued under this plan. In addition, shares available for grant under the 1998
Stock Plan on the date of this prospectus and any shares issued under the 1998
Stock Plan that are forfeited or repurchased by us or that are issuable upon
exercise of options that expire or become unexercisable for any reason without
having been exercised in full will be available for grant and issuance under our
2000 Equity Incentive Plan. Shares will again be available for grant and
issuance under our 2000 Equity Incentive Plan that:
- are subject to issuance upon exercise of an option granted under our 2000
Equity Incentive Plan that cease to be subject to the option for any
reason other than exercise of the option;
- have been issued upon the exercise of an option granted under our 2000
Equity Incentive Plan that are subsequently forfeited or repurchased by
us at the original purchase price;
- are subject to an award granted pursuant to a restricted stock purchase
agreement under our 2000 Equity Incentive Plan that are subsequently
forfeited or repurchased by us at the original issue price; or
- are subject to stock bonuses granted under our 2000 Equity Incentive Plan
that terminate without shares being issued.
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<PAGE> 61
On each January 1, the aggregate number of shares reserved for issuance
under our 2000 Equity Incentive Plan will increase automatically by a number of
shares equal to 5% of our outstanding shares on December 31 of the preceding
year.
Our 2000 Equity Incentive Plan will terminate 10 years from the date our
board of directors approved the plan, unless it is terminated earlier by our
board of directors. The plan will authorize the award of options, restricted
stock awards and stock bonuses. No person will be eligible to receive more than
2,000,000 shares in any calendar year under the plan other than a new employee
of Niku, who will be eligible to receive up to 2,500,000 shares in the calendar
year in which the employee commences employment.
Our 2000 Equity Incentive Plan will be administered by our board of
directors. The board will have the authority to construe and interpret the plan,
grant awards and make all other determinations necessary or advisable for the
administration of the plan. Also, our non-employee directors are entitled to
receive automatic annual grants of options to purchase shares of our common
stock, as described under "Management -- Director Compensation."
Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. Incentive stock options may be granted only to
employees of Niku or of a parent or subsidiary of Niku. All other awards other
than incentive stock options may be granted to employees, officers, directors
and consultants of Niku or any parent or subsidiary of Niku, provided the
consultants render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction. The exercise price of incentive
stock options must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive stock options
granted to 10% stockholders must be at least equal to 110% of that value. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant.
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under our 2000 Equity Incentive Plan
is 10 years.
Awards granted under our 2000 Equity Incentive Plan may not be transferred
in any manner other than by will or by the laws of descent and distribution.
They may be exercised during the lifetime of the optionee only by the optionee.
The compensation committee may determine otherwise and provide for these
provisions in the award agreement, but only with respect to awards that are not
incentive stock options. Options granted under our 2000 Equity Incentive Plan
generally may be exercised for a period of time after the termination of the
optionee's service to Niku or a parent or subsidiary of Niku. Options will
generally terminate immediately upon termination of employment for cause.
The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.
If we dissolve or liquidate or have a "change in control" transaction, the
vesting of all outstanding awards will accelerate as to an additional 25% of the
shares that are unvested on the date of the change in control, and thereafter
all outstanding awards will continue to vest in equal monthly installments over
the remaining original vesting term as set forth in the award agreement. In the
discretion of the compensation committee, the vesting of these awards may be
further accelerated upon one of these transactions.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
will become effective on the first day on which price quotations are available
for our common stock on the Nasdaq National Market. We have initially reserved
1,000,000 shares of our common stock under this plan. On each January 1, the
aggregate number of shares reserved for issuance under our
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<PAGE> 62
2000 Employee Stock Purchase Plan will increase automatically by a number of
shares equal to 1% of our outstanding shares on December 31 of the preceding
year. Our board of directors or compensation committee may reduce the amount of
the increase in any particular year. The aggregate number of shares reserved for
issuance under our 2000 Employee Stock Purchase Plan may not exceed 10,000,000
shares.
Our 2000 Employee Stock Purchase Plan will be administered by our
compensation committee. Our compensation committee will have the authority to
construe and interpret the plan, and its decisions will be final and binding.
Employees generally will be eligible to participate in our 2000 Employee
Stock Purchase Plan if they are employed before the beginning of the applicable
offering period, are customarily employed by us, or our parent or any
subsidiaries that we designate, for more than 20 hours per week and more than
five months in a calendar year and are not, and would not become as a result of
being granted an option under the plan, 5% stockholders of us or our parent or
designated subsidiaries. Participation in our 2000 Employee Stock Purchase Plan
will end automatically upon termination of employment for any reason.
Under our 2000 Employee Stock Purchase Plan, eligible employees will be
permitted to acquire shares of our common stock through payroll deductions.
Eligible employees may select a rate of payroll deduction between 1% and 10% of
their compensation and are subject to maximum purchase limitations.
Except for the first offering period, each offering period under our 2000
Employee Stock Purchase Plan will be for two years and consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day on which price quotations for our common stock are available on the
Nasdaq National Market. Offering periods and purchase periods will begin on
March 1 and September 1 of each year. However, because the first day on which
price quotations for our common stock will be available on the Nasdaq National
Market may not be March 1 or September 1, the length of the first offering
period may be more or less than two years, and the length of the first purchase
period may be more or less than six months.
Our 2000 Employee Stock Purchase Plan will provide that, in the event of
our proposed dissolution or liquidation, each offering period that commenced
prior to the closing of the proposed event will continue for the duration of the
offering period, provided that the compensation committee may fix a different
date for termination of the plan. The purchase price for our common stock
purchased under the plan will be 85% of the lesser of the fair market value of
our common stock on the first day of the applicable offering period or the last
day of the applicable purchase period. The compensation committee will have the
power to change the offering dates, purchase dates and duration of offering
periods without stockholder approval, if the change is announced prior to the
beginning of the affected date or offering period.
Our 2000 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code.
The plan will terminate 10 years from the date the plan was adopted by our
board, unless it is terminated earlier under the terms of the plan. The board
will have the authority to amend, terminate or extend the term of the plan,
except that no action may adversely affect any outstanding options previously
granted under the plan.
Except for the automatic annual increase of shares described above,
stockholder approval will be required to increase the number of shares that may
be issued or to change the terms of eligibility under Our 2000 Employee Stock
Purchase Plan. The board will be able to make amendments to the plan as it
determines to be advisable if the financial accounting treatment for the plan is
different from the financial accounting treatment in effect on the date the plan
was adopted by the board.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees who
are at least 21 years old and
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<PAGE> 63
who have been employed with us for at least one year are generally eligible to
participate and may enter the plan as of January 1 and July 1 of each year.
Participants may make pre-tax contributions to the plan of up to 12% of their
eligible earnings, subject to a statutorily prescribed annual limit. Each
participant is fully vested in his or her contributions and the investment
earnings. There are no matching contributions under the plan. Contributions by
the participants to the plan, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
EMPLOYMENT ARRANGEMENTS
All of our employees are at-will employees.
We have executed an offer letter with Harold Slawik, our senior vice
president of corporate development. This letter, effective January 1998,
established Mr. Slawik's initial annual base salary at $144,000. Mr. Slawik also
received a sign-on bonus of $50,000. In the fiscal year ended January 31, 2000,
Mr. Slawik received a salary of $173,333. As a co-founder of Niku, we granted
Mr. Slawik the opportunity to purchase 87,500 shares of our common stock which
he bought under a common stock purchase agreement in February 1998 at a purchase
price of $0.01 per share. These shares were subject to a right of repurchase
upon termination of his employment. Our right of repurchase has now lapsed as to
all of these shares. Under an option agreement, in January 1998, we granted to
Mr. Slawik an option to purchase 350,000 shares of our common stock at an
exercise price of $0.01 per share. This option is exercisable as to 25% of the
shares upon the first anniversary of the grant date and as to 2.083% of the
shares subject to the option each month thereafter. Mr. Slawik has exercised
102,083 of the shares subject to this option.
We have executed an offer letter with Rhonda Dibachi, our senior vice
president of development. This letter, effective May 1998, established Ms.
Dibachi's initial annual base salary at $144,000. In the fiscal year ended
January 31, 2000, Ms. Dibachi received a salary of $173,333.
We have executed an offer letter with Kenneth Johnson, our senior vice
president of sales. This letter, effective January 1999, established Mr.
Johnson's annual base salary at $200,000. Under a restricted stock purchase
agreement, in March 1999, Mr. Johnson purchased 250,000 shares of our restricted
common stock at a purchase price of $0.10 per share. These shares are subject to
our right to repurchase upon termination of his employment. Our right of
repurchase lapses as to 25% of the shares upon the first anniversary of the
grant date and as to 2.083% of the shares each month thereafter. In March 1999,
we loaned Mr. Johnson $24,975, secured by a pledge and security agreement, in
connection with his purchase of shares of our restricted common stock. The loan
accrues interest at a rate of 4.77% and is due on or before January 4, 2003.
We have executed an offer letter with Mark Nelson, our chief financial
officer. This letter, effective August 1999, established Mr. Nelson's annual
base salary at $200,000. Under a restricted stock purchase agreement, in
November 1999, Mr. Nelson purchased 350,000 shares of our restricted common
stock at a purchase price of $1.00 per share. These shares are subject to our
right to repurchase upon termination of his employment. Our right of repurchase
lapses as to 25% of the shares upon the first anniversary of the grant date and
as to 2.083% of the shares each month thereafter. Our right of repurchase lapses
as to all of the shares in the event of a change of control. In November 1999,
we loaned Mr. Nelson $349,965, secured by a stock pledge agreement, in
connection with his purchase of shares of our restricted common stock. The loan
accrues interest at a rate of 6.08% and is due on or before November 18, 2002.
We have executed an offer letter with Joshua Pickus, our president,
vertical markets. This letter, effective November 1999, established Mr. Pickus'
annual base salary at $300,000. This agreement also provides that we will make
Mr. Pickus a separate payment of $25,000 for every
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<PAGE> 64
three months of employment during his first two years of employment with us.
Under a restricted stock purchase agreement, in November 1999, Mr. Pickus
purchased 1,250,000 shares of our restricted common stock at a purchase price of
$1.00 per share. These shares are subject to our right to repurchase upon
termination of his employment. Our right of repurchase lapses as to 33.33% of
the shares upon the first anniversary of employment and as to 2.77% of the
shares each month thereafter. Our right of repurchase lapses as to all of the
shares in the event of a change of control. In November 1999, we loaned Mr.
Pickus $1,249,875, secured by a stock pledge agreement, in connection with his
purchase of shares of our restricted common stock. The loan accrues interest at
a rate of 6.08% and is due on or before November 1, 2002. Under a separate loan
agreement, we loaned Mr. Pickus $200,000. The loan accrues interest at a rate of
8.0% and is due on or before November 11, 2002.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to very
limited exceptions;
- we may indemnify our employees and agents to the fullest extent permitted
by the Delaware General Corporation Law, subject to very limited
exceptions;
- we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding;
- we may advance expenses, as incurred, to our employees and agents in
connection with a legal proceeding; and
- the rights conferred in the bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, we have entered into indemnity agreements with each of
our current directors and executive officers. These agreements provide for the
indemnification of our officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were our agents. We also intend to obtain
directors' and officers' insurance to cover our directors, officers and some of
our employees for liabilities, including liabilities under securities laws. We
believe that these indemnification provisions and agreements and this insurance
are necessary to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against directors
and officers as required by these indemnification provisions. At present, there
is no pending litigation or proceeding involving any of our directors, officers
or employees regarding which indemnification by us is sought, nor are we aware
of any threatened litigation that may result in claims for indemnification.
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<PAGE> 65
CERTAIN TRANSACTIONS
Other than the employment arrangements described in "Management" and the
transactions described below, since we were formed, there has not been nor is
there currently proposed any transaction or series of similar transactions to
which we were or will be a party:
- in which the amount involved exceeds or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
COMMON STOCK TRANSACTIONS
In January 1998, Farzad Dibachi, our chief executive officer and chairman
of the board of directors, purchased 4,000,000 shares of our common stock at a
purchase price of $0.01 per share. In January 1998, the Garnett 1996 Children's
Trust UTA for the benefit of the children of Terence Garnett, one of our
directors, purchased 500,000 shares of our common stock at a purchase price of
$0.01 per share. In February 1998, Joshua Pickus, our president, vertical
markets, purchased 10,000 shares of our common stock at a purchase price of
$0.01 per share and Harold Slawik, our vice president of corporate development,
purchased 87,500 shares of our common stock at a purchase price of $0.01 per
share.
PREFERRED STOCK FINANCINGS
In January 1998, we sold a total of 10,000,000 shares of our Series F
preferred stock at a purchase price of $0.05 per share. In February, April and
May 1998, we sold a total of 5,142,851 shares of our Series A preferred stock at
a purchase price of $0.35 per share. In October, November and December 1998, we
sold a total of 7,999,992 shares of our Series B preferred stock at a purchase
price of $0.75 per share. In May 1999, we sold a total of 9,987,439 shares of
our Series C preferred stock at a purchase price of $1.99 per share. In November
1999, we sold a total of 7,998,012 shares of our Series D preferred stock at a
purchase price of $5.00 per share.
Purchasers of our preferred stock include, among others, the following
executive officers, directors and holders of more than 5% of our outstanding
stock or entities affiliated with them:
<TABLE>
<CAPTION>
SERIES F SERIES A SERIES B SERIES C SERIES D
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCKHOLDER STOCK STOCK STOCK STOCK STOCK
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Farzad and Rhonda Dibachi.............. 7,500,000 291,428 666,666 -- --
Joshua Pickus.......................... -- 28,571 13,333 -- --
Mark Nelson............................ -- -- -- -- 10,000
Harold Slawik.......................... 2,000,000 5,714 -- -- --
John Chen.............................. -- 285,714 -- -- --
Terence Garnett........................ 2,000,000 1,857,142 493,333 577,890 500,000
William Raduchel....................... -- 285,714 66,666 -- --
Maynard Webb........................... -- 285,714 133,333 50,251 --
Vector Capital II, L.P................. -- -- -- -- 6,226,195
Entities associated with Venrock
Associates........................... -- -- 5,173,333 2,437,186 388,000
Entities associated with J.H.
Whitney.............................. -- -- -- 4,522,613 768,208
</TABLE>
Shares for Farzad and Rhonda Dibachi include 1,500,000 shares of our Series
F preferred stock and 5,714 shares of our Series A preferred stock held by
Florence V, LLC. Mr. Dibachi disclaims beneficial ownership of shares held by
Florence V, LLC except to the extent of his percentage interest.
Shares for Harold Slawik include 1,500,000 shares of our Series F preferred
stock and 5,714 shares of our Series A preferred stock held by Florence V, LLC.
Mr. Slawik disclaims
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<PAGE> 66
beneficial ownership of shares held by Florence V, LLC except to the extent of
his percentage interest. Also includes 500,000 shares held by the Franklin David
Dibachi 1996 Trust, of which Mr. Slawik serves as the trustee.
Vector Capital II, L.P. acquired its shares as part of the Proamics
acquisition.
LOANS TO EXECUTIVE OFFICERS
In March 1999, we loaned to Kenneth Johnson, our senior vice president of
sales, $24,975, secured by a pledge and security agreement, in connection with
his purchase of our restricted common stock. This loan accrues interest at a
rate of 4.77% and is due on or before January 4, 2003.
In November 1999, we loaned to Mark Nelson, our chief financial officer,
$349,965, secured by a stock pledge agreement, in connection with his purchase
of our restricted common stock. The loan accrues interest at a rate of 6.08% and
is due on or before November 18, 2002.
In November 1999, we loaned to Joshua Pickus, our president, vertical
markets, $1,249,875, secured by a stock pledge agreement, in connection with his
purchase of our restricted common stock. The loan accrues interest at a rate of
6.08% and is due on or before November 1, 2002. We also loaned $200,000 to Mr.
Pickus in November 1999 under a separate agreement, and this loan accrues
interest at a rate of 8.0% and is due on or before November 11, 2002.
ACQUISITION OF PROAMICS
In December 1999, we acquired Proamics. In connection with our acquisition
of Proamics, Vector Capital II, L.P. received 6,226,195 shares of our Series D
preferred stock of which 1,245,239 are held in escrow to secure indemnification
obligations of the former stockholders of Proamics. Each share of Series D
preferred stock will be converted into one share of our common stock upon the
closing of this offering.
PERSONS OR ENTITIES RELATED TO OUR DIRECTORS
In December 1998, we entered into a software license and services agreement
with Sybase pursuant to which we granted Sybase a license to make, install and
use copies of our software. We paid Sybase a license fee of $142,500 under this
agreement. We paid Sybase an additional $34,644 in support fees. In March 1999,
we entered into a software license agreement pursuant to which Sybase granted us
a license to use Sybase software. John Chen, one of our directors, is the
president, chief executive officer and the chairman of the board of directors of
Sybase.
We executed an offer letter with Angelina Schutz, our vice president of
business development. This letter, effective June 1999, established Ms. Schutz's
annual base salary at $150,000 and qualified her to receive $150,000 as
commission if she meets her revenue quota and management deliverables, and in
excess of this amount if she exceeds her targets. Under an option agreement, in
June 1999, we granted to Ms. Schutz an option to purchase 150,000 shares of our
common stock at an exercise price of $0.25 per share. This option is exercisable
as to 25% of the shares upon the first anniversary of the grant date and as to
2.083% of the shares subject to the option each month thereafter. Ms. Schutz is
the sister-in-law of Terence Garnett, one of our directors.
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<PAGE> 67
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of January 29, 2000 and as adjusted to reflect the sale of
our common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- each of our executive officers; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of January 29, 2000 are deemed to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person. Unless indicated below, the address for each listed
stockholder is c/o Niku Corporation, 305 Main Street, Redwood City, California
94063.
The percentage of common stock outstanding as of January 29, 2000 is based
on 61,046,435 shares of common stock outstanding on that date, assuming that all
outstanding preferred stock has been converted into common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Farzad and Rhonda Dibachi(1)............ 11,558,094 18.9% 16.7%
Entities and individuals associated with
Venrock Associates(2)................. 7,998,519 13.1 11.6
2499 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Vector Capital II, L.P.(3).............. 6,226,195 10.2 9.0
465 Montgomery Street, 19th Floor
San Francisco, CA 94104
Terence Garnett(4)...................... 5,908,365 9.7 8.6
Entitles and individuals associated with
J.H. Whitney(5)....................... 5,290,821 8.7 7.7
177 Broad Street
Stamford, CT 06901
Michael Brooks(6)....................... 5,290,821 8.7 7.7
Harold Slawik(7)........................ 2,575,505 4.2 3.7
Joshua Pickus(8)........................ 1,296,904 2.1 1.9
Maynard Webb(9)......................... 533,187 * *
Mark Nelson(10)......................... 360,000 * *
John Chen(11)........................... 352,381 * *
William Raduchel(12).................... 344,269 * *
Kenneth Johnson(13)..................... 250,000 * *
All directors and executive officers as
a group (11 persons)(14).............. 26,968,812 43.9 38.9
</TABLE>
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<PAGE> 68
- ---------------
* Less than 1%.
(1) Represents 10,052,380 shares held by The Dibachi Family Trust UDT and
1,505,714 shares held by Florence V, LLC. Mr. Dibachi disclaims beneficial
ownership of shares held by Florence V, LLC except to the extent of his
percentage interest.
(2) Represents 3,478,372 shares held by Venrock Associates, 4,500,747 shares
held by Venrock Associates II, L.P. and 19,400 shares held by Venrock
Entrepreneurs Fund.
(3) Represents 6,226,195 shares held by Vector Capital II, L.P.
(4) Represents 1,200,000 shares held by the Garnett Children's Trust UTA,
4,632,988 shares held by the Garnett Family Trust and 75,377 shares held by
Mr. Garnett. This number does not include 3,478,372 shares held by Venrock
Associates, 4,500,747 shares held by Venrock Associates II, L.P. nor 19,400
shares held by Venrock Entrepreneurs Fund. Mr. Garnett, one of our
directors, is a consultant to Venrock Associates, Venrock Associates II,
L.P. and Venrock Entrepreneurs Fund but does not share voting or
dispositive power over the shares held by these entities.
(5) Represents 5,166,333 shares held by J.H. Whitney III, L.P. and 124,488
shares held by Whitney Strategic Partners III, L.P.
(6) Represents 5,166,333 shares held by J.H. Whitney III, L.P. and 124,488
shares held by Whitney Strategic Partners III, L.P. Mr. Brooks, one of our
directors, is a managing member of the general partner of these entities.
Mr. Brooks disclaims beneficial ownership of shares held by these entities
except to the extent of his pecuniary interest in them.
(7) Represents 305,208 shares held by Harold Slawik, 75,000 shares held as
custodian for Alexander, Cecilia and Abigail Slawik, 1,505,714 shares held
by Florence V, LLC, 500,000 shares held by the Franklin David Dibachi 1996
Trust and 189,583 shares subject to options exercisable within 60 days of
January 29, 2000 held by Mr. Slawik. Mr. Slawik disclaims beneficial
ownership of shares held by Florence V, LLC except to the extent of his
percentage interest. Mr. Slawik serves as the trustee of the Franklin David
Dibachi 1996 Trust.
(8) Represents 1,296,904 shares held by the Pickus Family Trust.
(9) Represents 469,298 shares held by The Webb Family Trust and 63,889 shares
subject to options exercisable within 60 days of January 29, 2000 held by
Mr. Webb.
(10) Represents 360,000 shares held by Mark Nelson.
(11) Represents 285,714 shares held by the John S. and Sherry H. Chen Family
Trust and 66,667 shares subject to options exercisable within 60 days of
January 29, 2000 held by Mr. Chen.
(12) Represents 238,714 shares held by The William J. Raduchel Revocable Trust,
38,889 shares subject to options exercisable within 60 days of January 29,
2000 held by Mr. Raduchel and 66,666 shares held by Mr. Raduchel.
(13) Represents 250,000 shares held by Kenneth Johnson.
(14) Represents 26,609,784 shares held by all directors and executive officers
as a group and 359,028 shares subject to options exercisable within 60 days
of January 29, 2000 held by all directors and executive officers as a
group.
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<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 250,000,000 shares of common stock, $0.0001 par value per
share, and 10,000,000 shares of preferred stock, $0.0001 par value per share. As
of January 29, 2000, and assuming the conversion of all outstanding preferred
stock into common stock, there were outstanding 61,046,435 shares of our common
stock held by approximately 263 stockholders, of which 2,437,083 shares were
subject to our right of repurchase, options to purchase 4,777,454 shares of our
common stock and warrants to purchase 630,000 shares of our common stock.
COMMON STOCK
Dividend rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
our common stock are entitled to receive dividends out of assets legally
available at the times and in the amounts as our board of directors may
determine.
Voting rights. Each holder of our common stock is entitled to one vote for
each share of common stock held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors is not provided
for in our certificate of incorporation. In addition, our certificate of
incorporation and bylaws require the approval of two-thirds, rather than a
majority, of the shares entitled to vote for certain matters. For a description
of these matters, see "-- Anti-Takeover Provisions."
No preemptive or similar rights. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Niku, the holders of our common stock are entitled to share
ratably among themselves in all assets remaining after payment of all
liabilities and the liquidation preferences of any outstanding preferred stock.
Each outstanding share of our common stock is, and all shares of our common
stock to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of our preferred
stock will be converted into shares of our common stock. See Note 6 of notes to
financial statements for a description of our preferred stock.
Following the offering, we will be authorized, subject to limitations
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
and to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board of directors can also increase or decrease the number of shares of any
series, but not below the number of shares of such series then outstanding,
without any further vote or action by the stockholders. The board may authorize
the issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of the common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of Niku and may adversely affect the market price of the our common
stock and the voting and other rights of the holders of our common stock. We
have no current plan to issue any shares of preferred stock.
WARRANTS
In February 1999, we issued to Comdisco a warrant to purchase 30,000 shares
of our Series B preferred stock at an exercise price of $0.75 per share. If not
sooner exercised, this warrant will remain outstanding for three years after the
completion of this offering unless the
68
<PAGE> 70
underwriters request that Comdisco exercise this warrant, in which case the
warrant will expire immediately after the completion of this offering.
In February 1999, we also issued to Comdisco a warrant to purchase 600,000
shares of our Series B preferred stock at an exercise price of $0.75 per share.
If not sooner exercised, this warrant will remain outstanding for three years
after the completion of this offering unless the underwriters request that
Comdisco exercise this warrant, in which case the warrant will expire
immediately after the completion of this offering.
REGISTRATION RIGHTS
As a result of an amended and restated investors' rights agreement dated
November 17, 1999, as amended December 8, 1999, among us and some of our
stockholders, the holders of 51,319,497 shares of our common stock will be
entitled to rights with respect to the registration of these shares under the
Securities Act, as described below.
Demand registration rights. At any time after six months following this
offering, the holders of at least 50% of the shares having registration rights
can request that we register all or a portion of their shares, so long as such
registration covers at least 20% of their shares and the total offering price of
the shares to the public is at least $20 million. We will only be required to
file two registration statements in response to their demand registration
rights. We may postpone the filing of a registration statement for up to 120
days twice in a 12 month period if we determine that the filing would be
seriously detrimental to us and our stockholders.
Piggyback registration rights. If we register any securities for public
sale, the stockholders with registration rights will have the right to include
their shares in the registration statement. The managing underwriter of any
underwritten offering will have the right to limit the number of shares
registered by these holders to be included in the registration statement due to
marketing reasons.
Form S-3 registration rights. The holders of the shares having registration
rights can request that we register their shares if we are eligible to file a
registration statement on Form S-3 and if the total price of the shares offered
to the public is at least $2 million. We may postpone the filing of a
registration statement for up to 120 days twice in a 12 month period if we
determine that the filing would be seriously detrimental to us and our
stockholders.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
The registration rights described above will expire with respect to a
particular stockholder if it can sell all of its shares in a three month period
under Rule 144 of the Securities Act. In any event, the registration rights
described above will expire five years after this offering is completed.
Holders of these registration rights have waived the exercise of these
registration rights for 180 days following the date of this prospectus.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our certificate of incorporation and our
bylaws may have the effect of delaying, deferring or discouraging another person
from acquiring control of our company.
DELAWARE LAW
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
corporation's assets with any "interested stockholder," meaning a
69
<PAGE> 71
stockholder who owns 15% or more of the corporation's outstanding voting stock,
as well as affiliates and associates of the stockholder, for three years
following the date that the stockholder became an "interested stockholder"
unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained that status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts and, accordingly,
may discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws provide that:
- following the completion of this offering, no action shall be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act by
written consent;
- following the completion of this offering, the approval of holders of
two-thirds of the shares entitled to vote at an election of directors
shall be required to adopt, amend or repeal our bylaws or amend or repeal
the provisions of our certificate of incorporation regarding the election
and removal of directors and ability of stockholders to take action;
- stockholders may not call special meetings of the stockholders without
advance notice and approval of the stockholders holding at least a
majority of the outstanding shares of stock;
- stockholders may not fill vacancies on the board;
- following the completion of this offering, our board of directors will be
divided into three classes, each serving staggered three-year terms,
which means that only one class of directors will be elected at each
annual meeting of stockholders, with the other classes continuing for the
remainder of their respective terms, and directors may only be removed
for cause by the holders of two-thirds of the shares entitled to vote at
an election of directors; and
- we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
These provisions of our certificate of incorporation and bylaws may have
the effect of delaying, deferring or discouraging another person from acquiring
control of our company.
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<PAGE> 72
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Harris Trust &
Savings Bank.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "NIKU."
A public market for the trading of our common stock has not existed prior
to this offering. Although this offering will result in a trading market for our
common stock, we do not know how liquid that market might be. The initial public
offering price for our common stock will be determined through negotiations
between the underwriters and us. If you purchase shares of our common stock, you
may not be able to resell those shares at or above the initial public offering
price.
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<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering, we will have shares of our common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of the outstanding shares, all of
the shares sold in this offering will be freely tradable, except that any shares
held by our "affiliates," as that term is defined in Rule 144 promulgated under
the Securities Act, may only be sold in compliance with the limitations
described below. The remaining 61,046,435 shares of our common stock will be
deemed "restricted securities" as defined under Rule 144. Restricted shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
--------- ----
<C> <S>
8,000,000 After the date of this prospectus, freely tradable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up
42,714,464 After 180 days from the date of this prospectus, the 180-day
lock-up terminates and these shares are saleable under Rule
144 (subject in some cases to volume limitations) or Rule
144(k) or Rule 701 (subject in some cases to a right of
repurchase by Niku)
18,331,971 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not
yet saleable under Rule 144
7,998,012 After November 17, 2000, the one year anniversary of our
Series D preferred stock financing, these shares are
saleable under Rule 144
9,993,141 After December 8, 2000, the one year anniversary of our
acquisition of Proamics, these shares are saleable under
Rule 144
</TABLE>
In connection with the purchase of 1,250,000 shares of our restricted
common stock by Joshua Pickus, our president, vertical markets, we loaned Mr.
Pickus $1,249,875 secured by a stock pledge agreement. In connection with the
purchase of 350,000 shares of our restricted common stock by Mark Nelson, our
chief financial officer, we loaned Mr. Nelson $349,965 secured by a stock pledge
agreement. The 1,250,000 shares of restricted common stock held by Mr. Pickus
and the 350,000 shares of restricted common stock held by Mr. Nelson will be
freely tradeable one year after each repays his respective loan in full.
However, we intend to file a registration statement on Form S-8 for the resale
of these shares 180 days from the date of this prospectus.
RULE 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including an affiliate of
Niku, who has beneficially owned shares for at least one year is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then-outstanding shares of our common stock, which will be approximately
690,464 shares immediately after this offering, or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of the sale is
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<PAGE> 74
filed. In addition, a person who is not deemed to have been an affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
these shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from one of our affiliates, a
person's holding period for the purpose of effecting a sale under Rule 144 would
commence on the date of transfer from the affiliate.
STOCK OPTIONS
As of January 29, 2000, options to purchase a total of 4,777,454 shares of
our common stock were outstanding, all of which were currently exercisable. We
intend to file a registration statement on Form S-8 under the Securities Act to
register all shares of our common stock subject to outstanding options and all
shares of our common stock issuable under our stock option and employee stock
purchase plans. Accordingly, shares of our common stock issued under these plans
will be eligible for sale in the public markets, subject to vesting restrictions
and the lock-up agreement described below. See "Management -- Employee Benefit
Plans."
LOCK-UP AGREEMENTS
We, each of our officers and directors and substantially all of our
securityholders have agreed, subject to specified exceptions, not to, without
the prior written consent of Goldman, Sachs & Co., offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any shares of our
common stock or options to acquire shares of our common stock during the 180-day
period following the date of this offering. Goldman, Sachs & Co. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. See "Underwriting."
Following this offering, subject to specified blackout periods, holders of
51,319,497 shares of our outstanding common stock will have two demand
registration rights with respect to their shares of our common stock, subject to
the 180-day lock-up arrangement described above, to require us to register their
shares of our common stock under the Securities Act, or rights to participate in
any future registration of securities by us. If the holders of these registrable
securities request that we register their shares, and if the registration is
effected, these shares will become freely tradable without restriction under the
Securities Act. Any sales of securities by these stockholders could have a
material adverse effect on the trading price of our common stock. See
"Description of Capital Stock -- Registration Rights".
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<PAGE> 75
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Shearman & Sterling, Menlo Park, California. As of January 29,
2000, three investment partnerships associated with Fenwick & West LLP
beneficially owned an aggregate of 55,126 shares of our common stock.
EXPERTS
The consolidated balance sheets of Niku Corporation and subsidiaries as of
January 31, 1999, and October 31, 1999, and the consolidated statements of
operations, stockholders' equity, and cash flows for the year ended January 31,
1999, and the nine months ended October 31, 1999, have been included herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated balance sheets of Proamics Corporation and subsidiaries as
of December 31, 1998 and September 30, 1999, and the consolidated statements of
operations, shareholders' deficit, and cash flows for the years ended December
31, 1997 and 1998, and the nine months ended September 30, 1999, have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent auditors, and upon the authority of said firm as experts
in accounting and auditing.
The balance sheets of Legal Anywhere, Inc. (formerly Legal Anywhere LLC) as
of December 31, 1998 and 1999, and the related statements of operations,
stockholders' and members' equity (deficit), and cash flows for the years then
ended, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent auditors, and upon the authority of
said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The registration statement, including exhibits and schedules, may be inspected
without charge at the principal office of the Securities and Exchange Commission
in Washington, D.C., and copies of all or any part of it may be obtained from
that office after payment of fees prescribed by the Securities and Exchange
Commission. The Securities and Exchange Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission at http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.
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<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets............................ F-3
Consolidated Statements of Operations.................. F-4
Consolidated Statements of Stockholders' Equity
(Deficit)............................................. F-5
Consolidated Statements of Cash Flows.................. F-6
Notes to Consolidated Financial Statements............. F-7
PROAMICS CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report........................... F-22
Consolidated Balance Sheets............................ F-23
Consolidated Statements of Operations.................. F-24
Consolidated Statements of Shareholders' Deficit....... F-25
Consolidated Statements of Cash Flows.................. F-26
Notes to Consolidated Financial Statements............. F-27
LEGAL ANYWHERE, INC. FINANCIAL STATEMENTS
Independent Auditors' Report........................... F-36
Balance Sheets......................................... F-37
Statements of Operations............................... F-38
Statements of Stockholders' and Members' Equity
(Deficit)............................................. F-39
Statements of Cash Flows............................... F-40
Notes to Financial Statements.......................... F-41
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Condensed
Financial Statements.................................. F-49
Unaudited Pro Forma Combined Condensed Balance Sheet... F-50
Unaudited Pro Forma Combined Condensed Statement of
Operations............................................ F-51
Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.................................. F-53
</TABLE>
F-1
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Niku Corporation:
We have audited the accompanying consolidated balance sheets of Niku
Corporation and subsidiaries (the Company) as of January 31, 1999 and October
31, 1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the year ended January 31, 1999, and for
the nine months ended October 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Niku
Corporation and subsidiaries as of January 31, 1999 and October 31, 1999, and
the results of their operations and their cash flows for the year ended January
31, 1999, and for the nine months ended October 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
December 17, 1999, except as to Note 9(d), which is
as of January 31, 2000.
F-2
<PAGE> 78
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 31, OCTOBER 31, AS OF
1999 1999 OCTOBER 31, 1999
----------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 5,147 $ 17,154
Short-term investments................................... -- 2,175
Accounts receivable...................................... 165 2,754
Prepaid expenses and other current assets................ 133 1,258
------- --------
Total current assets................................. 5,445 23,341
Deposits and other assets.................................. -- 160
Property and equipment, net................................ 394 4,406
Goodwill and other intangible assets, net.................. 716 831
------- --------
$ 6,555 $ 28,738
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 145 $ 3,817
Accrued liabilities...................................... 17 1,753
Current portion of long-term obligations................. -- 5,502
Deferred revenue......................................... 497 1,946
------- --------
Total current liabilities............................ 659 13,018
Long-term obligations, less current portion................ -- 968
------- --------
Total liabilities.................................... 659 13,986
------- --------
Commitments
Redeemable convertible preferred stock and warrants,
$0.0001 par value; actual -- 23,400,000 and 34,272,843
shares authorized as of January 31, 1999 and October 31,
1999, respectively; 23,142,843 and 33,130,282 shares
issued and outstanding as of January 31, 1999 and October
31, 1999, respectively; aggregate liquidation preference
of $8,300 and $33,269 as of January 31, 1999 and October
31, 1999, respectively; pro forma -- no shares
authorized, issued or outstanding........................ 8,259 28,580 $ --
------- --------
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; actual -- no shares
authorized, issued or outstanding; pro forma --
10,000,000 shares authorized; no shares issued and
outstanding............................................ -- -- --
Common stock, $0.0001 par value; actual -- 50,000,000
shares authorized as of January 31, 1999 and October
31, 1999; 5,959,995 and 7,106,118 shares issued and
outstanding as of January 31, 1999 and October 31,
1999, respectively; pro forma -- 100,000,000 shares
authorized; 48,234,412 shares issued and outstanding... 1 1 5
Additional paid-in capital............................... 2,277 10,100 38,676
Treasury stock........................................... -- (30) (30)
Deferred stock-based compensation........................ (1,576) (7,238) (7,238)
Notes receivable from stockholders....................... (45) (108) (108)
Accumulated deficit...................................... (3,020) (16,553) (16,553)
------- -------- --------
Total stockholders' equity (deficit)................. (2,363) (13,828) $ 14,752
------- -------- ========
Total liabilities and stockholders' equity
(deficit).................................................. $ 6,555 $ 28,738
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 79
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, ----------------------
1999 1998 1999
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
License............................................. $ -- $ -- $ 1,962
Services............................................ 15 -- 1,014
------- ------- --------
Total revenues................................... 15 -- 2,976
------- ------- --------
Cost of revenues:
License............................................. -- -- 174
Services............................................ 4 -- 429
------- ------- --------
Total cost of revenues........................... 4 -- 603
------- ------- --------
Gross profit..................................... 11 -- 2,373
------- ------- --------
Operating expenses:
Research and development............................ 1,610 849 6,062
Sales and marketing................................. 290 75 5,983
General and administrative.......................... 996 720 1,837
Stock-based compensation............................ 245 77 2,018
Amortization of goodwill and other intangible
assets........................................... 20 -- 184
------- ------- --------
Total operating expenses......................... 3,161 1,721 16,084
------- ------- --------
Operating loss................................... (3,150) (1,721) (13,711)
Interest income....................................... 130 56 519
Interest expense...................................... -- -- (341)
------- ------- --------
Net loss......................................... $(3,020) $(1,665) $(13,533)
======= ======= ========
Basic and diluted net loss per share.................. $ (0.62) $ (0.35) $ (2.31)
======= ======= ========
Shares used in computing basic and diluted net loss
per share........................................... 4,882 4,800 5,871
======= ======= ========
Pro forma basic and diluted net loss per share........ $ (0.14) $ (0.38)
======= ========
Shares used in computing pro forma basic and diluted
net loss per share.................................. 20,853 35,306
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 80
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
------------------ PAID-IN TREASURY STOCK-BASED FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCK COMPENSATION STOCKHOLDERS DEFICIT
--------- ------ ---------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founding
investors............................... 3,962,500 $ 1 $ 38 $ -- $ -- $ -- $ --
Issuance of common stock................. 850,000 -- 9 -- -- -- --
Issuance of common stock for note
receivable.............................. 450,000 -- 45 -- -- (45) --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 172,500 -- 10 -- -- -- --
Issuance of common stock in connection
with the acquisition of Alyanza
Corporation............................. 524,995 -- 354 -- -- -- --
Deferred compensation related to stock
option grants........................... -- -- 1,733 (1,733) -- --
Amortization of stock-based
compensation............................ -- -- -- 157 -- --
Non-employee stock compensation.......... -- -- 88 -- -- -- --
Net loss................................. -- -- -- -- -- -- (3,020)
--------- ---- ------- ------- ------- ----- --------
Balances as of January 31, 1999.......... 5,959,995 1 2,277 (1,576) (45) (3,020)
Issuance of common stock for notes
receivable.............................. 700,000 -- 93 -- -- (93) --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 746,123 -- 50 -- -- -- --
Repurchase of common stock in settlement
of notes receivable from stockholders... (300,000) -- -- (30) -- 30 --
Deferred stock compensation related to
stock option grants..................... -- -- 7,554 (7,554) -- --
Amortization of stock-based
compensation............................ -- -- -- -- 1,892 -- --
Non-employee stock compensation.......... -- -- 126 -- -- -- --
Net loss................................. -- -- -- -- -- -- (13,533)
--------- ---- ------- ------- ------- ----- --------
Balances as of October 31, 1999.......... 7,106,118 $ 1 $10,100 $ (30) $(7,238) $(108) $(16,553)
========= ==== ======= ======= ======= ===== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Issuance of common stock to founding
investors............................... $ 39
Issuance of common stock................. 9
Issuance of common stock for note
receivable.............................. --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 10
Issuance of common stock in connection
with the acquisition of Alyanza
Corporation............................. 354
Deferred compensation related to stock
option grants........................... --
Amortization of stock-based
compensation............................ 157
Non-employee stock compensation.......... 88
Net loss................................. (3,020)
--------
Balances as of January 31, 1999.......... (2,363)
Issuance of common stock for notes
receivable.............................. --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 50
Repurchase of common stock in settlement
of notes receivable from stockholders... --
Deferred stock compensation related to
stock option grants..................... --
Amortization of stock-based
compensation............................ 1,892
Non-employee stock compensation.......... 126
Net loss................................. (13,533)
--------
Balances as of October 31, 1999.......... $(13,828)
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 81
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR NINE MONTHS ENDED
ENDED OCTOBER 31,
JANUARY 31, -----------------------
1999 1998 1999
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,020) $(1,665) $(13,533)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization....................... 28 16 300
Amortization of stock-based compensation............ 157 77 1,892
Revenue resulting from non-monetary exchange for
computer equipment and software and services..... -- -- (1,170)
Expense resulting from non-monetary exchange for
services......................................... -- -- 154
Amortization of debt discount....................... -- -- 128
Amortization of goodwill and other intangible
assets........................................... 20 -- 184
Non-employee stock-based compensation expense....... 88 -- 126
Changes in operating assets and liabilities:
Accounts receivable.............................. (165) (13) (2,590)
Prepaid expenses and other current assets........ -- (13) (1,141)
Accounts payable................................. -- 2 3,665
Accrued liabilities.............................. -- -- 1,739
Deferred revenue................................. 88 -- 1,449
------- ------- --------
Net cash used for operating activities......... (2,804) (1,596) (8,797)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment................... (193) (119) (2,935)
Purchases of short-term investments................... -- -- (2,175)
Other assets.......................................... -- -- (160)
Cash portion of Alyanza acquisition................... (173) -- --
Purchase of intangible asset.......................... -- -- (301)
------- ------- --------
Net cash used for investing activities......... (366) (119) (5,571)
------- ------- --------
Cash flows from financing activities:
Net proceeds from sale of redeemable convertible
preferred stock..................................... 8,259 7,627 19,811
Issuance of common stock.............................. 58 48 56
Proceeds from debt and detachable warrants............ -- -- 7,643
Repayment of debt and capital lease obligations....... -- -- (1,135)
------- ------- --------
Net cash provided by financing activities...... 8,317 7,675 26,375
------- ------- --------
Net increase in cash and cash equivalents................. 5,147 5,960 12,007
Cash and cash equivalents at beginning of period.......... -- -- 5,147
------- ------- --------
Cash and cash equivalents at end of period................ $ 5,147 $ 5,960 $ 17,154
======= ======= ========
Noncash financing and investing activities:
Property and equipment acquired under capital lease
obligations......................................... $ -- $ -- $ 345
======= ======= ========
Common stock issued for notes receivable.............. $ 45 $ 45 $ 93
======= ======= ========
Common stock issued for acquisition................... $ 354 $ -- $ --
======= ======= ========
Repurchase of common stock in settlement of notes
receivable from stockholders........................ $ -- $ -- $ 30
======= ======= ========
Deferred stock-based compensation..................... $ 1,821 $ -- $ 7,680
======= ======= ========
Deferred revenue resulting from non-monetary exchange
for computer equipment, software and maintenance.... $ 362 $ -- $ --
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 82
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF PRESENTATION
Niku Corporation (Niku or the Company) was incorporated in Delaware on
January 8, 1999. Niku provides Internet software and offers an online
marketplace for the sourcing, management and delivery of professional services.
Niku's operations for the period from January 8, 1998, (inception) through
January 31, 1998, were not significant and are included in the Company's results
of operations for the year ended January 31, 1999.
The Company has a fiscal year that ends on the Saturday nearest January 31.
Fiscal year 1999 was a 52-week year. For presentation purposes, the consolidated
financial statements and notes refer to the calendar month end.
(b) BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Niku and its wholly-owned subsidiaries, Niku Canada, Niku Europe and Niku
Australia. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and SOP 98-9, since inception. SOP 97-2, as
amended, generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements.
To date, the Company has derived its revenue from licenses of its eNiku
products, maintenance and support and delivery of implementation consulting
services. The Company sells its products primarily through its direct sales
force.
Revenue recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair values of the
elements, such as software products, maintenance and support, and consulting
services. The determination of fair value is based on objective evidence which
is specific to the Company.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Niku
obligations with regard to implementation remain, the fee is fixed or
determinable, and collectibility is probable. In addition, sales to channel
partners are recognized upon sell-through to the end-user customer. The Company
considers all arrangements with payment terms extending beyond three months and
other arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. As payments become due from the customer,
the initial amounts are first allocated to deferred revenue elements such as
maintenance and support and consulting services. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Arrangements that include consulting services are evaluated to determine
whether those services are essential to the functionality of other elements of
the arrangement. When services are considered essential, revenue under the
arrangement is recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software services is
recognized as the services are performed. Maintenance and support revenue is
deferred and recognized on a straight-line basis over the life of the related
agreement, which is typically one year.
F-7
<PAGE> 83
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
Arrangements involving nonmonetary exchanges of the Company's products for
customer products or services are recognized as revenue when the following three
conditions have been met: (1) The fair value of the products received is
objectively determinable; (2) The product received will not be incorporated into
or integrated with Niku products; and (3) The product received will be used
internally by Niku in a manner consistent with its fair value.
The Company recognizes revenue on a sale to an application service provider
customer as this customer either deploys the Company's software internally or as
the customer sells through the software to end users. The Company also entered
into a three year hosting agreement with this customer that initially rendered
the combined arrangement a nonmonetary transaction, as the Company's license fee
was substantially identical to its commitments under the hosting agreement. A
subsequent modification to this hosting agreement, where the Company committed
to pay this customer for the hosting arrangement significantly more than the
Company's license fee, caused the Company to account for its revenue with this
partner as monetary, in accordance with Emerging Issues Task Force Issue No.
86-29, Nonmonetary Transactions: Magnitude of Boot and Exceptions to the Use of
Fair Value, interpretation of Accounting Principles Board No. 29, Accounting for
Nonmonetary Transactions.
The Company also enters into arrangements with consulting organizations
considered Niku Partner Network (NPN) customers. NPN arrangements exist when
Niku enters into an arrangement with a consulting organization, who has become a
customer of Niku, to use the NPN's consultants as preferred third party
providers for implementation services to Niku customers or to use the NPN's
consultants internally as codevelopment experts in developing future versions of
Niku product functionality. In most of the NPN customer arrangements Niku
commits to the use of a minimum dollar value of the NPN customer's professional
services. NPN customer transactions in which Niku commits to the use of a
minimum dollar value of an NPN customer's professional services are considered
either monetary or nonmonetary depending on whether the net cash received or
paid by Niku (representing the excess of Niku's product sale to the NPN over the
fair value of the committed professional services or the excess of the fair
value of the committed professional services over the Niku product sale,
respectively) exceeds 25% of the fair value of the exchange. If the net cash
received or paid by Niku exceeds 25% of the fair value of the exchange, the
exchange is considered monetary and the Company will recognize revenue in
accordance with EITF No. 86-29. This revenue to be recognized is limited at any
time to the fair value of the NPN's professional services used by Niku. If the
net cash received or paid by Niku does not exceed 25% of the fair value of the
exchange, the exchange is considered nonmonetary and revenue is only recognized
when Niku uses the NPN's professional services time for internal use as
codevelopment experts in developing future versions of Niku product
functionality.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from the following: (1)
Deferred maintenance and support; (2) Consulting services not yet rendered; (3)
Amounts billed to channel partners for Niku products not yet sold through to
end-user customers; (4) Amounts billed to customers with extended payments terms
which are not yet due; and (5) Amounts billed under monetary NPN arrangements in
excess of NPN professional services used by Niku.
Revenue recognized during the nine months ended October 31, 1999, from
arrangements involving nonmonetary exchanges of the Company's products for
customer products and services totaled approximately $1,371,000. There were no
corresponding cost of revenues related to these transactions. An aggregate of
$1,032,000 of equipment and software was
F-8
<PAGE> 84
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
acquired for internal use as part of these arrangements, and $154,000 of
research and development expenses was recorded for the nine months ended October
31, 1999 relating to NPN professional services for internal use as codevelopment
experts. Revenue recognized during the nine months ended October 31, 1999, from
monetary NPN customer arrangements and the arrangement with the application
service provider totaled approximately $676,000. There were no corresponding
cost of revenues relating to these transactions.
(d) INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET INFORMATION
In fiscal 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC) that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). Following the closing
of the Company's IPO, the number of authorized shares of preferred stock and
common stock will be 10,000,000 and 250,000,000, respectively. If the offering
is consummated under the terms presently anticipated, all the then outstanding
shares of the Company's redeemable convertible preferred stock will
automatically convert into shares of common stock on a one-for-one basis upon
the closing of the proposed IPO. The pro forma balance sheet information
reflects the conversion of all of the redeemable convertible preferred stock as
if it had occurred on October 31, 1999.
(e) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with remaining maturities of less than 90 days at the date of purchase. The
Company is exposed to credit risk in the event of default by the financial
institutions or the issuers of these investments to the extent of the amounts
recorded on the balance sheet in excess of amounts that are insured by the FDIC.
As of January 31, 1999, and October 31, 1999, cash equivalents consisted
principally of a money market account and commercial paper. As defined in a debt
agreement with a lender, the Company is required to maintain a cash balance with
the lender of $6.0 million.
(f) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company classifies its investments in debt securities as
available-for-sale. Available-for-sale securities are carried at fair value,
with any unrealized gains or losses recorded as a component of other cumulative
comprehensive income (loss).
(g) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments and accounts receivable
approximates fair market value. Financial instruments that subject the Company
to concentration of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable.
The Company sells its products principally to independent professional
services organizations, professional service organizations of product companies,
internal IT departments and individual professionals. Credit risk is
concentrated in North America. The Company performs ongoing credit evaluations
of its customers' financial condition and, generally, requires no collateral
from its customers. The Company has had no write-offs of accounts receivable
and, based on an ongoing evaluation of its accounts receivable collectibility
and customer creditworthiness, has recorded a $100,000 allowance for doubtful
accounts receivable during the period ended October 31, 1999.
F-9
<PAGE> 85
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(h) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally three years.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the assets or the lease term.
(i) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were generated in the acquisition of
Alyanza Software Corporation (Alyanza). Such assets are being amortized on a
straight-line basis over three years and consist of goodwill, developed
technology, and assembled workforce.
(j) IMPAIRMENT OF LONG-LIVED ASSETS
Niku evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of any asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(k) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred until technological
feasibility has been established. To date, the Company's software has been
available for general release concurrent with the establishment of technological
feasibility and, accordingly, no development costs have been capitalized.
(l) ADVERTISING COSTS
Niku's policy is to expense advertising costs as incurred. Niku's
advertising and promotion expense was $-- and $599,000 for the year ended
January 31, 1999, and the nine months ended October 31, 1999, respectively.
(m) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(n) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
F-10
<PAGE> 86
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
the enactment date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts to be recovered.
(o) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method to account for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No. 28.
(p) FOREIGN CURRENCY TRANSACTIONS
The functional currency for the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, such entities remeasure monetary assets and liabilities at
exchange rates in effect as of each reporting date while nonmonetary items are
remeasured at historical rates. Income and expense accounts are remeasured at
the average rates in effect during each such period, except for depreciation,
which is remeasured at historical rates. Remeasurement adjustments and
transactions gains and losses are recognized in income in the period of
occurrence and have not been significant to date.
(q) COMPREHENSIVE LOSS
The Company did not have any significant components of other comprehensive
loss for the year ended January 31, 1999, and the nine months ended October 31,
1999.
(r) UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the Company's results of operations and its cash flows for the nine
months ended October 31, 1998.
(s) NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding shares of restricted stock subject
to repurchase summarized below. Diluted net loss per share is computed using the
weighted-average number of shares of common stock outstanding and, when
dilutive, potential common shares from options and warrants to purchase common
stock using the treasury stock method and from convertible securities using the
if-converted basis. The following potential common shares have been
F-11
<PAGE> 87
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, ---------------------
1999 1998 1999
----------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
Shares issuable under stock options................. 3,474 2,089 3,629
Shares of restricted stock subject to repurchase.... 450 450 959
Shares issuable pursuant to warrants to purchase
convertible preferred stock....................... -- -- 630
Shares of redeemable convertible preferred stock on
an "as if converted" basis........................ 23,143 22,103 33,130
</TABLE>
The weighted-average exercise price of stock options was $0.08 for the
years ended January 31, 1999, and $0.06 and $0.26 for the nine months ended
October 31, 1998 and 1999, respectively. The weighted-average purchase price of
restricted stock was $0.10 for the year ended January 31, 1999, and $0.10 and
$0.12 for the nine months ended October 31, 1998 and 1999, respectively. The
exercise price of warrants was $0.75 for the nine months ended October 31, 1999.
Pro forma basic and diluted net loss per share is presented for the year
ended January 31, 1999, and the nine months ended October 31, 1999, to reflect
per share data assuming the conversion of all outstanding shares of redeemable
convertible preferred stock into common stock on a one-for-one basis, as if the
conversion had taken place at the beginning of fiscal 1999 or at the date of
issuance if later. This data is unaudited.
(t) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. Because the Company does not currently hold
any derivative instruments and does not engage in hedging activities, the
Company expects that the adoption of SFAS No. 133 will not have a material
impact on its consolidated financial position, results of operations, or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001.
(2) BALANCE SHEET COMPONENTS
(a) SHORT-TERM INVESTMENTS
All of the Company's investments are considered available-for-sale
securities and consisted of corporate bonds and commercial paper as of October
31, 1999. The entire short-term investment balance is due within one year.
Investments totaling $6.4 million are included in cash and cash equivalents at
October 31, 1999. Realized and unrealized gains and losses for
available-for-sale securities were immaterial for all periods presented.
F-12
<PAGE> 88
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(b) PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1999
----------- -----------
<S> <C> <C>
Computer equipment and office equipment..................... $314 $1,179
Software.................................................... 95 1,191
Furniture and fixtures...................................... 13 1,404
Leasehold improvements...................................... -- 960
---- ------
422 4,734
Accumulated depreciation and amortization................... 28 328
---- ------
$394 $4,406
==== ======
</TABLE>
Equipment under capital leases aggregated $345,000 as of October 31, 1999.
Accumulated amortization on the assets under capital leases aggregated $35,000
as of October 31, 1999.
(3) ACQUISITION OF ALYANZA
In December 1998, Niku completed the acquisition of Alyanza, a privately
held software company in San Diego, California. Niku issued 525,000 shares of
its common stock and paid $135,000 cash for all of Alyanza's outstanding capital
stock. In addition, Niku assumed certain liabilities of Alyanza totaling
$208,000 and incurred merger-related costs of approximately $38,000. The
transaction was accounted for as a purchase. The purchase price of approximately
$735,000 was allocated $100,000 to developed technology, $200,000 to assembled
workforce, and $435,000 goodwill. Pro forma revenues, net loss and basic and
diluted net loss per share for the year ended January 31, 1999, would have been
$95,000, $3,652,000 and $0.69, respectively. The pro forma amounts give effect
to the acquisition of Alyanza as it had occurred on February 1, 1998.
(4) DEBT
In February 1999, the Company entered into an agreement with a lender for a
$3,000,000 loan with an annual interest rate of 12%. The agreement calls for
equal monthly payments of principal and interest beginning July 1999 through
February 2002. The Company has the option to prepay the loan after 12 months
from the loan commencement date with a prepayment penalty of 1% of the then
outstanding balance (along with any unpaid accrued interest). The prepayment
penalty does not apply if the prepayment is in conjunction with a merger or
initial public offering. In connection with the $3,000,000 loan, the Company
issued warrants to purchase 600,000 shares of its Series B redeemable
convertible preferred stock at an exercisable price of $0.75 per share. The
warrant expires the earlier of February 2006, or three years after an initial
public offering of the Company's common stock. The fair value of the warrants
issued, calculated using the Black-Scholes option pricing model, using $1.10 as
the fair value of the underlying redeemable convertible preferred stock and the
following weighted-average assumptions: no dividends; contractual life of seven
years; risk-free interest rate of 6.00%; expected volatility of 70%, was
$510,000. This amount will be amortized on a straight-line basis over the term
of the loan. As of October 31, 1999, the aggregate future maturities for the
three months ended January 31, 2000, and for fiscal 2001 and 2002 were $350,000,
$1,140,000, and $1,284,000, respectively. This loan is secured by our net
tangible assets.
F-13
<PAGE> 89
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
In September 1999, the Company entered into a revolving line of credit
agreement with a lender for a line of credit up to $4,000,000 bearing interest
at the prime rate plus 1% (8.25% October 31, 1999). As of October 31, 1999, the
Company has an outstanding principal balance of approximately $3,771,000.
Interest payments are due monthly with the outstanding principal balance due
October 1, 2000. This debt agreement contains certain financial covenants
requiring that the Company maintain a minimum cash balance of $6.0 million and a
tangible net worth of $9.0 million. This loan is secured by our tangible assets.
(5) LEASES AND COMMITMENTS
In February 1999, the Company entered into a master lease agreement for
equipment specifically approved by the lessor up to an aggregate price of
$500,000. As of October 31, 1999, the Company had drawn down approximately
$345,000 related to this agreement. In conjunction with the agreement, the
Company granted the lessor warrants to purchase 30,000 shares of its Series B
redeemable convertible preferred stock at an exercise price of $0.75 per share.
The warrants expire the earlier of February 2006, or three years after an
initial public offering of the Company's common stock. The fair value of the
warrants issued, calculated using the Black-Scholes option pricing model, using
$1.10 as the fair value of the underlying redeemable convertible preferred stock
and the following weighted-average assumptions: no dividends; contractual life
of seven years; risk-free interest rate of 6.00%; expected volatility of 70%,
was not material.
In May 1999, Niku entered into a noncancelable operating lease for its
facilities expiring in August 2005.
Future minimum lease payments as of October 31, 1999, were as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000 (three months)......................................... $ 38 $ 959
2001........................................................ 149 952
2002........................................................ 140 1,985
2003........................................................ 12 2,059
2004........................................................ -- 2,140
Thereafter.................................................. -- 3,748
---- -------
Total minimum lease payments.............................. 339 $11,843
=======
Less amount representing imputed interest................... 30
----
Present value of minimum lease payments..................... 309
Less current portion........................................ 132
----
Capital lease obligation, less current portion.............. $177
====
</TABLE>
The Company's rent expense was $79,000 for the year ended January 31, 1999
and $61,000 and $501,000 for the nine months ended October 31, 1998 and 1999,
respectively.
The Company has entered into certain strategic relationships with its NPN
customers, an application service provider, and CNET. As part of these
arrangements the Company has committed to pay these entities for services
amounts aggregating $2,450,000 for the period from November 1, 1999 to January
31, 2000, and $4,013,000 and $952,000 for fiscal years 2001 and 2002
respectively.
F-14
<PAGE> 90
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(6) STOCKHOLDERS' EQUITY
(a) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Redeemable convertible preferred stock outstanding as of October 31, 1999,
is as follows:
<TABLE>
<CAPTION>
ISSUED
SHARES AND CARRYING
DESIGNATED OUTSTANDING VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Series:
Series F......................................... 10,000,000 10,000,000 $ 493,000
Series A....................................... 5,142,851 5,142,851 1,791,000
Series B....................................... 8,629,992 7,999,992 5,975,000
Series C....................................... 10,500,000 9,987,439 19,811,000
---------- ---------- -----------
34,272,843 33,130,282 $28,070,000
========== ========== ===========
</TABLE>
The Company has warrants to purchase 630,000 shares of Series B redeemable
convertible preferred stock outstanding as of October 31, 1999, with a carrying
value of $510,000. (See Notes 4 and 5)
The rights, preferences, and privileges of the holders of Series F, A, B,
and C redeemable convertible preferred stock are as follows:
- Dividends are noncumulative and payable only upon declaration by the
Company's Board of Directors at a rate of $0.0025, $0.0175, $0.0375, and
$0.10 per share for Series F, A, B, and C redeemable convertible
preferred stock, respectively.
- Holders of Series F, A, and B redeemable convertible preferred stock have
a liquidation preference of $0.05, $0.35, and $0.75, respectively, plus
any declared but unpaid dividends, over holders of common stock. Holders
of Series C redeemable convertible preferred stock have a liquidation
preference of $2.50 per share through the first anniversary date of the
issuance, $3.125 per share through the second anniversary date of the
issuance, and $3.91 per share through the third anniversary date of the
issuance, plus any declared but unpaid dividends, over holders of common
stock.
- Each share of Series F, A, B, and C convertible preferred stock is
convertible at any time into one share of common stock subject to certain
antidilution provisions.
- Each holder of convertible preferred stock has voting rights equal to the
number of shares of common stock into which such shares could be
converted.
- At any time after May 13, 2006, upon notification by not less than
two-thirds of the holders of the Series C redeemable convertible
preferred stock, the Company must redeem all of the outstanding
redeemable convertible preferred stock in four equal installments
beginning on the first anniversary of the date of redemption by paying in
cash a sum per share equal to the original issuance price plus declared
but unpaid dividends.
(b) STOCK PLANS
The Company is authorized to issue up to 8,000,000 shares of common stock
in connection with its 1998 stock option plan (the 1998 Plan) to directors,
employees, and consultants. The Plans provide for the issuance of stock purchase
rights, incentive stock options, or nonstatutory stock options.
F-15
<PAGE> 91
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
The stock purchase rights are subject to a restricted stock purchase
agreement whereby the Company has the right to repurchase the stock upon the
voluntary or involuntary termination of the purchaser's employment with the
Company at the original issuance cost. The Company's repurchase right lapses at
a rate determined by the stock plan administrator, but at a minimum rate of 20%
per year. Through October 31, 1999, the Company has issued 1,445,750 shares
under restricted stock purchase agreements, of which 300,000 shares have been
repurchased and 959,000 shares are subject to repurchase at a weighted-average
price of $0.12 per share. Certain of these restricted shares were issued to
officers of the Company for full recourse promissory notes with interest rates
ranging from 4.77% to 6.08% and terms of four years.
Under the Plan, the exercise price for incentive stock options is at least
100% of the stock's fair market value on the date of grant for employees owning
10% or less of the voting power of all classes of stock, and at least 110% of
the fair market value on the date of grant for employees owning more than 10% of
the voting power of all classes of stock. For nonstatutory stock options, the
exercise price is also at least 110% of the fair market value on the date of
grant for employees owning more than 10% of the voting power of all classes of
stock and no less than 85% for employees owning 10% or less of the voting power
of all classes of stock.
Under the Plan, options generally expire in 10 years. However, the term of
the options may be limited to 5 years if the optionee owns stock representing
more than 10% of the voting power of all classes of stock. Vesting periods are
determined by the Company's Board of Directors and generally provide for shares
to vest ratably over a 5-year period.
As of October 31, 1999, there were 2,302,250 additional shares available
for grant under the 1998 stock option plans.
(c) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold because
the exercise price of each option or purchase price of each share of restricted
stock equaled or exceeded the fair value of the underlying common stock as of
the grant date for each stock option or purchase date of each restricted stock
share, except for stock options granted and restricted stock sold from January
31, 1998 through October 31, 1999. With respect to the stock options granted and
restricted stock sold from January 31, 1998 to October 31, 1999, the Company
recorded deferred stock compensation of $9,287,000 for the difference at the
grant or issuance date between the exercise price of each stock option granted
or purchase price of each restricted share sold and the fair value of the
underlying common stock. This amount is being amortized on an accelerated basis
over the vesting period, generally four to five years, consistent with the
method described in FASB Interpretation No. 28. Amortization of the October 31,
1999 balance of deferred stock-based compensation for the three months ended
January 29, 2000, fiscal years ended 2001, 2002, 2003 and nine months ended
October 31, 2003 would approximate $1,300,000, $3,700,000, $1,500,000, $613,000
and $75,000, respectively. The amortization of deferred stock compensation,
combined
F-16
<PAGE> 92
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
with the expense associated with stock options granted to non-employees, relates
to the following items in the accompanying consolidated statements of operations
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED --------------------------
JANUARY 31, OCTOBER 31, OCTOBER 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cost of revenues.............................. $ -- $-- $ 17
Research and development...................... 90 28 597
Sales and marketing........................... 56 7 1,140
General and administrative.................... 99 42 264
---- --- ------
Total....................................... $245 $77 $2,018
==== === ======
</TABLE>
Had compensation costs been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss (in thousands) and
basic and diluted net loss per share would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, OCTOBER 31,
1999 1999
----------- -----------
<S> <C> <C>
Net loss:
As reported................................................ $(3,020) $(13,533)
Pro forma................................................ $(3,031) $(13,607)
Basic and diluted net loss per share:
As reported.............................................. $ (0.62) $ (2.31)
Pro forma................................................ $ (0.62) $ (2.32)
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends; risk-free interest rate of 4.97% and 5.78% for the year ended January
31, 1999, and the nine months ended October 31, 1999, respectively; and expected
life of 4 years for the year ended January 31, 1999, and the nine months ended
October 31, 1999, respectively.
F-17
<PAGE> 93
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
A summary of the status of the Company's options under the Plans, is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, 1999 OCTOBER 31, 1999
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year/period.............................. -- $ -- 3,473,500 $0.08
Granted.................................. 4,277,000 0.08 1,973,500 0.54
Forfeited................................ (181,000) 0.10 (371,750) 0.10
Exercised................................ (622,500) 0.08 (1,446,123) 0.14
---------- ----------
Outstanding at end of year/period........ 3,473,500 0.08 3,629,127 0.26
========== ==========
Options exercisable at end of
year/period............................ 893,249 0.10 241,678 0.07
========== ==========
Weighted-average fair value of options
granted during the period with exercise
prices equal to fair value at date of
grant.................................. 1,512,500 0.02 -- --
Weighted-average fair value of options
granted during the period with exercise
prices less than fair value at date of
grant.................................. 2,764,500 0.73 1,973,500 3.37
</TABLE>
As of October 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE ---------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE OF LIFE EXERCISE OF EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
-------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 517,709 8.19 $0.01 85,417 $0.01
$0.10 1,431,668 8.92 0.10 150,011 0.10
$0.25 1,158,000 9.61 0.25 6,250 0.25
$1.00 521,750 10.00 1.00 -- --
--------- ----- ------- -----
3,629,127 $0.26 241,678 $0.07
========= ===== ======= =====
</TABLE>
(7) INCOME TAXES
The differences between the income tax expense (benefit) computed at the
federal statutory rate and the Company's tax provision for all periods presented
primarily relate to net operating losses not benefited.
F-18
<PAGE> 94
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
The individual components of the Company's deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1999
----------- -----------
<S> <C> <C>
Net operating loss carryovers............................... $ 1,071 $ 5,451
Credit carryforward......................................... 129 129
Other....................................................... -- 97
------- -------
Total deferred tax assets......................... 1,200 5,677
Valuation allowance......................................... (1,200) (5,677)
------- -------
Net deferred tax assets........................... $ -- $ --
======= =======
</TABLE>
The net changes in the valuation allowance for the year ended January 31,
1999 and for the nine months ended October 31, 1999 were increases of $1.2
million and $4.5 million, respectively. We believe sufficient uncertainty exists
regarding our ability to realize our deferred tax assets and, accordingly, a
valuation allowance has been established against the net deferred tax assets.
As of October 31, 1999, the Company had approximately $13.7 million of net
operating loss carryforwards for both federal and state purposes available to
offset taxable income in future years. The federal net operating loss
carryforwards expire if not utilized by 2006. In addition, the company had
approximately $61,000 and $47,000 of tax credit carryforwards for increased
research expenditures for federal and state purposes, respectively. The federal
increased research credits expire if not utilized by 2019 and the state
increased research credit can be carried over indefinitely. The Company also had
approximately $21,000 of manufacturer's investment credit carryforward for state
purpose, which may expire if not utilized by 2001.
Federal and state laws impose substantial restrictions on the utilization
of net operating loss and tax credit carryforwards in the event of an "ownership
change," as defined in Section 382 of the Internal Revenue Code. The Company has
not yet determined whether an ownership change occurred due to significant stock
transactions in each of the reporting years disclosed. If an ownership change
has occurred, utilization of the net operating loss and tax credit carryforwards
could be significantly reduced.
(8) SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING
During 1999 the Company adopted the provisions of SFAS No. 131, Disclosure
About Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer (CEO). The CEO reviews financial information
presented on a consolidated basis for purposes of making operating decisions and
assessing financial performance. The consolidated financial information reviewed
by the CEO is identical to the information presented in the accompanying
consolidated statements of operations and the Company has no significant foreign
operations. Therefore, the Company operates in a single operating segment:
Internet software. The
F-19
<PAGE> 95
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
disaggregated information reviewed on a product basis by the Chief Executive
Officer is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
OCTOBER 31,
YEAR ENDED --------------
JANUARY 31, 1999 1998 1999
---------------- ---- ------
<S> <C> <C> <C>
Revenues:
License................................................ $-- $-- $1,962
Services:
Consulting........................................ 15 -- 886
Maintenance....................................... -- -- 128
--- --- ------
$15 $-- $2,976
=== === ======
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUE
---------------------------------- PERCENT
NINE MONTHS OF TOTAL
ENDED ACCOUNTS
YEAR ENDED OCTOBER 31, RECEIVABLE
JANUARY 31, ------------------- OCTOBER 31,
1999 1998 1999 1999
----------- ----------- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A.................................... 100% -- -- --
Customer B.................................... -- -- 22% 24%
Customer C.................................... -- -- 18% 6%
Customer D.................................... -- -- 10% 12%
</TABLE>
For the nine months ended October 31, 1999, 39% of the Company's total
revenue was from customers with an officer and/or director serving as a board
member of the Company.
(9) SUBSEQUENT EVENTS
(a) ISSUANCE OF SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK
In November 1999, the Company issued 7,998,012 shares of Series D
redeemable convertible preferred stock at $5.00 per share for net proceeds of
approximately $39,930,000. The rights, preferences, and privileges of the Series
D redeemable convertible preferred stock are the same as the Series F, A, B and
C redeemable convertible preferred stock except that the annual dividend rate is
$0.25 per share and the liquidation preference is $6.25 per share.
(b) ACQUISITION OF PROAMICS
On December 8, 1999, the Company acquired Proamics Corporation (Proamics),
a privately held company in Chicago, Illinois. Proamics is a provider of project
accounting, time and expense, and billing solutions to professional services
organizations. Niku issued 3,501,938 shares of its common stock and 6,491,203
shares of the Company's Series D redeemable convertible preferred stock for all
of Proamics's outstanding capital stock. The
F-20
<PAGE> 96
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
transaction is to be accounted for as a purchase. The approximately $50 million
purchase price will be allocated to acquired net tangible and intangible assets,
including goodwill.
(c) STOCK PLANS
In December 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Equity Incentive Plan (2000 Plan). The Company
has reserved 6,000,000 shares of common stock for issuance under the 2000 Plan.
Shares under the 1998 Stock Plan (1998 Plan) that are not issued or subject to
outstanding options at the date the 2000 Plan is effective will no longer be
available under the 1998 Plan and will become available for grant under the 2000
Plan. On each January 1, the aggregate number of shares reserved for issuance
under the 2000 Plan will increase automatically by a number of shares equal to
5% of the outstanding shares on December 31 of the preceding year. The 2000 Plan
will terminate 10 years from the date the Company's Board of Directors approved
the plan.
Under the 2000 Plan, the exercise price for incentive stock options is at
least 100% of the stock's fair market value on the date of grant for employees
owning 10% or less of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonstatutory stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for employees owning more than 10% of the voting power of all
classes of stock and no less than 85% for employees owning 10% or less of the
voting power of all classes of stock.
Under the 2000 Plan, options generally expire in 10 years. However, the
term of the options may be limited to 5 years if the optionee owns stock
representing more than 10% of the voting power of all classes of stock. Vesting
periods are determined by the Company's Board of Directors and generally provide
for shares to vest ratably over a 4-year period.
In December 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Employee Stock Purchase Plan (the Purchase Plan)
and reserved a total of 1,000,000 shares of the Company's common stock for
issuance under the Purchase Plan. On each January 1, the aggregate number of
shares reserved for issuance under the Purchase Plan will increase automatically
by a number of shares equal to 1% of the total outstanding shares on December 31
of the preceding year. The aggregate number of shares reserved for issuance
under the Purchase Plan may not exceed 10,000,000 shares. Generally, the
offering period is 24 months in length. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the common stock at the
beginning of the applicable offering period or the end of the applicable
purchase period.
(d) ACQUISITION OF LEGAL ANYWHERE
On January 31, 2000, the Company acquired Legal Anywhere, Inc. (Legal
Anywhere), a privately-held company in Portland, Oregon. Legal Anywhere provides
Internet-based "collaborative tools" to law firms and corporate legal
departments. Niku issued 853,717 shares of its common stock for all of Legal
Anywhere's outstanding capital stock and assumed all outstanding Legal Anywhere
stock options. The transaction is to be accounted for as a purchase. The
approximately $10 million purchase price will be allocated to acquired net
tangible and intangible assets, including goodwill.
F-21
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Proamics Corporation:
We have audited the accompanying consolidated balance sheets of Proamics
Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and
the related consolidated statements of operations, shareholders' deficit, and
cash flows for each of the years in the two-year period ended December 31, 1998
and for the nine months ended September 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Proamics
Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and
the results of their operations and their cash flows for each of the years in
the two-year period ended December 31, 1998 and for the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
December 20, 1999
F-22
<PAGE> 98
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,340,807 $ 3,247,556
Accounts receivable, net of allowance for doubtful
accounts of $694,306 and $348,939, respectively......... 2,564,836 3,864,390
Inventory................................................. 99,410 41,066
Prepaid expenses.......................................... 18,030 61,911
Other current assets...................................... -- 26,568
----------- ------------
Total current assets............................... 4,023,083 7,241,491
----------- ------------
Property and equipment...................................... 1,509,176 2,276,764
Less accumulated depreciation and amortization.............. (697,078) (1,035,826)
----------- ------------
Net property and equipment......................... 812,098 1,240,938
----------- ------------
Other noncurrent assets..................................... 181,928 192,321
----------- ------------
Total assets....................................... $ 5,017,109 $ 8,674,750
=========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities:
Notes payable to shareholders............................. $ -- $ 500,000
Current portion of long-term debt......................... 1,050,000 --
Accounts payable.......................................... 1,162,528 871,825
Accrued expenses.......................................... 944,844 1,387,886
Deferred revenue.......................................... 1,552,890 1,498,795
Current portion of capital lease obligations.............. 248,377 386,017
----------- ------------
Total current liabilities.......................... 4,958,639 4,644,523
Long-term debt, less current portion, net of unamortized
discount of $595,382 and $12,099, respectively............ 6,055,800 1,987,901
Deferred rent............................................... 16,869 27,172
Capital lease obligations, less current portion............. 428,382 351,330
----------- ------------
Total liabilities.................................. 11,459,690 7,010,926
----------- ------------
Mandatorily redeemable Series A cumulative preferred stock,
$0.00001 par value; 117,000 shares authorized; 103,500
shares issued and outstanding at September 30, 1999,
redemption at face value including accrued dividends of
$781,161.................................................. -- 11,131,161
------------
Mandatorily redeemable Series C cumulative preferred stock,
$0.00001 par value; 24,000 shares authorized; 24,000
shares issued and outstanding at September 30, 1999,
redemption at face value including accrued dividends of
$58,389................................................... -- 1,258,389
------------
Shareholders' deficit:
Series B convertible preferred stock, $0.00001 par value;
9,833,585 shares authorized; 8,698,941 shares issued and
outstanding at September 30, 1999....................... -- 87
Common stock, no par value and $0.00001 par value at
December 31, 1998 and September 30, 1999, respectively;
21,000,000 and 40,000,000 shares authorized at December
31, 1998 and September 30, 1999, respectively;
11,290,541 and 11,669,328 shares issued and outstanding
at December 31, 1998 and September 30, 1999,
respectively............................................ -- 117
Additional paid-in capital................................ 2,019,752 2,929,899
Accumulated deficit....................................... (8,462,333) (13,428,911)
Treasury stock, at cost; 2,269,175 shares at September 30,
1999.................................................... -- (226,918)
----------- ------------
Total shareholders' deficit........................ (6,442,581) (10,725,726)
----------- ------------
Total liabilities and shareholders' deficit........ $ 5,017,109 $ 8,674,750
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 99
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------------
1997 1998 1998 1999
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License fees........................... $1,867,426 $ 3,164,872 $2,438,790 $ 2,496,671
Service fees........................... 4,705,296 7,038,547 5,036,496 6,084,532
Maintenance and support fees........... 555,181 661,748 479,641 617,662
---------- ----------- ---------- -----------
Total revenues................. 7,127,903 10,865,167 7,954,927 9,198,865
---------- ----------- ---------- -----------
Cost of revenues:
Cost of license fees................... 410,678 190,307 150,874 118,565
Cost of service fees................... 3,015,046 4,497,043 3,104,520 4,842,221
Cost of maintenance and support fees... 279,295 460,138 323,033 461,546
---------- ----------- ---------- -----------
Total cost of revenues......... 3,705,019 5,147,488 3,578,427 5,422,332
---------- ----------- ---------- -----------
Gross profit........................ 3,422,884 5,717,679 4,376,500 3,776,533
---------- ----------- ---------- -----------
Operating expenses:
Sales and marketing.................... 1,582,506 2,687,646 2,093,637 3,067,505
Research and development............... 1,046,225 1,349,341 1,065,315 2,009,534
General and administrative............. 981,980 2,348,726 1,483,439 2,214,751
---------- ----------- ---------- -----------
Total operating expenses....... 3,610,711 6,385,713 4,642,391 7,291,790
---------- ----------- ---------- -----------
Loss from operations................ (187,827) (668,034) (265,891) (3,515,257)
---------- ----------- ---------- -----------
Other income (expense):
Interest income........................ 18,031 32,330 19,712 93,628
Interest expense....................... (169,299) (311,291) (210,234) (294,532)
Amortization of discount on long-term
debt................................ (291,051) (202,708) (151,767) (19,593)
Other expense.......................... (9,658) (3,799) -- --
---------- ----------- ---------- -----------
Total other expense............ (451,977) (485,468) (342,289) (220,497)
---------- ----------- ---------- -----------
Net loss before extraordinary
gain.............................. (639,804) (1,153,502) (608,180) (3,735,754)
Extraordinary gain on early
extinguishment of long-term debt....... -- -- -- 2,381,812
---------- ----------- ---------- -----------
Net loss....................... $ (639,804) $(1,153,502) $ (608,180) $(1,353,942)
========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 100
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........................... -- $-- 10,540,541 $ -- $ 1,188 $(6,669,027)
Net loss............................................... -- -- -- -- -- (639,804)
Debt and accrued interest contributed to paid-in
capital.............................................. -- -- -- -- 1,982,947 --
--------- --- ---------- ---- ---------- ------------
Balance at December 31, 1997........................... -- -- 10,540,541 -- 1,984,135 (7,308,831)
Net loss............................................... -- -- -- -- -- (1,153,502)
Common stock warrants.................................. -- -- -- -- 15,617 --
Issuance of shares to consultant....................... -- -- 750,000 -- 20,000 --
--------- --- ---------- ---- ---------- ------------
Balance at December 31, 1998........................... -- -- 11,290,541 -- 2,019,752 (8,462,333)
Reincorporation of Company............................. -- -- -- 113 (113) --
Distribution to shareholders of affiliated entity...... -- -- -- -- -- (2,773,086)
Issuance of Series B convertible preferred stock....... 8,698,941 87 -- -- 1,149,913 --
Dividends on mandatorily redeemable Series A cumulative
preferred stock...................................... -- -- -- -- -- (781,161)
Dividends on mandatorily redeemable Series C cumulative
preferred............................................ -- -- -- -- -- (58,389)
Issuance of shares in settlement of long-term debt..... -- -- 378,787 4 37,875 --
Preferred stock issuance costs......................... -- -- -- -- (277,528) --
Net loss............................................... -- -- -- -- -- (1,353,942)
Purchase of treasury stock............................. -- -- -- -- -- --
--------- --- ---------- ---- ---------- ------------
Balance at September 30, 1999.......................... 8,698,941 $87 11,669,328 $117 $2,929,899 $(13,428,911)
========= === ========== ==== ========== ============
<CAPTION>
TREASURY STOCK
---------------------
SHARES AMOUNT TOTAL
--------- --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996........................... -- $ -- $ (6,667,839)
Net loss............................................... -- -- (639,804)
Debt and accrued interest contributed to paid-in
capital.............................................. -- -- 1,982,947
--------- --------- ------------
Balance at December 31, 1997........................... -- -- (5,324,696)
Net loss............................................... -- -- (1,153,502)
Common stock warrants.................................. -- -- 15,617
Issuance of shares to consultant....................... -- -- 20,000
--------- --------- ------------
Balance at December 31, 1998........................... -- -- (6,442,581)
Reincorporation of Company............................. -- -- --
Distribution to shareholders of affiliated entity...... -- -- (2,773,086)
Issuance of Series B convertible preferred stock....... -- -- 1,150,000
Dividends on mandatorily redeemable Series A cumulative
preferred stock...................................... -- -- (781,161)
Dividends on mandatorily redeemable Series C cumulative
preferred............................................ -- -- (58,389)
Issuance of shares in settlement of long-term debt..... -- -- 37,879
Preferred stock issuance costs......................... -- -- (277,528)
Net loss............................................... -- -- (1,353,942)
Purchase of treasury stock............................. 2,269,175 (226,918) (226,918)
--------- --------- ------------
Balance at September 30, 1999.......................... 2,269,175 $(226,918) $(10,725,726)
========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 101
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (639,804) $(1,153,502) $ (608,180) $(1,353,942)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 120,431 235,070 149,441 338,748
Amortization of discount on long-term debt....... 291,051 202,708 151,767 19,593
Extraordinary gain on early extinguishment of
long-term debt................................. -- -- -- (2,381,812)
Expense related to issuance of common stock for
services....................................... -- 20,000 -- --
Changes in assets and liabilities:
Accounts receivable, net....................... (1,799,211) 450,615 355,694 (1,488,674)
Inventory...................................... (121,525) 106,815 85,519 58,344
Prepaid expenses............................... -- -- 40 (43,881)
Other assets................................... (124,973) (3,050) 7,259 (36,961)
Accounts payable............................... 292,037 92,493 98,357 (119,384)
Accrued expenses............................... 391,005 94,708 447,750 443,042
Deferred revenue............................... 1,029,781 (184,132) (103,093) (54,095)
Deferred rent.................................. -- 16,869 11,808 10,303
Other liabilities.............................. 12,680 (17,315) (17,315) --
----------- ----------- ---------- -----------
Net cash provided by (used in) operating
activities................................... (548,528) (138,721) 579,047 (4,608,719)
----------- ----------- ---------- -----------
Cash flows from investing activities -- purchases of
property and equipment............................... (63,623) (167,567) (79,490) (425,398)
----------- ----------- ---------- -----------
Cash flows from financing activities:
Payments on capital lease obligations................ (62,901) (126,732) (86,303) (281,602)
Payments on long-term debt........................... -- -- -- (1,500,000)
Proceeds from issuance of preferred stock, net....... -- -- -- 11,222,472
Distributions to shareholders of affiliated entity... -- -- -- (2,773,086)
Purchase of treasury stock........................... -- -- -- (226,918)
Proceeds from issuance of notes payable to
shareholders....................................... -- -- -- 500,000
Proceeds from issuance of long-term debt............. 1,000,000 1,000,000 -- --
----------- ----------- ---------- -----------
Net cash provided by (used in) financing
activities................................... 937,099 873,268 (86,303) 6,940,866
----------- ----------- ---------- -----------
Net increase in cash and cash equivalents...... 324,948 566,980 413,254 1,906,749
Cash and cash equivalents at beginning of period....... 448,879 773,827 773,827 1,340,807
----------- ----------- ---------- -----------
Cash and cash equivalents at end of period............. $ 773,827 $ 1,340,807 $1,187,081 $ 3,247,556
=========== =========== ========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for -- interest.......... $ 178,084 $ 284,470 $ 328,273 $ 318,327
=========== =========== ========== ===========
Noncash financing activities:
Capital lease obligations.......................... $ 320,256 $ 523,447 $ 182,540 $ 342,190
=========== =========== ========== ===========
Debt and accrued interest converted into
contributed capital.............................. $ 1,982,947 $ -- $ -- $ --
=========== =========== ========== ===========
Accounts receivable reduced with early
extinguishment of long-term debt................. $ -- $ -- $ -- $ 189,120
=========== =========== ========== ===========
Accounts payable reduced with early extinguishment
of long-term debt................................ $ -- $ -- $ -- $ 172,500
=========== =========== ========== ===========
Long-term debt converted into mandatorily
redeemable Series C cumulative preferred stock... $ -- $ -- $ -- $ 1,200,000
=========== =========== ========== ===========
Long-term debt converted into common stock......... $ -- $ -- $ -- $ 37,879
=========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 102
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Proamics Corporation and subsidiaries (Proamics or the Company) are engaged
in the business of developing software applications for resale and in providing
consulting services related to the installation of their software. The Company's
products are sold to end-users throughout the world directly through its
internal sales force as well as third-party distributors. The historical
consolidated financial statements of Proamics include the financial position and
results of operations of Isthmus Corporation (Isthmus). Proamics and Isthmus
were separate legal entities which had the same shareholders with substantially
the same ownership percentages. On February 23, 1999, Isthmus merged with and
into Proamics with Proamics being the surviving corporation. All of the issued
and outstanding shares of common stock of Isthmus were canceled in connection
with the merger. The merger was a combination of entities under common control
and has been accounted for on an "as if" pooling-of-interests basis with the
accompanying financial statements restated for all periods presented. In
addition, on March 5, 1999, the Company purchased all outstanding shares of
Lotzoff & Associates, Inc. (an affiliated entity).
(b) UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements for the nine months ended September 30, 1998 are
unaudited. In the opinion of the Company's management, the unaudited interim
financial statements include adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for that period.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Proamics
Corporation and its wholly owned subsidiaries, Proamics Canada Ltd. and Proamics
UK, Ltd. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
(d) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and SOP 98-9. Revenue from license fees is
recognized when persuasive evidence of an agreement exists, delivery of the
product has occurred, no significant Company obligations with regard to
implementation remain, the fee is fixed or determinable, and collectibility is
probable. Maintenance and support fees are recognized ratably over the term of
the maintenance and support period. Service fees are derived from the Company's
consulting services and are comprised of both time and expense contracts and
fixed-price contracts. Time and expense contract revenues are recognized as the
services are performed. Fixed-price contract revenues are recognized based on
the percentage-of-completion method.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from the following: (1)
deferred maintenance and support; (2) consulting services not yet rendered; and
(3) license fees from distribution agreements with third-party software vendors.
F-27
<PAGE> 103
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(e) CASH EQUIVALENTS
Cash equivalents are comprised of certain highly liquid investments with
original maturities of generally three months or less. As of September 30, 1999,
cash equivalents consisted principally of a money market account and U.S.
government securities.
(f) INVENTORIES
Inventories of shrink-wrapped software are stated at the lower of cost,
determined on a first-in, first-out basis, or market.
(g) PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is computed using
the straight-line method based on the estimated useful lives, ranging from three
to five years, of the various classes of property.
(h) SOFTWARE DEVELOPMENT COSTS
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility, are classified as research and development costs and
are charged to costs and expenses as incurred. Once technological feasibility
has been determined, significant costs incurred in the construction phase of
software development, including coding and testing and product quality
assurance, are capitalized. To date, no software development costs have been
capitalized as technological feasibility has been achieved substantially
concurrent with the general release of the Company's software products.
(i) INCOME TAXES
Prior to March 8, 1999, the Company was an S Corporation under the
provisions of Subchapter S of the Internal Revenue Code, whereby its income was
not subject to Federal income taxes and was allocated and taxed to its
shareholders by inclusion in the individuals' Federal income tax return.
Accordingly, the statements of operations for the years ended December 31, 1997
and 1998 do not include a provision for Federal, foreign and state income taxes.
The S Corporation election was terminated on March 7, 1999.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and
liability method of accounting for income taxes in which deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(j) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
F-28
<PAGE> 104
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(k) CAPITAL LEASES
The Company classifies a lease as a capital lease if (1) the lease
transfers ownership of the property to the Company by the end of the lease term,
(2) the lease contains an option to purchase the leased property at a bargain
price, (3) the lease term is equal to or greater than 75 percent of the
estimated economic life of the leased property, or (4) the present value of
rental and other minimum lease payments equals or exceeds 90 percent of the fair
value of the leased property. For those leases classified as capital leases, the
Company records the present value of future minimum lease payments as an asset
and as a capital lease obligation.
(2) PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, are summarized as follows as of December 31, 1998 and September
30, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Computer equipment......................................... $1,265,277 $ 1,652,015
Office furniture and fixtures.............................. 87,793 147,361
Computer software.......................................... 142,629 376,176
Leasehold improvements..................................... 13,477 101,212
---------- -----------
1,509,176 2,276,764
Less accumulated depreciation and amortization............. (697,078) (1,035,826)
---------- -----------
$ 812,098 $ 1,240,938
========== ===========
</TABLE>
F-29
<PAGE> 105
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LONG-TERM DEBT AND NOTES PAYABLE TO SHAREHOLDERS
In July 1997, the Company borrowed $1,000,000 from Sirrom Capital
Corporation (Sirrom). In connection with this borrowing, the Company issued
common stock warrants to Sirrom representing 3.5% of the Company's ownership
capital on a fully diluted basis. The common stock warrants issued to Sirrom had
a de minimus value at the date of issuance.
In November 1998, the Company borrowed an additional $1,000,000 from
Sirrom. In connection with this borrowing, Proamics issued common stock warrants
to Sirrom representing an additional 1.5% of the Company's ownership capital on
a fully diluted basis. Using the Black-Scholes option-pricing model, a value of
$15,617 was assigned to the warrants and recorded as additional paid-in capital
and discount on long-term debt. The discount is being amortized over the life of
the long-term debt. The $2,000,000 of notes payable to Sirrom bear interest at a
rate of 13% per annum, are due on July 31, 2002, and are secured by a security
interest in corporate assets. (See Note 13)
On March 5, 1999, the Company had an outstanding note payable to Platinum
Software Corporation (Platinum) for $3,936,310, net of unamortized discount of
$563,690. On March 5, 1999, Proamics entered into a payoff and termination
agreement with Platinum whereby Proamics paid $1,000,000 and issued 378,787
shares of Proamics common stock with an estimated fair value of $37,879 to
Platinum in March 1999 and paid $500,000 to Platinum in June 1999 in complete
satisfaction of its note payable to Platinum as well as a contingent $1,000,000
royalty payable to Platinum. Accordingly, the Company recorded an extraordinary
gain on early extinguishment of long-term debt of $2,381,812 representing the
difference between the Company's $3,936,310 note payable balance and the fair
value of the consideration paid to Platinum.
On March 3 1999, the Company borrowed a total of $500,000 from two
shareholders. Such borrowings are due on demand and bear interest at a rate of
10%.
(4) LEASE COMMITMENTS
The Company entered into capital leases for property and equipment during
1999 and prior years. Leased property and equipment capitalized and included in
the Company's consolidated balance sheets at December 31, 1998 and September 30,
1999 was $611,411 and $703,601, respectively.
The Company leases office facilities and certain equipment under
noncancelable operating leases. Rent expense under operating leases for the
years ended December 31, 1997 and 1998 and for the nine months ended September
30, 1999 was $215,067, $319,122, and $345,872 respectively.
F-30
<PAGE> 106
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum annual rental commitments under noncancelable leases at
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
------------ -------- ----------
<S> <C> <C>
1999 (3 months)............................................. $128,663 $ 95,485
2000........................................................ 425,875 386,798
2001........................................................ 319,787 350,750
2002........................................................ 19,851 302,446
2003........................................................ -- 53,820
-------- ----------
894,176 $1,189,299
==========
Less amounts representing interest.......................... 156,829
--------
Present value of minimum lease payments................... 737,347
Less current maturities..................................... 386,017
--------
$351,330
========
</TABLE>
(5) EQUITY TRANSACTIONS AND MANDATORILY REDEEMABLE PREFERRED STOCK
On January 1, 1997, the Company, its shareholders, and Cramlo Investments,
Ltd. entered into an agreement whereby $1,982,947 of debt and accrued interest
were contributed to paid-in capital of the Company.
In December 1998, Proamics granted 750,000 shares of common stock to an
individual in connection with a consulting agreement. As of December 31, 1998,
the consultant had vested in 250,000 shares. In March 1999, the Company
repurchased 500,000 unvested shares and 50,000 vested shares of Proamics common
stock from the consultant at a purchase price of $0.01 per share. Included in
the Company's 1998 consolidated statement of operations is $20,000 of general
and administrative expense representing the estimated fair value of the equity
granted to the consultant.
On March 5, 1999, Proamics entered into a stock purchase agreement with
Lotzof & Associates, Inc. (an affiliated entity) whereby Proamics purchased all
of the issued and outstanding shares of common stock of Lotzof & Associates,
Inc. for $2,773,086. Lotzof & Associates, Inc. became a wholly owned subsidiary
of Proamics. The principal asset acquired as a result of this acquisition was a
contingent royalty obligation owed by Proamics to Lotzof & Associates, Inc. of
up to $3,500,000 for 5% of the Company's net revenues from the licensing of
certain software products for a seven-year period ending in October 2000. The
purchase price was recorded as a distribution to Proamics shareholders.
On March 9, 1999, Proamics entered into stock redemption agreements with
certain shareholders to purchase an aggregate 2,269,175 shares of its common
stock for an aggregate purchase price of $226,918.
On March 9, 1999, Proamics changed its state of incorporation from Illinois
to Delaware. All of the outstanding shares of Proamics-Illinois common stock
were converted, on a one for one basis, into shares of common stock of
Proamics-Delaware. Proamics also amended its charter and authorized 9,974,585
shares of preferred stock, $0.00001 par value, of which 117,000 are designated
as Series A, 9,833,585 are designated as Series B, and 24,000 are designated as
Series C. Proamics also authorized 40,000,000 shares of common stock with a par
value of $0.00001. The Series A preferred stock is senior in liquidation to the
Series C preferred stock
F-31
<PAGE> 107
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
while the Series C preferred stock is senior in liquidation to the Series B
preferred stock and common stock. The Series B preferred stock and common stock
are pari-passu in liquidation.
On March 9, 1999, Vector Capital II, L.P. and certain of its affiliates
(collectively, Vector) and Proamics entered into a preferred stock purchase
agreement whereby Proamics issued 90,000 shares of its Series A preferred stock
and 7,564,297 shares of its Series B preferred stock to Vector for $9,000,000
and $1,000,000, respectively. The preferred stock purchase agreement obligated
Vector to purchase an additional 13,500 shares of Series A preferred stock and
1,134,644 shares of Series B preferred stock for $1,350,000 and $150,000,
respectively, prior to June 9, 1999. In addition, Vector has the option to
purchase an additional 13,500 shares of Series A preferred stock and 1,134,644
shares of Series B preferred stock for $1,350,000 and $150,000, respectively, on
or prior to March 9, 2002. (See Note 13)
The Series A preferred stock issued to Vector accrues dividends at a rate
of 15% per annum for the period from March 1, 1999 to August 1, 2001, 5.45% per
annum for the period from August 1, 2001 to March 1, 2003, and 9% for the period
from March 1, 2003 until its scheduled redemption. Accrued dividends are payable
when and as declared by the Company's board of directors, but if they are not
paid quarterly, the accrued dividends will accumulate and further dividends will
accrue thereon.
Proamics shall redeem, at face value plus accrued dividends, 1/36 of the
outstanding shares of Series A preferred stock on March 1, 2004 and an equal
number of shares each month thereafter until all Series A shares have been
redeemed. Proamics has the right to redeem the Series A preferred stock on and
after February 1, 2002. Proamics is required to redeem all shares of Series A
preferred stock upon a public offering of its shares.
The Series B preferred stock issued to Vector is convertible into shares of
common stock on a one for one exchange basis subject to certain dilution
adjustments as outlined in the preferred stock purchase agreement.
On March 9, 1999, Proamics entered into a preferred stock purchase
agreement with members of the Cramlo Group and Cramlo Investments, Ltd.
(collectively, Cramlo) whereby Proamics issued 24,000 shares of its Series C
preferred stock in settlement of its aggregate $1,200,000 notes payable to
Cramlo.
The Series C preferred stock accrues dividends at a rate of 8.5% until its
scheduled redemption. Accrued dividends are payable when and as declared by the
Company's board of directors, but if they are not paid quarterly, the accrued
dividends will accumulate and further dividends will accrue thereon.
Proamics shall redeem, at face value plus accrued dividends, plus accrued
dividends 1/36 of the outstanding shares of Series C preferred stock on March 1,
2004 and an equal number of shares each month thereafter until all Series C
shares have been redeemed. Proamics has the right to redeem the Series C
preferred stock on and after February 1, 2002. Proamics is required to redeem
all shares of Series C preferred stock upon a public offering of its shares.
(6) 401(k) RETIREMENT PLAN
The Company has a profit-sharing plan that covers substantially all
employees who have satisfied minimum age and service requirements. Employees
elect to contribute to the plan through salary deferrals pursuant to Section
401(k) of the Internal Revenue Code. The Company has the right, on a
discretionary basis, to match employee contributions. No matching contributions
were made in 1997, 1998, and 1999.
F-32
<PAGE> 108
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) PHANTOM STOCK AND STOCK OPTION PLANS
The Company maintains a plan under which certain employees are awarded
stock appreciation rights. Under this nonqualified plan, compensation is payable
only when the Company has a positive book value and certain other conditions are
met. Compensation may be paid in the form of either cash or Company stock, at
the Company's option, to rights holders based upon the difference between book
value at date of grant and book value at date of payment. All shares awarded are
subject to a five-year vesting schedule. Vesting can be accelerated upon the
occurrence of various transactions relating to a change in control of the
Company. The Company accrues the value of these rights as compensation expense
in the period in which such value arises. No compensation expense was recognized
in 1997, 1998, and 1999.
During 1997, the Company increased the number of shares authorized for
issuance under the plan from 1,000,000 to 2,000,000.
On March 9, 1999, Proamics adopted a Stock Option Plan and reserved
6,353,522 shares of common stock for issuance under this plan. No options have
been issued or granted under the plan.
(8) SOFTWARE DEVELOPMENT AND DISTRIBUTION AGREEMENT
In July 1997, the Company entered into a software development and
distribution agreement with a third-party software vendor. Under the terms of
the agreement, each party was granted a worldwide, irrevocable, nonexclusive
right and license to sell the other party's software product in exchange for
royalties. The agreement also requires the software vendor to pay the Company
the greater of a nonrefundable minimum royalty of $1,000,000 or the royalties
which would otherwise be calculable based on a prescribed formula and which is
due upon the sale of the Company's products. In December 1998, the software
development and distribution agreement was amended to reduce the nonrefundable
minimum royalty to $800,000 and change the expiration date for the agreement
from February 28, 1999 to January 31, 1999. License fees from the nonrefundable
minimum royalty have been recognized ratably over the amended term of the
minimum royalty period. Beginning in February 1999, the software vendor paid the
Company royalties on a quarterly basis based on actual sales of the Company's
product.
In June 1998, the Company entered into a software development and
distribution agreement with a third-party software vendor. Under the terms of
the agreement, each party was granted a worldwide, irrevocable, nonexclusive
right and license to sell the other party's software product in exchange for
royalties. The agreement also requires the software vendor to pay the Company
the greater of a one-time nonrefundable minimum royalty of $1,000,000 or the
royalties which would otherwise be calculable based on a prescribed formula and
which is due upon the sale of the Company's products. License fees from the
nonrefundable minimum royalty are recognized ratably over the 24-month term of
the minimum royalty period.
(9) SIGNIFICANT CUSTOMERS
The Company's two largest customers accounted for approximately 24% of
revenues for the year ended December 31, 1997 and the Company's largest customer
accounted for approximately 24% and 21% of revenues for the year ended December
31, 1998 and for the nine months ended September 30, 1999, respectively.
F-33
<PAGE> 109
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
One customer accounted for approximately 12% of accounts receivable at
December 31, 1998 and two customers accounted for approximately 31% of accounts
receivable at September 30, 1999.
(10) COMMITMENTS AND CONTINGENCIES
The Company is subject to potential legal actions which arise in the
ordinary course of business. In the opinion of management, the disposition of
all potential or threatened claims will not have a material impact on the
financial position of the Company.
(11) INCOME TAXES
The Company had no income tax expense for the years ended December 31, 1997
and 1998 and for the nine months ended September 30, 1999.
The reconciliation of the Company's income tax expense for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999 to
income taxes computed using the Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------- SEPTEMBER 30,
1997 1998 1999
--------- --------- -------------
<S> <C> <C> <C>
Federal income tax benefit at the statutory rate... $(217,533) $(392,191) $ (460,340)
State income tax benefit, net of Federal tax
benefit.......................................... (6,335) (11,419) (161,567)
S Corporation earnings not taxed to the Company.... 217,533 392,191 (693,420)
Establishment of deferred tax assets on S
Corporation termination.......................... -- -- (1,038,684)
Research and experimentation credit................ -- -- (97,270)
Establishment of valuation allowance............... -- -- 2,437,681
Other.............................................. 6,335 11,419 13,600
--------- --------- -----------
$ -- $ -- $ --
========= ========= ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts............................. $ 135,451
Depreciation and amortization............................. 4,894
Capitalized software...................................... 1,003,230
Accrued vacation.......................................... 96,011
Net operating loss carryforward........................... 1,100,825
Research and development credit........................... 97,270
-----------
Total deferred tax assets.............................. 2,437,681
Less valuation allowance.................................. (2,437,681)
-----------
Net deferred tax assets................................ $ --
===========
</TABLE>
F-34
<PAGE> 110
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At September 30, 1999, the Company had net operating loss carryforwards for
income tax purposes of approximately $2,800,000 expiring in the year ending
December 31, 2019.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. Management has established a valuation for the full
amount of the deferred tax assets at September 30, 1999 due to the sufficient
uncertainty regarding the Company's ability to realize its deferred tax assets.
The net change in the valuation allowance during the nine months ended September
30, 1999 was an increase of $2,437,681.
(12) SUBSEQUENT EVENTS
On November 15, 1999, Vector purchased an additional 13,500 shares of the
Company's Series A preferred stock and 1,134,644 shares of the Company's Series
B preferred stock for $1,350,000 and $150,000, respectively.
On December 8, 1999, the Company was acquired by Niku Corporation. Proamics
received 3,501,938 shares of Niku common stock and 6,491,203 shares of Niku's
preferred stock for all of the Company's outstanding capital stock.
On December 8, 1999, the Company repaid $2,000,000 of notes payable to
Sirrom.
F-35
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Legal Anywhere, Inc. (Formerly
Legal Anywhere LLC):
We have audited the accompanying balance sheets of Legal Anywhere, Inc.
(formerly Legal Anywhere LLC) (the Company) as of December 31, 1998 and 1999,
and the related statements of operations, stockholders' and members' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Legal Anywhere, Inc. (formerly
Legal Anywhere LLC) as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Portland, Oregon
January 15, 2000, except as to Note 11 which is
as of January 31, 2000
F-36
<PAGE> 112
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 9,018 1,257,210
Accounts receivable, net.................................. 10,080 125,386
Other receivables......................................... -- 136,000
Prepaid and other current assets.......................... -- 59,715
--------- ----------
Total current assets.............................. 19,098 1,578,311
Property and equipment, net................................. 5,128 195,074
Other assets, net........................................... -- 39,722
--------- ----------
Total assets...................................... $ 24,226 1,813,107
========= ==========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,384 58,182
Accrued expenses.......................................... -- 26,320
Deferred revenue.......................................... 5,977 54,067
Line of credit............................................ 64,000 --
--------- ----------
Total current liabilities......................... 74,361 138,569
Other liabilities........................................... -- 7,358
--------- ----------
Total liabilities................................. 74,361 145,927
--------- ----------
Commitments
Stockholders' and members' equity (deficit):
Members' contributions.................................... 443,231 --
Preferred stock, no par value. Authorized 5,000,000
shares; no shares issued and outstanding............... -- --
Common stock, no par value. Authorized 10,000,000 shares;
3,642,030 shares issued and outstanding at December 31,
1999................................................... -- 3,499,658
Deferred compensation..................................... -- (137,400)
Accumulated deficit....................................... (493,366) (1,695,078)
--------- ----------
Total stockholders' and members' equity
(deficit)....................................... (50,135) 1,667,180
--------- ----------
Total liabilities and stockholders' and members'
equity (deficit)................................ $ 24,226 1,813,107
========= ==========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 113
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1998 1999
--------- -----------
<S> <C> <C>
Revenue:
License..................................................... $ 32,687 $ 201,128
Support and other......................................... 20,310 67,442
--------- -----------
52,997 268,570
--------- -----------
Cost of revenue:
License................................................... 4,550 1,045
Support and other......................................... 5,246 26,239
--------- -----------
9,796 27,284
--------- -----------
Gross profit........................................... 43,201 241,286
--------- -----------
Operating expenses:
Research and development.................................. 91,533 495,533
Sales and marketing....................................... -- 613,446
General and administrative................................ 63,664 365,680
--------- -----------
155,197 1,474,659
--------- -----------
Loss from operations................................... (111,996) (1,233,373)
--------- -----------
Other income (expense):
Interest income........................................... -- 33,075
Interest expense.......................................... (4,725) (1,414)
--------- -----------
(4,725) 31,661
--------- -----------
Net loss............................................... $(116,721) $(1,201,712)
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 114
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
MEMBERS' ------------------------- DEFERRED ACCUMULATED AND MEMBERS'
CONTRIBUTIONS SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
------------- ------------ ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... $ 335,204 -- $ -- $ -- $ (376,645) $ (41,441)
Members' contributions... 92,500 -- -- -- -- 92,500
Members' contributions of
consulting services.... 15,527 -- -- -- -- 15,527
Net loss................. -- -- -- -- (116,721) (116,721)
--------- --------- ---------- --------- ----------- -----------
Balance at December 31,
1998................... 443,231 -- -- -- (493,366) (50,135)
Reorganization as a C
Corporation............ (443,231) 1,114,022 443,231 -- -- --
Issuance of common
stock.................. -- 2,528,008 2,791,547 -- -- 2,791,547
Deferred compensation on
issuance of stock
options................ -- -- 193,650 (193,650) -- --
Amortization of deferred
compensation........... -- -- -- 56,250 -- 56,250
Noncash consulting
expense on issuance of
stock options.......... -- -- 71,230 -- -- 71,230
Net loss................. -- -- -- -- (1,201,712) (1,201,712)
--------- --------- ---------- --------- ----------- -----------
Balance at December 31,
1999................... $ -- 3,642,030 $3,499,658 $(137,400) $(1,695,078) $ 1,667,180
========= ========= ========== ========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 115
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(116,721) $(1,201,712)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................ 1,900 38,072
Deferred rental expense.............................. -- 7,358
Allowance for doubtful accounts...................... 3,775 725
Noncash expense...................................... 15,527 71,230
Amortization of deferred compensation................ -- 56,250
Changes in assets and liabilities:
Accounts receivable............................... -- (116,031)
Other receivables................................. -- (136,000)
Prepaid and other assets.......................... (13,855) (90,438)
Accounts payable and accrued expenses............. (6,616) 80,118
Deferred revenue.................................. 5,977 48,090
--------- -----------
Net cash used by operating activities............. (110,013) (1,242,338)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (2,969) (227,017)
Trademark costs........................................... -- (10,000)
--------- -----------
Net cash used by investing activities............. (2,969) (237,017)
--------- -----------
Cash flows from financing activities:
(Repayment) borrowings on line of credit, net............. 29,500 (64,000)
Members' contributions.................................... 92,500 --
Proceeds of issuance of common stock...................... -- 2,791,547
--------- -----------
Net cash provided by financing activities......... 122,000 2,727,547
--------- -----------
Increase in cash.................................. 9,018 1,248,192
Cash at beginning of year................................... -- 9,018
--------- -----------
Cash at end of year......................................... $ 9,018 $ 1,257,210
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 4,725 $ 1,414
========= ===========
Supplemental disclosure of noncash financing activities:
Deferred compensation on issuance of options.............. $ -- $ 193,650
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 116
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Legal Anywhere was founded as an Oregon limited liability company in 1996.
In January 1999, all assets and liabilities of Legal Anywhere LLC were
transferred to Legal Anywhere, Inc. (the Company), an Oregon Corporation.
The Company provides Internet-based "collaborative tools" to law firms and
corporate legal departments. Such tools enable lawyers to communicate and work
with other lawyers, clients and others concerning matters such as document
development, calendaring, case management, research and knowledge management.
(b) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(c) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and SOP 98-9, since inception. SOP 97-2, as
amended, generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements.
To date, the Company has derived its revenue from licenses of its
collaborator product, maintenance and support, hosting services and delivery of
implementation consulting services. The Company sells its product primarily
through its direct sales force.
Revenue recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair values of the
elements, such as software products, maintenance and support, hosting services
and consulting services. The determination of fair value is based on objective
evidence which is specific to the Company.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable.
Revenue from hosting fees is recognized after services are provided and the
Company has no further obligation to perform services.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from the deferred maintenance
and support or consulting services not yet rendered.
F-41
<PAGE> 117
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(d) RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
(e) SOFTWARE DEVELOPMENT COSTS
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility, are classified as research and development costs and
are charged to costs and expenses as incurred. Once technological feasibility
has been determined, significant costs incurred in the construction phase of
software development, including coding and testing and product quality
assurance, are capitalized. To date, no software development costs have been
capitalized as technological feasibility has been achieved substantially
concurrent with the general release of the Company's software product.
(f) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets as follows: computer hardware and software
over three years; furniture and equipment over five years; and leasehold
improvements over the remaining life of the lease or the useful life, whichever
is shorter. Maintenance and repairs are expensed as incurred.
(g) INCOME TAXES
Effective January 1999, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts to be recovered.
Prior to January 1999, the Company elected to be taxed under the
partnership provisions of the Internal Revenue Code. Under those provisions, the
Company did not pay federal or state corporate income taxes on its taxable
income. Instead, the stockholders were individually responsible for federal and
state income taxes. Accordingly, no provision for income taxes was made in the
accompanying financial statements.
(h) ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of $3,775
and $4,500 at December 31, 1998 and 1999, respectively.
F-42
<PAGE> 118
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(i) OTHER ASSETS, NET
Other assets consist of a lease deposit for office space and expenses
related to a trademark.
During 1999, the Company filed for a trademark. The expenses relating to
the trademark has been capitalized and is being amortized using the
straight-line method over five years. Amortization expense for the year ended
December 31, 1999 was $1,001.
The Company will assess impairment when events and circumstances indicate
that impairment might exist. To date, there has been no indication of
impairment.
(j) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. This statement permits a
company to choose either a fair-value-based method of accounting for its
stock-based compensation arrangements or to comply with the Accounting
Principles Board Opinion 25 (APB Opinion 25) intrinsic-value-based method adding
pro forma disclosures of net income computed as if the fair-value-based method
had been applied in the financial statements. The Company applies SFAS No. 123
by retaining the APB Opinion 25 method of accounting for stock-based
compensation for employees with annual pro forma disclosures of net income.
Stock-based compensation for non-employees is accounted for using the
fair-value-based method.
(k) ADVERTISING
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $900 and $7,100 for the years ended
December 31, 1998 and 1999, respectively.
(l) COMPREHENSIVE LOSS
The Company did not have any significant components of other comprehensive
loss for the years ended December 31, 1998 and 1999.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short-term nature of
these instruments.
(n) SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131), for the year ended December 31,
1999. Based on definitions contained within SFAS 131, the Company has determined
that it operates in one segment.
(o) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging
F-43
<PAGE> 119
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
activities related to those instruments, as well as other hedging activities.
Because the Company does not currently hold any derivative instruments and does
not engage in hedging activities, the Company expects that the adoption of SFAS
No. 133 will not have a material impact on its financial position, results of
operations or cash flows. The Company will be required to adopt SFAS No. 133 for
the year ended December 31, 2001 in accordance with FASB SFAS No. 137, which
delayed implementation of SFAS 133.
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Computer hardware and software.............................. $ 5,133 $135,783
Furniture and equipment..................................... 2,969 83,700
Leasehold improvements...................................... -- 15,636
------- --------
8,102 235,119
Less accumulated depreciation and amortization.............. (2,974) (40,045)
------- --------
$ 5,128 $195,074
======= ========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1999 was
$1,900 and $37,071, respectively.
(3) LINE OF CREDIT
At December 31, 1998, the Company had a line of credit which allowed for
borrowings up to $75,000. The line bore interest at 0.5% plus the bank's prime
rate. There was $64,000 outstanding under the line of credit at December 31,
1998. The line of credit was secured by the assets of the Company and guaranteed
by a stockholder.
The line of credit was paid in full in 1999 and was cancelled in April
1999.
(4) STOCKHOLDERS' EQUITY
(A) PREFERRED STOCK
The Company has authorized 5,000,000 shares of no par value preferred
stock. The Board of Directors (the Board) of the Company has authority to divide
the preferred stock into as many series as it shall determine from time to time.
Each series of preferred stock shall have the powers, preferences and rights as
determined by the Board at its discretion. At December 31, 1998 and 1999, no
preferred stock had been issued.
(B) COMMON STOCK
The Company has authorized 10,000,000 shares of no par value common stock.
Each share of common stock has voting rights of one vote per share.
(5) STOCK INCENTIVE PLAN
Effective January 1999, the Company adopted the 1999 Stock Incentive Plan
(the Plan) which provides for the granting of stock options to employees,
directors and consultants. Under
F-44
<PAGE> 120
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
the terms of the Plan, eligible employees may receive statutory and nonstatutory
stock options, stock bonuses and stock appreciation rights for purchase of
shares of the Company's common stock at prices, vesting, exercisability and such
other terms as determined by the board of directors. Cancelled options are
available for future grant. The Company has reserved 908,000 shares of its
common stock for issuance under the Plan.
During 1999, the Company granted 322,750 options to certain key employees
and 37,750 options to consultants to purchase shares of the Company's common
stock at $0.40 per share. The options were issued at a price below the fair
market value of the Company's stock on the date of grant of $1.00. The
difference between the stock option grant price and the fair market value on the
date of grant has been included as deferred compensation for employees of
$193,650. The deferred compensation is recorded as compensation expense over the
vesting period of the options in the statements of operations. Total
amortization of deferred compensation recorded in the accompanying statement of
operations for the year ended December 31, 1999 was $56,250.
The Company has computed, for pro forma disclosure purposes, the value of
all options granted during the year ended December 31, 1999 using the minimum
value method using the following weighted average assumptions for grants for the
year ended December 31, 1999:
<TABLE>
<S> <C>
Divided yield..................................... $ --
Risk-free interest rate........................... 5.1%
Expected life..................................... 7 years
</TABLE>
The Company applies Accounting Principle Bulletin Opinion No. 25 in
accounting for stock options issued to employees and directors under the
Plan and, accordingly, no compensation expense has been recognized for
these stock options in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its
stock options under Statement of Financial Accounting Standards (SFAS) No.
123, the Company's net loss would have been increased to the pro forma
amount indicated below:
<TABLE>
<CAPTION>
NET LOSS
-----------
<S> <C>
Net loss:
As reported................................................. $(1,201,712)
Pro forma................................................. (1,388,140)
</TABLE>
F-45
<PAGE> 121
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
A summary of the status of the Company's Plan at December 31, 1999 and
changes during the year then ended is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding, January 22, 1999
(date of Plan adoption).............................. -- $ --
Granted.............................................. 472,000 0.54
Exercised............................................ -- --
Canceled............................................. -- --
------- ------
Outstanding, December 31, 1999....................... 472,000 $ 0.54
======= ======
</TABLE>
The outstanding stock options have an exercise price ranging from $0.40 to
$1.00 and a weighted average remaining contractual life of nine years. At
December 31, 1999, a total of 101,750 options were vested at a weighted average
exercise price of $0.45 per share and with a weighted average remaining
contractual life of nine years.
The per share average fair value of options granted during the year ended
December 31, 1999 was $0.69. The total fair value of options granted during the
year ended December 31, 1999 was $325,914, which would be amortized on a
straight-line basis over the vesting period of the options.
The following table sets forth as of December 31, 1999 the number of
options outstanding, exercise price, weighted average remaining contractual
life, weighted average exercise price, number of exercisable options and
weighted average exercise price of exercisable options by groups of similar
price and grant date:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
- ---------------------------------------------------- ------------------
WEIGHTED
OUTSTANDING AVERAGE WEIGHTED WEIGHTED
OPTIONS AT REMAINING AVERAGE AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE VESTED EXERCISE
PRICE 1999 LIFE (YEARS) PRICE OPTIONS PRICE
-------- ------------ ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.01 - 0.50 360,500 9 $ .40 93,750 $ .40
0.51 - 1.00 111,500 9 1.00 8,000 1.00
</TABLE>
(7) INCOME TAXES
As described in note 1, prior to January 1999, the Company elected to be
taxed under the partnership provisions of the Internal Revenue Code.
Accordingly, the Company did not pay any federal or state corporate income
taxes.
F-46
<PAGE> 122
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
Due to the Company's losses before the provision for income taxes for the
year ended December 31, 1999, there has been no provision for federal and state
taxes. The reconciliation of the actual benefit to the "expected" benefit
computed by applying the U.S. federal corporate rate is as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Computed "expected" income tax benefit...................... (34)%
Increases (decreases) resulting from:
State income taxes, net of federal tax benefit............ (4)
Change in valuation allowance............................. 38
---
--%
===
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $1,060,000 to offset against future income for federal and state
tax purposes. These carryforwards expire through 2019. A provision of the
Internal Revenue Code requires the utilization of net operating losses be
limited when there is a change of more than 50% in ownership of the Company.
Such a change occurred with the issuance of common stock in March of 1999.
Accordingly, the utilization of the net operating loss carryforwards generated
from periods prior to March of 1999 is limited.
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. The tax effects of
significant items comprising the Company's deferred tax assets and deferred tax
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $408,000
Deferred compensation..................................... 49,000
Other..................................................... 2,000
--------
Total gross deferred tax assets........................ 459,000
Less valuation allowance.................................... 459,000
--------
Net deferred tax assets................................ $ --
========
</TABLE>
(8) SIGNIFICANT CUSTOMERS
During the years ended December 31, 1998 and 1999, one customer each year
accounted for 35% and 13%, respectively, of total revenue.
(9) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases office space and equipment under non-cancelable
operating leases which expire at various dates through May 2004.
F-47
<PAGE> 123
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000........................................... $179,156
2001........................................... 177,616
2002........................................... 135,216
2003........................................... 110,516
2004........................................... 46,049
--------
$648,553
========
</TABLE>
Lease expense totaled $101,457 in 1999. The Company did not have any
operating leases during the year ended December 31, 1998 and, accordingly, did
not incur any lease expense for 1998.
(B) ROYALTIES
In April 1999, the Company entered into a royalty agreement to pay
royalties based on the number of licenses sold including that technology. The
Company's new release, expected in May 2000, will be the first version to
include this technology, therefore, there were no royalty payments under the
agreement for the year ended December 31, 1999.
(10) RELATED PARTY TRANSACTIONS
For the year ended December 31, 1999, the Company purchased accounting
services in the amount of approximately $40,000 from a company owned by a
shareholder.
The Company issued stock options to purchase 318,750 shares of common stock
to certain key members of management of the Company who are also stockholders
during the year ended December 31, 1999.
(11) SUBSEQUENT EVENTS
On January 31, 2000, Niku Corporation acquired all the issued and
outstanding shares of the Company in exchange for 853,717 shares of Niku common
stock valued at approximately $8,537,000. In addition, all outstanding stock
options of the Company will be assumed by Niku.
In January 2000, the Company issued 119,000 stock options to employees with
an exercise price below the deemed fair market value. In connection with the
grants, the Company will recognize approximately $88,000 in deferred
compensation.
F-48
<PAGE> 124
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Niku, Proamics and Legal Anywhere been a combined company during
the specified periods. The unaudited pro forma combined condensed financial
statements, including the related notes, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical financial
statements and related notes thereto of Niku, Proamics and Legal Anywhere,
included elsewhere in this filing. The following unaudited pro forma combined
condensed financial statements give effect to the acquisition of Proamics and
Legal Anywhere by Niku using the purchase method of accounting. The unaudited
pro forma combined condensed financial statements are based on the respective
historical audited and unaudited financial statements and related notes of Niku,
Proamics and Legal Anywhere.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to the long-term
tangible and intangible assets or, in some circumstances, resulting in a charge
to the statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amounts of the assets and liabilities
adjusted. For example, if all goodwill and intangible assets resulting from the
acquisitions of Proamics and Legal Anywhere were amortized over three years it
would have resulted in a charge to the unaudited pro forma statements of
operations of $19,015,000 and $14,262,000 for the year ended January 31, 1999,
and the nine months ended October 31, 1999, respectively. See notes 2(d) and
2(f) to the unaudited pro forma combined condensed financial statements.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisitions took place on October 31, 1999, and combines Niku's audited October
31, 1999 consolidated balance sheet with Proamics' audited September 30, 1999
consolidated balance sheet and Legal Anywhere's unaudited September 30, 1999
balance sheet. The unaudited pro forma combined condensed statements of
operations assumes the acquisitions took place on February 1, 1998, and combines
Niku's audited consolidated statement of operations for the year ended January
31, 1999, with Proamics' audited consolidated statement of operations and Legal
Anywhere's audited statement of operations for the year ended December 31, 1998,
and Niku's audited consolidated statement of operations for the nine months
ended October 31, 1999, with Proamics' audited consolidated statement of
operations for the nine months ended September 30, 1999, and Legal Anywhere's
unaudited statement of operations for the nine months ended September 30, 1999.
F-49
<PAGE> 125
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
OCTOBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ -----------------------
NIKU PROAMICS LEGAL ANYWHERE ADJUSTMENTS COMBINED
-------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 17,154 $ 3,248 $ 816 $ $ 21,218
Short-term investments............ 2,175 -- -- 2,175
Accounts receivable............... 2,754 3,864 33 6,651
Prepaid expenses and other current
assets.......................... 1,258 130 41 1,429
-------- -------- ------- -------- --------
Total current assets....... 23,341 7,242 890 -- 31,473
Deposits and other assets........... 160 192 40 392
Property and equipment, net......... 4,406 1,241 191 5,838
Goodwill and other intangible
assets, net....................... 831 -- -- 47,802(a)
9,244(c) 57,877
-------- -------- ------- -------- --------
$ 28,738 $ 8,675 $ 1,121 $ 57,046 $ 95,580
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................. $ 3,817 $ 872 $ 90 $ $4,779
Accrued liabilities............... 1,753 1,388 16 500(a)
500(c) 4,157
Current portion of long-term
obligations..................... 5,502 886 -- 6,388
Deferred revenue.................. 1,946 1,499 15 (1,000)(b) 2,460
-------- -------- ------- -------- --------
Total current
liabilities.............. 13,018 4,645 121 -- 17,784
Long-term obligations, less current
portion........................... 968 2,366 7 3,341
-------- -------- ------- -------- --------
Total liabilities.......... 13,986 7,011 128 -- 21,125
-------- -------- ------- -------- --------
Redeemable convertible preferred
stock and warrants................ 28,580 12,390 -- (12,390)(a)
-------- -------- -------
32,456(a) 61,036
-------- --------
Stockholders' equity (deficit):
Common stock...................... 1 -- 2,442 (2,442)(c) 1
Additional paid-in capital........ 10,100 2,930 -- (2,930)(a)
17,510(a)
9,737(c) 37,347
Treasury stock.................... (30) (227) 227(a) (30)
Deferred stock compensation....... (7,238) -- (137) 137(c) (7,238)
Notes receivable from
stockholders.................... (108) -- -- (108)
Accumulated deficit............... (16,553) (13,429) (1,312) 13,429(a)
-- 1,312(c) (16,553)
-------- -------- ------- -------- --------
Total stockholders' equity
(deficit)................ (13,828) (10,726) 993 36,980 13,419
-------- -------- ------- -------- --------
$ 28,738 $ 8,675 $ 1,121 $ 57,046 $ 95,580
======== ======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-50
<PAGE> 126
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------- -----------------------
NIKU PROAMICS LEGAL ANYWHERE ADJUSTMENTS COMBINED
------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License..................... $ -- $ 3,165 $ 33 $ $ 3,198
Services.................. 15 7,700 20 7,735
------- ------- ------- -------- --------
Total revenues....... 15 10,865 53 -- 10,933
Cost of revenues:
License................... -- 190 5 195
Services.................. 4 4,957 5 4,966
------- ------- ------- -------- --------
Total cost of
revenues.......... 4 5,147 10 -- 5,161
------- ------- ------- -------- --------
Gross profit......... 11 5,718 43 -- 5,772
Operating expenses:
Research and development.. 1,610 1,349 91 3,050
Sales and marketing....... 290 2,688 -- 2,978
General and
administrative......... 996 2,349 64 3,409
Stock-based compensation.. 245 -- -- -- 245
Amortization of goodwill
and other intangible
assets................. 20 -- -- 12,371(d)
3,081(f) 15,472
------- ------- ------- -------- --------
Total operating
expenses........ 3,161 6,386 155 15,452 25,154
------- ------- ------- -------- --------
Operating loss.... (3,150) (668) (112) (15,452) (19,382)
Interest and other income
(expense), net......... 130 (486) (5) (361)
------- ------- ------- -------- --------
Net loss.......... $(3,020) $(1,154) $ (117) $(15,452) $(19,743)
======= ======= ======= ======== ========
Basic and diluted net
loss per share....... $ (0.62) $ (1.26)
======= ========
Shares used to compute
basic and diluted net
loss per share....... 4,882 9,993(e)
=======
854(g) 15,729
========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-51
<PAGE> 127
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ ----------------------
NIKU PROAMICS LEGAL ANYWHERE ADJUSTMENTS COMBINED
-------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License..................... $ 1,962 $ 2,497 $ 117 $ $ 4,576
Services.................. 1,014 6,702 40 7,756
-------- ------- ----- -------- --------
Total revenues....... 2,976 9,199 157 -- 12,332
Cost of revenues:
License................... 174 119 -- 293
Services.................. 429 5,303 20 5,752
-------- ------- ----- -------- --------
Total cost of
revenues.......... 603 5,422 20 -- 6,045
-------- ------- ----- -------- --------
Gross profit......... 2,373 3,777 137 -- 6,287
Operating expenses:
Research and
development............ 6,062 2,010 295 8,367
Sales and marketing....... 5,983 3,068 366 9,417
General and
administrative......... 1,837 2,214 262 4,313
Stock-based
compensation........... 2,018 -- 56 -- 2,074
Amortization of goodwill
and other intangible
assets................. 184 -- -- 9,278(d)
2,310(f) 11,772
-------- ------- ----- -------- --------
Total operating
expenses........ 16,084 7,292 979 11,588 35,943
-------- ------- ----- -------- --------
Operating loss.... (13,711) (3,515) (842) (11,588) (29,656)
Interest and other income
(expense), net......... 178 (220) 24 (18)
-------- ------- ----- -------- --------
Net loss.......... $(13,533) $(3,735) $(818) $(11,588) $(29,674)
======== ======= ===== ======== ========
Basic and diluted net
loss per share....... $ (2.31) $ (1.77)
========
Shares used to compute
basic and diluted net
loss per share....... 5,871 9,993(e)
========
854(g) 16,718
========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-52
<PAGE> 128
NIKU CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
On December 8, 1999, the Company acquired Proamics Corporation (Proamics),
a privately-held company in Chicago, Illinois. Niku issued 3,501,938 shares of
its common stock and 6,491,203 shares of the Company's Series D redeemable
convertible preferred stock for all of Proamics' outstanding capital stock
valued at approximately $49,966,000 for all of Proamics' outstanding capital
stock. On January 31, 2000, the Company acquired Legal Anywhere, Inc. (Legal
Anywhere), a privately-held company in Portland, Oregon. The Company issued
853,717 shares of its common stock value at approximately $8,537,000 for all of
Legal Anywhere's outstanding capital stock and assumed all outstanding Legal
Anywhere stock options. Both transactions are to be accounted for as a purchase.
The pro forma combined condensed balance sheet as of October 31, 1999,
gives effect to the acquisitions as if they had occurred on October 31, 1999.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To record common stock issued by Niku and record applicable purchase
accounting entries for the acquisition of Proamics.
Under purchase accounting, the total purchase price will be allocated
to Proamics' assets and liabilities based on their relative fair
values. Amounts allocated to current products and technology and
assembled workforce will be amortized on a straight-line basis over
estimated useful lives of 3 years and customers lists will be
amortized on a straight-line basis over estimated useful lives of 4
years. Goodwill will be amortized over an estimated useful life of 5
years. Allocations are subject to valuations as of the date of the
consummation of the acquisition. The amounts and components of the
estimated purchase price along with the preliminary allocation of the
estimated purchase price to assets purchased are as follows (in
thousands):
<TABLE>
<S> <C>
Common stock................................................ $17,510
Series D redeemable convertible preferred stock............. 32,456
Estimated transaction costs................................. 500
-------
Total purchase price.............................. $50,466
=======
Cash and cash equivalents................................... $ 3,248
Accounts receivable......................................... 3,864
Prepaid expenses and other current assets................... 130
Deposits and other assets................................... 192
Property and equipment and other noncurrent assets.......... 1,241
Accounts payable............................................ (872)
Accrued liabilities......................................... (1,388)
Deferred revenue (after adjustment (b) below)............... (499)
Long-term obligations....................................... (3,252)
-------
Fair value of net tangible assets of Proamics..... 2,664
Assembled workforce......................................... 1,445
Customer lists.............................................. 2,543
Current products and technology............................. 18,672
Goodwill.................................................... 25,142
-------
Net assets acquired.................................... $50,466
=======
</TABLE>
(b) To reflect the reduction of deferred revenue to its fair value.
F-53
<PAGE> 129
The actual allocation of the purchase price will depend upon the
composition of Proamics' net assets on the closing date and Niku's evaluation of
the fair value of the net assets as of the date indicated. Consequently, the
actual allocation of the purchase price could differ from that presented above.
(c) To record common stock issued by Niku and record applicable purchase
accounting entries for the acquisition of Legal Anywhere. Amounts
allocated to indentifiable intangible assets and goodwill will be
amortized on a straight-line basis over estimated useful lives of 3
years. Allocations are subject to valuations as of the date of the
consummation of the acquisition. The amounts and components of the
estimate purchase price along with the preliminary allocation of the
estimated purchase price to assets purchased are as follows (in
thousands):
<TABLE>
<S> <C>
Common stock................................................ $ 8,537
Estimated fair value of stock options assumed............... 1,200
Estimated transaction costs................................. 500
-------
$10,237
=======
Cash........................................................ $ 816
Accounts receivable......................................... 33
Prepaid expenses and other current assets................... 41
Property and equipment...................................... 191
Other assets................................................ 40
Accounts payable............................................ (90)
Accrued expenses............................................ (16)
Deferred revenue............................................ (15)
Long-term obligations....................................... (7)
-------
Fair value of net tangible assets of Legal Anywhere....... 993
Assembled workforce......................................... 300
Customer lists.............................................. 1,700
Trade name.................................................. 200
Current products and technology............................. 2,300
Goodwill.................................................... 4,744
-------
Net assets acquired....................................... $10,237
=======
</TABLE>
The actual allocation of the purchase price will depend on the
composition of Legal Anywhere's net assets on the closing date and Niku's
evaluation of the fair value of the net assets as of the date indicated.
Consequently, the actual allocation of the purchase price could differ from
that presented above.
(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The pro forma combined condensed statements of operations give effect to
the acquisitions as if they had occurred on February 1, 1998.
F-54
<PAGE> 130
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(d) Adjustment to record the amortization of goodwill and intangible assets
resulting from the preliminary allocation of the Proamics purchase
price calculated as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
VALUE USEFUL LIFE AMORTIZATION
------ ----------- ------------
<S> <C> <C> <C>
Assembled workforce.......................... $1,445 3 years $ 483
Customer lists............................... 2,543 4 years 636
Current products and technology.............. 18,672 3 years 6,224
Goodwill..................................... 25,142 5 years 5,028
-------
$12,371
=======
</TABLE>
(e) To reflect the shares of common stock to be issued as consideration for
the acquisition of Proamics and shares of Series D redeemable
convertible preferred stock to be issued as consideration for the
acquisition on an "as if converted" basis.
(f) Adjustment to record the amortization of goodwill and intangible assets
resulting from the preliminary allocation of Legal Anywhere purchase
price calculated as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
VALUE USEFUL LIFE AMORTIZATION
------ ----------- ------------
<S> <C> <C> <C>
Assembled workforce.......................... $ 300 3 years $ 100
Customer lists............................... 1,700 3 years 567
Trade name................................... 200 3 years 67
Current products and technology.............. 2,300 3 years 766
Goodwill..................................... 4,744 3 years 1,581
------
$3,081
======
</TABLE>
(g) To reflect the shares of common stock to be issued as consideration for
the acquisition of Legal Anywhere.
F-55
<PAGE> 131
UNDERWRITING
Niku and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to conditions
specified in the underwriting agreement, each underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Dain Rauscher Incorporated, Thomas Weisel Partners LLC and U.S.
Bancorp Piper Jaffray Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Goldman, Sachs & Co. .......................................
Dain Rauscher Incorporated..................................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total..................................................... 8,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,200,000 shares from Niku to cover such sales. They may exercise that option
for 30 days. If any shares are purchased under this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Niku. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY NIKU
-------------------
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
The per share underwriting discounts and commission equals the public offering
price per share of common stock less the per share amount paid by the
underwriters to Niku.
In November 1999, Tailwind Capital Partners, L.P., an entity affiliated
with Thomas Weisel Partners LLC, purchased an aggregate of 150,000 shares of our
Series D preferred stock for an aggregate purchase price of $750,000. The shares
of our Series D preferred stock beneficially owned by this affiliate of Thomas
Weisel Partners LLC have been deemed by the National Association of Securities
Dealers, Inc. to be underwriting compensation.
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
Niku and its directors, officers, employees and other stockholders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. This restriction does not apply to any issuances
under our existing employee benefit plans or, with respect to individuals,
transfers by gift, will or intestate succession, or with respect to
partnerships, transfers to partners, provided that in each
U-1
<PAGE> 132
case the transferee agrees to be bound by the restriction for any remaining
period, or pursuant to an acquisition or strategic investment transaction,
provided that any person who acquires securities in an acquisition or strategic
investment transaction agrees to be bound by the restriction for any remaining
period. See "Shares Eligible for Future Sale" for a discussion of transfer
restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price for the common stock in this offering will be
negotiated among Niku and the representatives. The factors to be considered in
determining the initial public offering price of the shares in addition to
prevailing market conditions, will be Niku's historical performance, estimates
of the business potential and earnings prospects of Niku, an assessment of
Niku's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Niku has applied for approval for quotation of its common stock on the
Nasdaq National Market under the symbol "NIKU."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of this underwriter in stabilizing or short-sale covering
transactions.
These activities by the underwriters may stabilize, maintain or affect the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Niku has requested the underwriters to reserve for sale, at the initial
public offering price, approximately 400,000 shares of common stock offered in
this offering for business partners, suppliers and other associates of the
Company and its management who have expressed an interest in purchasing the
shares of common stock in the offering. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares which are not purchased by these persons
will be offered by the underwriters to the general public on the same terms as
the other shares offered in this offering.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters of this offering. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the representatives to underwriters that may make Internet distributions on the
same basis as other allocations.
Niku estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1,000,000.
Niku has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act of 1933.
U-2
<PAGE> 133
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on
approximately 78 public offerings of equity securities that have been completed.
Thomas Weisel Partners does not have any material relationship with Niku or any
of its officers, directors or other controlling person, except with respect to
(1) its contractual relationship with Niku pursuant to the underwriting
agreement entered into in connection with this offering and (2) the relationship
of its affiliate with Niku as the holder of 150,000 shares of our Series D
preferred stock.
U-3
<PAGE> 134
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Special Note Regarding Forward-
Looking Statements................. 20
Use of Proceeds...................... 21
Dividend Policy...................... 21
Capitalization....................... 22
Dilution............................. 23
Selected Consolidated Financial
Data............................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................. 40
Management........................... 54
Certain Transactions................. 64
Principal Stockholders............... 66
Description of Capital Stock......... 68
Shares Eligible for Future Sale...... 72
Legal Matters........................ 74
Experts.............................. 74
Where You Can Find Additional
Information........................ 74
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
-------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
8,000,000 Shares
NIKU CORPORATION
Common Stock
-------------------------
[NIKU LOGO]
-------------------------
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 29,146
NASD filing fee............................................. 12,000
Nasdaq National Market initial filing fee................... 1,000
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 350,000
Road show expenses.......................................... 30,000
Printing and engraving expenses............................. 150,000
Blue sky fees and expenses.................................. 600
Transfer agent and registrar fees and expenses.............. 1,000
Miscellaneous............................................... 57,854
----------
Total..................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:
- the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;
- the Registrant may indemnify its other employees and agents to the
fullest extent permitted by the Delaware General Corporation Law, subject
to very limited exceptions;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding;
II-1
<PAGE> 136
- the Registrant may advance expenses, as incurred, to its employees and
agents in connection with a legal proceeding; and
- the rights conferred in the Bylaws are not exclusive.
The Registrant has entered into Indemnification Agreements with each of its
current directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Certificate of Incorporation and to provide additional
procedural protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of the Registrant regarding which
indemnification is sought, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification.
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnification
Agreements entered into between the Registrant and each of its directors and
officers may be sufficiently broad to permit indemnification of the Registrant's
directors and officers for liabilities arising under the Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Form of Underwriting Agreement.............................. 1.01
Registrant's Certificate of Incorporation................... 3.01
Registrant's Bylaws......................................... 3.03
Form of Indemnification Agreement........................... 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the effective date of this Registration
statement, the Registrant has issued and sold the following unregistered
securities:
1. In January 1998, the Registrant issued and sold 10,000,000 shares of
Series F preferred stock to a group of four individual investors and one
venture capital fund and 3,962,500 shares of common stock to a group of
eight individual investors for an aggregate consideration of $539,625 in
cash. This sale of preferred stock was made in reliance on Section 4(2)
and/or Rule 506 of Regulation D under the Securities Act.
2. In February 1998, the Registrant issued and sold 4,285,709 shares of
Series A preferred stock to a group of thirteen individual investors and
three venture capital funds for an aggregate consideration of
$1,499,998.15 in cash. In April and May of 1998, the Registrant issued
and sold an additional 857,142 shares of Series A preferred stock to a
group of three individual investors for an aggregate consideration of
$299,999.70 in cash. This sale of preferred stock was made in reliance
on Section 4(2) and/or Rule 506 of Regulation D under the Securities
Act.
3. In October 1998, the Registrant issued and sold 6,959,997 shares of
Series B preferred stock to a group of five individual investors and
three venture capital funds for an aggregate consideration of
$5,219,997.75 in cash. In November 1998, the Registrant issued and sold
an additional 426,665 shares of Series B preferred stock to a group of
three individual investors and one venture capital fund for an aggregate
consideration of
II-2
<PAGE> 137
$319,998.75 in cash. In December 1998, the Registrant issued and sold an
additional 613,330 shares of Series B preferred stock to a group of five
individual investors, two venture capital funds and one corporate
investor for an aggregate consideration of $459,997.50 in cash. The sale
of these shares was made in reliance on Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
4. In December 1998, in connection with its acquisition of Alyanza Software
Corporation, the Registrant issued 524,995 shares of common stock to a
group of nine individuals, all of whom were former stockholders of
Alyanza. The sale of these shares was made in reliance on Section 4(2)
and/or Rule 506 of Regulation D under the Securities Act.
5. In February 1999, the Registrant issued to Comdisco, Inc. warrants to
purchase up to 630,000 shares of Series B Preferred Stock at an exercise
price of $0.75 per share which expires, if not earlier exercised, upon
the earlier of February 2, 2006 or three years from the effective date
of the Registrant's initial public offering.
6. In May 1999, the Registrant issued and sold 9,987,439 shares of Series C
preferred stock to a group of twelve individual investors, thirteen
venture capital funds and one corporate investor for an aggregate
consideration of $19,875,003.61 in cash. The sale of these shares was
made in reliance on Section 4(2) and/or Rule 506 of Regulation D under
the Securities Act.
7. In November 1999, the Registrant issued and sold 7,998,012 shares of
Series D preferred stock to a group of thirty individual investors,
twenty-nine venture capital funds and two corporate investors for an
aggregate consideration of $39,930,060 in cash. The sale of these shares
was made in reliance on Section 4(2) and/or Rule 506 of Regulation D
under the Securities Act.
8. In November 1999, in connection with its acquisition of Proamics
Corporation, the Registrant issued 3,501,938 shares of common stock and
6,491,203 shares of Series D preferred stock to a group of twenty-six
individual investors, two venture capital funds and one corporate
investor, all of whom were former stockholders of Proamics. The sale of
these shares was made in reliance on Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
9. From its inception on January 8, 1998 through January 29, 2000, the
Registrant has issued 2,848,750 shares of common stock to its employees,
consultants and other service providers through restricted stock
purchases or pursuant to stock purchase agreements.
10. From its inception on January 8, 1998 through January 29, 2000,
Registrant has issued 1,091,566 shares of common stock to its employees
upon exercise of options, and as of January 29, 2000, 4,777,454 shares
of common stock were issuable upon exercise of outstanding options. All
sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act.
11. In January 2000, in connection with its acquisition of Legal Anywhere,
Inc., the Registrant issued 853,717 shares of common stock to a group
of forty-four individual investors, three venture capital funds and one
corporate investor, all of whom were former stockholders of Legal
Anywhere. The sale of these shares was made in reliance on Section
3(a)(10) under the Securities Act.
The recipients of securities in each transaction listed above represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution and appropriate legends
were affixed to the share certificates issued in these transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
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<PAGE> 138
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
1.01 Form of Underwriting Agreement.
2.01+ Agreement and Plan of Reorganization with Alyanza Software
Corporation, dated December 10, 1998.
2.02+ Agreement and Plan of Reorganization with Proamics
Corporation, dated November 16, 1999.
2.03 Agreement and Plan of Reorganization with Legal Anywhere,
Inc., dated January 19, 2000.
3.01+ Registrant's Amended and Restated Certificate of
Incorporation.
3.02 Form of Registrant's Amended and Restated Certificate of
Incorporation (to be filed immediately after the closing of
this offering).
3.03+ Registrant's Amended and Restated Bylaws.
3.04 Registrant's Amended and Restated Bylaws (to be filed
immediately after the closing of this offering).
4.01+ Form of Specimen Certificate for Registrant's common stock.
4.02+ Fourth Amended and Restated Investors' Rights Agreement,
dated November 18, 1999, as amended December 8, 1999.
4.03+ Series F Preferred Stock Purchase Agreement, dated January
23, 1998.
4.04+ Series A Preferred Stock Purchase Agreement, dated February
13, 1998.
4.05+ Series B Preferred Stock Purchase Agreement, dated October
13, 1998.
4.06+ Series C Preferred Stock Purchase Agreement, dated May 13,
1999.
4.07+ Series D Preferred Stock Purchase Agreement, dated November
18, 1999.
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnification Agreement entered into between
Registrant and its directors and executive officers.
10.02+ 1998 Stock Plan, as amended.
10.03+ Form of 2000 Equity Incentive Plan.
10.04+ Form of 2000 Employee Stock Purchase Plan.
10.05+ Business Loan Agreement, dated September 23, 1999, by and
between Mid-Peninsula and Registrant.
10.06+ Subordinated Loan and Security Agreement, dated as of
February 2, 1999, by and between Comdisco, Inc. and
Registrant.
10.07**+ iMap Agreement, dated June 30, 1999, by and between
USinternetworking, Inc. and Registrant.
10.08**+ Software License Agreement, dated June 30, 1999, by and
between USinternetworking, Inc. and Registrant.
10.09**+ Managed Services Agreement dated August 19, 1999, by and
between USinternetworking, Inc. and Registrant.
10.10**+ Promotion Agreement dated September 10, 1999 by and between
CNET, Inc. and Registrant.
10.11**+ Software License and Services Agreement, dated December 22,
1998, by and between Registrant and Sybase, Inc.
10.12**+ Software License Agreement, dated March 19, 1999, by and
between Sybase, Inc. and Registrant.
10.13+ Offer Letter for Joshua Pickus.
10.14+ Offer Letter for Mark Nelson.
10.15+ Offer Letter for Rhonda Dibachi.
10.16+ Offer Letter for Kenneth Johnson.
10.17+ Offer Letter for Harold Slawik.
</TABLE>
II-4
<PAGE> 139
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
10.18+ Restricted Stock Purchase Agreement, dated November 1, 1999,
by and between Joshua Pickus and Registrant.
10.19+ Restricted Stock Purchase Agreement, dated November 18,
1999, by and between Mark Nelson and Registrant.
10.20+ Full Recourse Promissory Note, dated November 11, 1999, by
and between Joshua Pickus and Registrant.
21.01+ List of Registrant's Subsidiaries.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, independent accountants.
23.03 Consent of KPMG LLP, independent accountants.
23.04 Consent of KPMG LLP, independent accountants.
24.01 Power of Attorney (see signature page hereto).
27.01+ Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
** Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
(b) The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts
Other financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective;
and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Redwood
City, State of California, on this 31st day of January, 2000.
NIKU CORPORATION
By: /s/ FARZAD DIBACHI
------------------------------------
Farzad Dibachi
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ FARZAD DIBACHI Chief Executive Officer and Director January 31, 2000
- ------------------------------------------
Farzad Dibachi
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
* Chief Financial Officer January 31, 2000
- ------------------------------------------
Mark Nelson
ADDITIONAL DIRECTORS:
* Director January 31, 2000
- ------------------------------------------
Michael Brooks
* Director January 31, 2000
- ------------------------------------------
John Chen
* Director January 31, 2000
- ------------------------------------------
Terence Garnett
* Director January 31, 2000
- ------------------------------------------
William Raduchel
* Director January 31, 2000
- ------------------------------------------
Maynard Webb
*By: /s/ JOSHUA PICKUS Attorney-in-fact January 31, 2000
- -----------------------------------------
Joshua Pickus
</TABLE>
II-6
<PAGE> 141
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
1.01 Form of Underwriting Agreement.
2.01+ Agreement and Plan of Reorganization with Alyanza Software
Corporation, dated December 10, 1998.
2.02+ Agreement and Plan of Reorganization with Proamics
Corporation, dated November 16, 1999.
2.03 Agreement and Plan of Reorganization with Legal Anywhere,
Inc., dated January 19, 2000.
3.01+ Registrant's Amended and Restated Certificate of
Incorporation.
3.02 Form of Registrant's Amended and Restated Certificate of
Incorporation (to be filed immediately after the closing of
this offering).
3.03+ Registrant's Amended and Restated Bylaws.
3.04 Registrant's Amended and Restated Bylaws (to be filed
immediately after the closing of this offering).
4.01+ Form of Specimen Certificate for Registrant's common stock.
4.02* Fourth Amended and Restated Investors' Rights Agreement,
dated November 18, 1999, as amended December 8, 1999.
4.03+ Series F Preferred Stock Purchase Agreement, dated January
23, 1998.
4.04+ Series A Preferred Stock Purchase Agreement, dated February
13, 1998.
4.05+ Series B Preferred Stock Purchase Agreement, dated October
13, 1998.
4.06* Series C Preferred Stock Purchase Agreement, dated May 13,
1999.
4.07+ Series D Preferred Stock Purchase Agreement, dated November
18, 1999.
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnification Agreement entered into between
Registrant and its directors and executive officers.
10.02+ 1998 Stock Plan, as amended.
10.03+ Form of 2000 Equity Incentive Plan.
10.04+ Form of 2000 Employee Stock Purchase Plan.
10.05+ Business Loan Agreement, dated September 23, 1999, by and
between Mid-Peninsula and Registrant.
10.06+ Subordinated Loan and Security Agreement, dated as of
February 2, 1999, by and between Comdisco, Inc. and
Registrant.
10.07**+ iMap Agreement, dated June 30, 1999, by and between
USinternetworking, Inc. and Registrant.
10.08**+ Software License Agreement, dated June 30, 1999, by and
between USinternetworking, Inc. and Registrant.
10.09**+ Managed Services Agreement dated August 19, 1999, by and
between USinternetworking, Inc. and Registrant.
10.10**+ Promotion Agreement dated September 10, 1999 by and between
CNET, Inc. and Registrant.
10.11**+ Software License and Services Agreement, dated December 22,
1998, by and between Registrant and Sybase, Inc.
10.12**+ Software License Agreement, dated March 19, 1999, by and
between Sybase, Inc. and Registrant.
10.13+ Offer Letter for Joshua Pickus.
10.14+ Offer Letter for Mark Nelson.
10.15+ Offer Letter for Rhonda Dibachi.
10.16+ Offer Letter for Kenneth Johnson.
10.17+ Offer Letter for Harold Slawik.
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
10.18+ Restricted Stock Purchase Agreement, dated November 1, 1999,
by and between Joshua Pickus and Registrant.
10.19+ Restricted Stock Purchase Agreement, dated November 18,
1999, by and between Mark Nelson and Registrant.
10.20+ Full Recourse Promissory Note, dated November 11, 1999, by
and between Joshua Pickus and Registrant.
21.01+ List of Registrant's Subsidiaries.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, independent accountants.
23.03 Consent of KPMG LLP, independent accountants.
23.04 Consent of KPMG LLP, independent accountants.
24.01 Power of Attorney (see signature page hereto).
27.01+ Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
** Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 1.01
NIKU CORPORATION
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
------------------
UNDERWRITING AGREEMENT
................... , 2000
Goldman, Sachs & Co.
Dain Rauscher Incorporated
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Niku Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares (the "Firm Shares") and, at the election of the Underwriters, up
to ........ additional shares (the "Optional Shares") of Common Stock, par value
$0.0001 per share ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
<PAGE> 2
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; such final prospectus, in the
form first filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries (taken as a whole)
has sustained since the date of the latest audited financial statements included
in the Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries (taken as a whole), otherwise
than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries own no real property and have good
and marketable title to all personal property owned by them, free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
2
<PAGE> 3
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any real property
and buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; and each "significant subsidiary" of the Company as
defined in Rule 1.02(w) of Regulation S-X under the Act has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each "significant subsidiary" of the
Company as defined in Rule 1.02(w) of Regulation S-X under the Act have been
duly and validly authorized and issued, are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances or claims;
(h) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any material violation
of the provisions of any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws or the bylaws, rules and
regulations of the National Association Securities Dealers, Inc. (the "NASD") in
connection with the purchase and distribution of the Shares by the Underwriters;
(j) No holder of securities of the Company has any rights, not
effectively satisfied or waived, to the registration of such securities for sale
under the Act in connection with this offering as
3
<PAGE> 4
a result of the filing of the Registration Statement or otherwise in connection
with the offer and sale of the Shares by the Underwriters hereunder;
(k) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound except with respect to any such default as would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole;
(l) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, are accurate, complete and fair;
(m) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, taken as a
whole; and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act");
(o) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes;
(p) KPMG LLP, who have certified certain financial statements of the
Company and its subsidiaries, are independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder; and
(q) The Company has reviewed its operations and that of its subsidiaries
and any third parties with which the Company or any of its subsidiaries has a
material relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries has been or will be affected by the
Year 2000 Problem. As a result of such review, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem has had or will have a
material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries, taken as a whole,
or has resulted in or will result in any material loss or interference with the
Company's business or operations. The "Year 2000 Problem" as used herein means
any significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind is not functioning or will not function, in the case of
dates or time periods occurring after December 31, 1999, at least as effectively
as in the case of dates or time periods occurring prior to January 1, 2000.
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<PAGE> 5
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;
(s) Except as disclosed in the Prospectus, the Company and its
subsidiaries own or possess adequate rights to use, all material trademarks,
service marks, trade mark registrations, service mark registrations, domain
names, copyrights, licenses, inventions and know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) necessary for the conduct of its business as
described in the Prospectus, and, except as set forth in the Prospectus, the
Company has no reason to believe that the conduct of its business will conflict
with, and has not received any written notice of any claim of conflict with, any
such rights of others, except as would not have a material adverse effect on the
business, financial condition or results of operations of the Company; and
neither the Company nor any of its subsidiaries have infringed or are infringing
any trademarks, service marks, trademark registrations, service mark
registrations, domain names or copyrights, which infringement could reasonably
be expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(t) The Company and its subsidiaries possess adequate rights to use all
material patents necessary for the conduct of its business; to the best of the
Company's knowledge, no valid United States patent is or would be infringed by
the activities of the Company, except as would not have a material adverse
effect on the business, financial condition, results of operations or prospects
of the Company; there are no actions, suits or proceedings pending relating to
patents or proprietary information to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of its
subsidiaries is subject which would reasonably be expected to have a material
adverse effect on the Company and its subsidiaries, taken as a whole, and, to
the best of the Company's knowledge, no such actions, suits or proceedings are
threatened by governmental authorities or others; the Company is not aware of
any claim by others that the Company is infringing or otherwise violating the
patents or other intellectual property of others and, except as set forth in the
Prospectus, is not aware of any rights of third parties to any of the Company's
licensed patents or licenses which could materially affect the use thereof by
the Company; and
(u) No material labor dispute with the employees of the Company exists,
or, to the knowledge of the Company, is imminent.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the
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<PAGE> 6
Underwriters agrees, severally and not jointly, to purchase from the Company, at
the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be purchased
and the date on which such Optional Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least forty-eight
hours' prior notice to the Company shall be delivered by or on behalf of
the Company to Goldman, Sachs & Co., through the facilities of the
Depository Trust Company ("DTC"), for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of Federal (same-day) funds to the
account specified by the Company to Goldman, Sachs & Co. at least
forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging
at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery
and payment shall be, with respect to the Firm Shares, 9:30 a.m., New
York City time, on ............., 2000 or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing, and,
with respect to the Optional Shares, 9:30 a.m., New York time, on the
date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such
Optional Shares, or such other time and date as Goldman, Sachs & Co. and
the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such
time and date for delivery of the Optional Shares, if not the First Time
of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by
the Underwriters pursuant to Section 7(k) hereof, will be
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<PAGE> 7
delivered at the offices of Fenwick & West LLP, Two Palo Alto Square,
Palo Alto, CA 94306 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at 6:00 p.m., New York City
time, or such other time as the parties may agree, on the New York
Business Day next preceding such Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by you
promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of
the Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its
best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time, to furnish the Underwriters with copies of the Prospectus in New
York City in such quantities as you may reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration
of nine months after the time of issue of the Prospectus in connection
with the offering or sale of the Shares and if at such time any event
shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not
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<PAGE> 8
misleading, or, if for any other reason it shall be necessary during
such period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales
of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies
as you may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than (1) pursuant to employee stock option and stock
purchase plans described in the Prospectus, (2) upon the exercise,
conversion or exchange of warrants or convertible or exchangeable
securities outstanding as of the date of this Agreement, or (3) pursuant
to an acquisition or strategic investment transaction, provided that any
person who acquires securities in such transaction agrees to be bound by
the restrictions specified in this section for any remaining period),
without Goldman, Sachs & Co.'s prior written consent;
(f) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
to make available to its stockholders consolidated summary financial
information of the Company and its subsidiaries for such quarter in
reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or
any national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
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(i) To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the reasonable fees and disbursements of
counsel for the Underwriters in connection with, securing any required review by
the NASD of the terms of the sale of the Shares; (vi) the cost of preparing
stock certificates; (vii) the cost and charges of any transfer agent or
registrar; and (viii) all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise specifically provided for
in this Section. It is understood, however, that, except as provided in this
Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by
the Commission; and
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<PAGE> 10
all requests for additional information on the part of the Commission
shall have been complied with to your reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions (a draft of each
such opinion is attached as Annex II(a) hereto), dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii),
(vii), (xi) and (xiii) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably request
to enable them to pass upon such matters;
(c) Fenwick & West LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the state of Delaware, with the corporate power and
authority to own its properties and conduct its business as
described in the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued and outstanding
shares of capital stock of the Company (including the Shares
being delivered at such Time of Delivery) have been duly and
validly authorized and issued and are fully paid and
non-assessable; and the Shares conform in all material respects
to the description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification or is subject to no material
liability by reason of failure to be so qualified in any such
jurisdiction except where such failure to be so qualified would
not have a material adverse effect on the Company and its
subsidiaries, taken as a whole (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of
local counsel and in respect of matters of fact upon
certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each "significant subsidiary" of the Company as
defined in Rule 1-02(w) of Regulation S-X under the Act has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation; and all of the issued shares of capital stock of
each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for
directors' qualifying shares) are owned directly or indirectly
by the Company, to such counsel's knowledge, free and clear of
all liens, encumbrances, equities or claims (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect to matters of fact upon
certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions
and certificates);
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(v) Any real property and buildings held under leases
filed as exhibits to the Registration Statement by the Company
and its subsidiaries are held by them under valid and
enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel
may state that they are relying upon opinions of local counsel
or upon opinions of counsel to the lessors of such property and,
in respect to matters of fact, upon certificates of officers of
the Company or its subsidiaries, provided that such counsel
shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(vi) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries, taken as a whole; and, to the best of such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by
others;
(vii) This Agreement has been duly authorized, executed
and delivered by the Company;
(viii) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument filed as an exhibit to the Registration
Statement, which such counsel believes constitute the only such
agreements or instruments required to be filed as exhibits to
the Registration Statement, nor will such action result in any
violation of the provisions of the Certificate of Incorporation
or By-laws of the Company or any material violation of any
statute or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their
properties;
(ix) To such counsel's knowledge, no consent, approval,
authorization, order, registration or qualification of or with
any such court or governmental agency or body is required for
the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement,
except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is
in violation of its Certificate of Incorporation or By-laws or
in default in the performance or observance
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of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument filed as an
exhibit to the Registration Statement, which such counsel
believes constitute the only such agreements or instruments
required to be filed as exhibits to the Registration Statement;
(xi) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock and
under the caption "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(xii) The Company is not an "investment company", as
such term is defined in the Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data therein,
as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act
and the rules and regulations thereunder; although they do not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in the
opinion in subsection (xi) of this section 7(c), they have no
reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by
the Company prior to such Time of Delivery (other than the
financial statements, related schedules and other financial data
therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its
date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery
(other than the financial statements, related schedules and
other financial data therein, as to which such counsel need
express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data therein,
as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described as required.
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(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, KPMG LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto
(the executed copy of the letter delivered prior to the execution of
this Agreement is attached as Annex I(a) hereto and a draft of the form
of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery
is attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information
is given in the Prospectus there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or
preferred stock by any "nationally recognized statistical rating
organization", as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Act, and (ii) no such organization shall have
publicly announced that it has under surveillance or review, with
possible negative implications, its rating of any of the Company's debt
securities or preferred stock;
(g) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange or on NASDAQ;
(ii) a suspension or material limitation in trading in the Company's
securities on NASDAQ; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York or California State
authorities; or (iv) the outbreak or escalation of hostilities involving
the United States or the declaration by the United States of a national
emergency or war, if the effect of any such event specified in this
clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from the directors and executive
officers of the Company, and from [list
13
<PAGE> 14
appropriate stockholders of the Company], substantially to the effect
set forth in Subsection 5(e) hereof in form and substance satisfactory
to you;
(j) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
(k) The Company shall have furnished or caused to be furnished
to you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder to
be performed at or prior to such Time of Delivery, as to the matters set
forth in subsections (a) and (e) of this Section and as to such other
matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not
14
<PAGE> 15
relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof)
15
<PAGE> 16
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company [(including
any person who, with his or her consent, is named in the Registration Statement
as about to become a director of the Company)] and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
16
<PAGE> 17
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
17
<PAGE> 18
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Niku Corporation
By:
----------------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.,
Dain Rauscher Incorporated
Thomas Weisel Partners, LLC
U.S. Bancorp Piper Jaffray Inc.
By:
-------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
18
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co...................................
Dain Rauscher Incorporated............................
Thomas Weisel Partners, LLC...........................
U.S. Bancorp Piper Jaffray Inc........................
--------------- ------------------
Total..................................
=============== ==================
</TABLE>
19
<PAGE> 20
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have
been separately furnished to the Representatives and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations, nothing came to their
attention that cause them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
<PAGE> 21
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with
the corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt
of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in
<PAGE> 22
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives,
except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company and
its subsidiaries, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
<PAGE> 1
EXHIBIT 2.03
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NIKU CORPORATION,
LA ACQUISITION CORPORATION,
LEGAL ANYWHERE, INC.,
ROBERT WIGGINS,
PETER OZOLIN
AND
RYAN MALARKEY
DATED AS OF JANUARY 19, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I THE MERGER.............................................................. 2
1.1 The Merger................................................................. 2
1.2 Effective Time............................................................. 2
1.3 Effect of the Merger....................................................... 2
1.4 Articles of Incorporation; Bylaws.......................................... 2
1.5 Directors and Officers..................................................... 2
1.6 Maximum Aggregate Merger Consideration; Effect on Capital Stock............ 3
1.7 Appraisal Rights........................................................... 4
1.8 Surrender of Certificates.................................................. 5
1.9 Company Stock Options...................................................... 6
1.10 No Further Ownership Rights in Company Capital Stock....................... 7
1.11 Lost, Stolen or Destroyed Certificates..................................... 7
1.12 Tax Consequences........................................................... 7
1.13 Taking of Necessary Action; Further Action................................. 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 8
2.1 Organization and Qualification............................................. 8
2.2 Subsidiaries............................................................... 8
2.3 Company Capital Structure.................................................. 8
2.4 Authority.................................................................. 9
2.5 No Conflict................................................................ 9
2.6 Consents...................................................................10
2.7 Company Financial Statements...............................................10
2.8 No Undisclosed Liabilities.................................................10
2.9 No Changes.................................................................10
2.10 Tax and Other Returns and Reports..........................................12
2.11 Restrictions on Business Activities........................................13
2.12 Title to Properties; Absence of Liens and Encumbrances.....................14
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.13 Governmental Authorization.................................................14
2.14 Intellectual Property......................................................15
2.15 Product Warranties; Defects; Liabilities...................................19
2.16 Agreements, Contracts and Commitments......................................20
2.17 Interested Party Transactions..............................................21
2.18 Compliance with Laws.......................................................22
2.19 Litigation.................................................................22
2.20 Insurance..................................................................22
2.21 Minute Books...............................................................22
2.22 Environmental Matters......................................................22
2.23 Brokers' and Finders' Fees.................................................23
2.24 Employee Matters and Benefit Plans.........................................23
2.25 Bank Accounts..............................................................27
2.26 Indemnification Obligations................................................28
2.27 Representations Complete...................................................28
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...............28
3.1 Organization, Good Standing and Qualification..............................28
3.2 Capitalization and Voting Rights...........................................28
3.3 Subsidiaries...............................................................29
3.4 Authorization..............................................................29
3.5 Consents and Agreements....................................................30
3.6 Litigation.................................................................30
3.7 Proprietary Information and Inventions Agreements..........................30
3.8 Title to Property and Assets...............................................30
3.9 Financial Statements.......................................................31
3.10 Books and Records..........................................................31
3.11 Rights of Registration.....................................................31
-ii-
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3.12 Proprietary Rights.........................................................31
3.13 No Conflict of Interest....................................................32
3.14 Tax Returns................................................................32
3.15 Compliance with Laws.......................................................32
3.16 Year 2000 Compliance.......................................................32
3.17 No Contravention...........................................................33
3.18 Disclosure.................................................................33
ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION................................33
4.1 Securities Act Exemption...................................................33
4.2 Stock Restrictions.........................................................34
4.3 The Company Shareholders' Restrictions Regarding Securities
Law Matters..............................................................34
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME.....................................34
5.1 Conduct of Business of the Company.........................................34
5.2 Notices....................................................................37
ARTICLE VI ADDITIONAL AGREEMENTS..................................................38
6.1 Preparation of Oregon Fairness Hearing Documents and Information
Statement................................................................38
6.2 Shareholder Approval.......................................................38
6.3 Access to Information......................................................39
6.4 Confidentiality............................................................39
6.5 Consents...................................................................39
6.6 Legal Conditions to the Merger.............................................39
6.7 Best Efforts; Additional Documents and Further Assurances..................39
6.8 Notification of Certain Matters............................................40
6.9 Reorganization.............................................................40
6.10 Voting Agreements..........................................................40
6.11 Non-Competition Agreements.................................................40
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6.12 Blue Sky Laws..............................................................40
6.13 Benefit Arrangements.......................................................40
6.14 No Solicitation............................................................41
6.15 Declaration of Registration Rights.........................................42
ARTICLE VII CONDITIONS TO THE MERGER..............................................42
7.1 Conditions to Obligations of Each Party to Effect the Merger...............42
7.2 Additional Conditions to Obligations of the Company........................43
7.3 Additional Conditions to the Obligations of Parent and Merger Sub..........43
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...................45
8.1 Survival of Representations and Warranties.................................45
8.2 Escrow Arrangements........................................................45
8.3 Indemnification by Parent..................................................54
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER......................................55
9.1 Termination................................................................55
9.2 Effect of Termination......................................................56
9.3 Amendment..................................................................56
9.4 Extension; Waiver..........................................................56
ARTICLE X GENERAL PROVISIONS......................................................56
10.1 Notices....................................................................56
10.2 Expenses...................................................................58
10.3 Interpretation.............................................................58
10.4 Counterparts...............................................................58
10.5 Entire Agreement; Assignment...............................................58
10.6 Severability...............................................................59
10.7 Other Remedies.............................................................59
10.8 Governing Law..............................................................59
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C> <C>
10.9 Rules of Construction......................................................59
10.10 Specific Performance.......................................................59
</TABLE>
-v-
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of January 19, 2000 among Niku Corporation, a Delaware
corporation ("PARENT"), LA Acquisition Corporation, an Oregon corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), Legal Anywhere, Inc., an
Oregon corporation (the "COMPANY"), and Robert Wiggins, Peter Ozolin and Ryan
Malarkey (collectively, the "EXECUTIVES").
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"MERGER") of Merger Sub with and into the Company in accordance with this
Agreement and the Oregon Business Corporation Act ("OREGON LAW"). Upon
consummation of the Merger, Merger Sub will cease to exist.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "Code").
C. The Board of Directors of the Company has (i) determined that the
Merger is consistent with and in furtherance of the long-term strategy of the
Company and fair to, and in the best interests of, the Company and its
shareholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) determined unanimously to
recommend that the shareholders of the Company adopt and approve the principal
terms of this Agreement and approve the Merger.
D. The respective Boards of Directors of Parent and Merger Sub have
approved this Agreement and the Merger.
E. As a condition and inducement to Parent to enter into this Agreement,
each of the Executives and Thomas J. Holce, Frank Gill, Milton D. Mittelstedt,
Stephen E. Babson and Graham Weeks shall, at the request of Parent, enter into a
Voting Agreement substantially in the form attached hereto as Exhibit A (the
"VOTING AGREEMENT").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent to enter into this Agreement, each Executive is
entering into a Non-Competition Agreement substantially in the form attached
hereto as Exhibit B (the "NON-COMPETITION AGREEMENT").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
<PAGE> 8
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and Oregon Law,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "SURVIVING CORPORATION."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 9.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than three business days, following
satisfaction or waiver of the conditions set forth in Article VII, at the
offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California,
unless another place or time is agreed to by Parent and the Company. The date
upon which the Closing actually occurs is herein referred to as the "CLOSING
DATE." On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing Articles of Merger, in substantially the form attached
hereto as Exhibit C (the "ARTICLES OF MERGER"), with the Secretary of State of
the State of Oregon, in accordance with the relevant provisions of Oregon Law
(the time of acceptance by the Secretary of State of Oregon of such filing being
referred to herein as the "EFFECTIVE TIME").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Oregon Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the rights and property of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts and liabilities of the Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be the Articles of Incorporation of the Company until
thereafter amended as provided by law and such Articles of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective
Time, the Bylaws of the Company, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
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<PAGE> 9
1.6 Maximum Aggregate Merger Consideration; Effect on Capital Stock.
(a) The aggregate maximum number of shares of common stock of Parent
("PARENT COMMON STOCK") to be issued in exchange for the acquisition by Parent
of all outstanding common stock of the Company ("COMPANY COMMON STOCK") and all
outstanding unexpired and unexercised options, warrants and other rights to
acquire any capital stock of the Company ("COMPANY CAPITAL STOCK") shall be
995,000 (the "AGGREGATE SHARE NUMBER"). Subject to the terms and conditions of
this Agreement, as of the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, the Company or the holder of any shares of
Company Common Stock, the holder of any options, warrants or other rights to
acquire or receive shares of Company Common Stock, the following shall occur:
(b) Conversion of Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Common Stock to be canceled pursuant to Section 1.6(e) and
any "DISSENTING SHARES" (as defined and to the extent provided in Section
1.7(a))) will be canceled and extinguished and be converted automatically into
the right to receive that number of shares of Parent Common Stock equal to the
product of (i) one share of Company Common Stock multiplied by (ii) the
Consideration Factor (as defined in Section 1.6(c) below) (the "EXCHANGE RATIO")
upon surrender of the certificate representing such share of Company Common
Stock in the manner provided in Section 1.8.
(c) Definitions.
(i) Consideration Factor. The "CONSIDERATION FACTOR" shall be
equal to the number (rounded to the sixth decimal place) computed using the
following formula:
X = A
-
D
Where X = the Consideration Factor
A = the Aggregate Share Number
D = the Diluted Shares (as defined below)
(ii) Diluted Shares. The "DILUTED SHARES" shall mean that number
equal to the sum of (A) the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (regardless of whether such
shares are unvested, subject to any right of repurchase, risk of forfeiture or
other condition in favor of the Company at such time); plus (B) the number of
shares of Company Common Stock issuable upon exercise of any Company Options (as
defined in Section 1.9) outstanding at the Effective Time (regardless of whether
such Company Options are vested); plus (C) the number of shares of Company
Common Stock issuable in connection with any other options, warrants, calls,
rights, exchangeable or convertible securities, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell or cause to be issued,
delivered or sold any Company Common Stock immediately prior to the Effective
Time.
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<PAGE> 10
(d) Escrow. Ten percent (10%) of the number of shares of Parent
Common Stock to be issued at the Effective Time pursuant to Section 1.6(b)
hereof shall be held in escrow (the "ESCROW AMOUNT") pursuant to Article VIII of
this Agreement to be available to compensate Parent and its affiliates
(including the Surviving Corporation) for any "LOSSES" (as defined in Section
8.2 hereof) incurred in connection with this Agreement and the transactions
contemplated hereby.
(e) Cancellation of Parent-Owned and Company-Owned Stock. Each share
of Company Common Stock owned by Merger Sub, Parent, the Company or any direct
or indirect wholly-owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(f) Capital Stock of Merger Sub. Each share of common stock of
Merger Sub outstanding immediately prior to the Effective Time will be converted
into one outstanding share of Company Common Stock.
(g) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Common Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(h) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued at the Effective Time, but in lieu thereof, each holder of shares
of Company Common Stock who would otherwise be entitled to a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall be entitled to receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) $11.00.
1.7 Appraisal Rights. (a) Notwithstanding any provision of this
Agreement to the contrary (other than Section 1.7(b)), any shares of Company
Common Stock held by a holder who has demanded and perfected appraisal rights
for such shares in accordance with Sections 60.554 and 60.564 of Oregon Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("DISSENTING SHARES"), shall not be converted
into or represent a right to receive Parent Common Stock pursuant to Section
1.6, but the holder thereof shall only be entitled to such rights as are granted
by Oregon Law. From and after the Effective Time, a holder of Dissenting Shares
shall not be entitled to exercise any of the voting rights or other rights of a
shareholder of the Surviving Corporation.
(b) Notwithstanding the provisions of Section 1.6(b) hereof, if any
holder of shares of Company Common Stock who demands appraisal of such shares
under Oregon Law shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, then, as of the later of the Effective
Time and the occurrence of such event, such holder's shares shall automatically
be converted into and represent only the right to receive Parent Common Stock
and cash for fractional shares as provided in Section 1.6, without interest
thereon, upon surrender of the certificate representing such shares.
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<PAGE> 11
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Common Stock, withdrawals of such
demands, and any other instruments served pursuant to Oregon Law and received by
the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Oregon Law. The Company
shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any demands for appraisal of capital stock of the
Company or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to shareholders of the Company the shares of
Parent Common Stock issuable pursuant to Section 1.6 in exchange for outstanding
shares of Company Common Stock; provided, however, that, on behalf of the
holders of Company Common Stock, and pursuant to Article VIII hereof, Parent
shall deposit into an escrow account a number of shares of Parent Common Stock
equal to the Escrow Amount out of the aggregate number of shares of Parent
Common Stock otherwise issuable pursuant to Section 1.6. The portion of the
Escrow Amount contributed on behalf of each holder of Company Common Stock shall
be equal to ten percent (10%) of the number of shares of Parent Common Stock
which, in each case, such holder would otherwise be entitled to receive under
Section 1.6 by virtue of ownership of outstanding shares of Company Common
Stock.
(b) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to Parent and shall be in such form
and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to Parent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock (less the number
of shares of Parent Common Stock, if any, to be deposited in the Escrow Fund on
such holder's behalf pursuant to Article VIII hereof), plus cash in lieu of
fractional shares in accordance with Section 1.6(h), to which such holder is
entitled pursuant to Section 1.6, and the Certificate so surrendered shall
forthwith be canceled. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VIII hereof, Parent
shall cause to be distributed to the Escrow Agent (as defined in Article VIII) a
certificate or certificates representing that number of shares of Parent Common
Stock which in the aggregate equal the Escrow Amount, which shall be registered
in the name of the Escrow Agent. As set forth in Section 8.2(c)(iii), such
shares shall be beneficially owned by the holders on whose behalf such shares
were deposited in the Escrow Fund and such shares shall be available to
compensate Parent as provided in Article VIII. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
5
<PAGE> 12
Company Common Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent Common Stock into which such
shares of Company Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6.
(c) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(d) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of Parent, the Surviving Corporation or any party hereto shall
be liable to a holder of shares of Parent Common Stock or Company Common Stock
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 Company Stock Options. At the Effective Time, each of the then
outstanding Company Options (as defined below) shall be assumed by Parent and
converted into nonqualified options under Parent's 1998 Stock Plan to purchase
that number of shares of Parent Common Stock (a "PARENT OPTION") obtained by
multiplying each share of Company Common Stock in the relevant Company Option by
the Exchange Ratio. If the foregoing calculation results in a Parent Option
being exercisable for a fraction of a share of Parent Common Stock, then the
number of shares of Parent Common Stock subject to such option shall be rounded
down to the nearest whole number of shares. The exercise price of each Parent
Option shall be equal to the exercise price of the Company Option from which
such Parent Option was converted divided by the Exchange Ratio, rounded up to
the nearest whole cent. The Parent Options shall be fully vested, except to the
extent that any Company Options held by the Executives are subject to vesting
following the Closing. As a condition to the receipt of and by accepting any
such Parent Options, each holder of a Company Option shall forfeit all rights,
preferences and privileges associated with its Company Options, including
(without limitation) any notice provisions relating to the Merger. The terms and
conditions of Company Options will be as set forth in Parent's 1998 Stock Plan,
provided that the
6
<PAGE> 13
Parent Options shall have the expiration dates of the Company Options for which
such Parent Options are being substituted (subject to terms and conditions
relating to termination of optionees). The Company will take or cause to be
taken, all actions that are necessary, proper or advisable under the Stock Plans
(as defined below) to make effective the transactions contemplated by this
Section 1.9. Within a reasonable time following the Effective Time, Parent will
issue to each holder of an outstanding Company Option a document evidencing the
substituted Parent Option. "COMPANY OPTIONS" means any option or warrant granted
and not exercised or expired, to a current or former employee, director or
independent contractor of the Company or any of its subsidiaries or any
predecessor thereof or to any other party to purchase Company Common Stock
pursuant to any stock option, warrant, stock bonus, stock award or stock
purchase plan, program or arrangement of the Company or any subsidiaries or any
predecessor thereof (collectively, the "STOCK PLANS") or any other contract or
agreement entered into by the Company or any of its subsidiaries.
1.10 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.11 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, Parent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its reasonable and good faith discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver an indemnity agreement, in such customary form
as it may reasonably direct, against any claim that may be made against Parent
with respect to the certificates alleged to have been lost, stolen or destroyed.
1.12 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section
368(a)(2)(E) of the Code (and this Agreement is intended to constitute a plan of
reorganization for purposes of Section 368 of the Code).
1.13 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
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<PAGE> 14
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company (including its subsidiaries) and each of the Executives
hereby jointly and severally represent and warrant to Parent and Merger Sub,
subject to the exceptions specifically disclosed in writing in the disclosure
letter dated as of the date hereof (the "COMPANY SCHEDULES"), as follows:
2.1 Organization and Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Oregon. The
Company has the corporate power and corporate authority to own, lease and
operate its properties and to carry on its business as now being conducted and
as proposed to be conducted and to perform its obligations under any Contracts
(as such term is defined in Section 2.16 hereof) by which it is bound. The
Company is duly qualified or licensed to do business and is in good standing as
a foreign corporation in each jurisdiction (each of which is listed on Schedule
2.1) in which the failure to be so qualified or licensed would have a material
adverse effect on the business, assets (including intangible assets), financial
condition, results of operations or sales prospects of the Company identified by
the Company on or prior to the date hereof in connection with Parent's
investigation of the Company (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). The Company has delivered a true and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, to Parent. Such Articles of
Incorporation and Bylaws are in full force and effect. The Company is not in
violation of any of the provisions of its Articles of Incorporation or Bylaws.
2.2 Subsidiaries. The Company does not have any subsidiaries or
affiliated companies and does not otherwise own, directly or indirectly, any
shares of capital stock or any equity, debt or similar interest in or any
interest convertible, exchangeable or exercisable for any equity, debt or
similar interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity. The Company
has not agreed nor is the Company obligated to make or be bound by any written,
oral or other agreement, contract, sub-contract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sub-license,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or as may hereafter be in effect under which it may become
obligated to make any future investment in or capital contribution to any other
entity.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of
10,000,000 shares of authorized Common Stock, of which 3,657,280 shares are
issued and outstanding, and 5,000,000 shares of preferred stock, none of which
is issued or outstanding. The Company has not authorized or issued any other
class or series of equity securities (other than Company Common Stock and such
authorized but unissued preferred stock). The Company Common Stock is held of
record by the persons, with the addresses of record and in the amounts set forth
on Schedule 2.3(a). No shares of Company Common Stock held by any shareholder
are subject to a repurchase right in favor of the Company. All outstanding
shares of Company Common Stock are duly authorized, validly issued,
8
<PAGE> 15
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of the Company or any agreement
to which the Company is a party or by which it is bound. All issued and
outstanding shares of Company Common Stock have been offered, sold and delivered
by the Company in compliance with applicable federal and state securities laws.
(b) The Company has reserved 908,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Company's Stock Plans. The
Company has issued 605,250 Company Options under the Stock Plans. The number of
Company Options awarded to each participant in the Stock Plans and the number of
Company Options in which each participant will be vested at the Closing is set
forth in Schedule 2.3(b).
(c) Except for the Company Options described in Schedule 2.3(b),
there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which the Company is a
party or by which it is bound obligating the Company to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of the
Company or obligating the Company to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, equity security, call, right,
commitment or agreement.
(d) As of the Closing Date, there will be no outstanding options,
rights or obligations of the Company pursuant to the Stock Plans or any similar
plan.
(e) As of the date of this Agreement, except as contemplated by this
Agreement and as described in Schedule 2.3(e), there are no registration rights
agreements, no voting trust, proxy or other similar agreement or understanding
to which the Company is a party or by which it is bound with respect to any
equity security of any class of the Company.
(f) As a result of the Merger, Parent will be the record and sole
beneficial owner of all Company Capital Stock and rights to acquire or receive
Company Capital Stock.
2.4 Authority. Subject only to the requisite approval of the Merger and
the principal terms of this Agreement by the Company's shareholders, the Company
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. The Company's Board of
Directors has unanimously approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company, enforceable in accordance with its terms.
2.5 No Conflict. Except as set forth on Schedule 2.5, subject only to
the approval of the principal terms of this Agreement and the Merger by the
Company's shareholders, the execution and delivery of this Agreement by the
Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such
9
<PAGE> 16
event, a "CONFLICT") (a) any provision of the Articles of Incorporation or
Bylaws of the Company or (b) any material mortgage, indenture, lease, contract
or other material agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets.
2.6 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party (so as not to trigger any Conflict), is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (a) the
filing of the Articles of Merger with the Oregon Secretary of State, (b) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and (c) such other consents, waivers, authorizations, filings,
approvals and registrations that are set forth on Schedule 2.6.
2.7 Company Financial Statements. Schedule 2.7 sets forth true and
correct copies of the Company's audited balance sheets as of December 31, 1998
and December 31, 1999 and the related audited statements of income for the
respective twelve-month periods then ended (the "COMPANY FINANCIALS"). The
Company Financials are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and
consistent with each. The Company Financials present fairly in all material
respects the financial condition and operating results of the Company as of the
dates and during the periods indicated therein. The Company's Balance Sheet as
of December 31, 1999 shall be referred to herein as the "CURRENT COMPANY BALANCE
SHEET."
2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8, the
Company does not have, as of the date hereof, any material liability,
indebtedness or obligation of any type, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be reflected in
financial statements in accordance with GAAP), which individually or in the
aggregate, (a) has not been reflected in the Current Company Balance Sheet or
(b) has not been set forth in the Company Schedules.
2.9 No Changes. Except as set forth in Schedule 2.9, since December 31,
1999 and through the date of this Agreement, there has not been, occurred or
arisen any:
(a) material transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(c) capital expenditure or capital commitment by the Company of
$10,000 in any individual case or $50,000 in the aggregate (other than
commitments to pay expenses incurred in connection with this transaction);
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(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) change in accounting methods, principals or practices (including
any change in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its material assets,
including, without limitation, writing down the value of capitalized inventory
or writing off material notes or material accounts receivable;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to any Company Capital Stock, or any direct or
indirect redemption, purchase or other acquisition by the Company of any Company
Capital Stock;
(h) split, combination or reclassification of any Company Capital
Stock;
(i) agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
is bound or any termination, extension, amendment or modification of the terms
of any agreement, contract, covenant, instrument, lease, license or commitment
to which the Company is a party or by which it or any of its assets is bound,
except as set forth in Schedule 2.16(a);
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, or creation of any lien or security interest in
such assets or properties except in the ordinary course of business and
consistent with past practices;
(k) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(l) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any material amount of any
account receivable of the Company;
(m) except as set forth in Schedule 2.14, (i) sale by the Company of
any Company Intellectual Property (as defined in Section 2.14 below) or the
entering into of any license agreement (other than end-user license agreements
entered into by the Company in the ordinary course of business consistent with
past practice), distribution agreement, reseller agreement, security agreement,
assignment or other conveyance or option for the foregoing, with respect to the
Company Intellectual Property with any person or entity, (ii) the purchase or
other acquisition of any Intellectual Property (as defined in Section 2.14
below) or the entering into of any license agreement, distribution agreement,
reseller agreement, security agreement, assignment or other conveyance or option
for the foregoing, with respect to the Intellectual Property of any person or
entity or (iii) the change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to Company;
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(n) issuance or sale by the Company of any Company Capital Stock, or
securities exchangeable, convertible or exercisable therefor, or any securities,
warrants, options or rights to purchase any of the foregoing or any amendment of
any existing equity arrangement; or
(o) agreement by the Company or any officer or employees thereof to
do any of the things described in the preceding clauses (a) through (n) (other
than negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.10 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX"
or, collectively, "TAXES", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.10:
(i) The Company has prepared and filed all required federal,
state, local and foreign returns, estimates, information statements and reports
("RETURNS") relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct in all material
respects and have been completed in accordance with applicable law.
(ii) The Company: (A) has paid or accrued all Taxes it is
required to pay or accrue and (B) has withheld with respect to its employees all
federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld.
(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extended the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in the
Company Financials, whether asserted or unasserted, contingent or otherwise, and
the Company has not incurred any liability for Taxes since the date of the
Current Company Balance Sheet other than in the ordinary course of business
consistent with past practice.
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(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Returns for all periods since
January 1, 1997.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"LIENS") on the assets of the Company relating to or attributable to Taxes,
other than Liens for Taxes not yet due and payable as of such time.
(viii) To the Company's knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) There is no contract, agreement, plan or arrangement to
which the Company is a party, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement. The
Company has not been a member of an affiliated group (within the meaning of
Section 1504(a) of the Code) filing a consolidated income tax return.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) No adjustment or deficiency relating to any Return filed
or required to be filed by the Company has been proposed formally or informally
by any tax authority to the Company or any representative thereof.
(xv) The Company utilizes the accrual method of accounting for
U.S. federal income tax purposes.
(xvi) The Company has not distributed the stock of any
corporation in a transaction satisfying the requirements of Section 355 of the
Code. No Company Capital Stock has been distributed in a transaction satisfying
the requirements of Section 355 of the Code.
2.11 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), judgment, injunction, order or decree to which the
Company is a party or otherwise
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binding upon the Company that has or reasonably would be expected to have the
effect of prohibiting or impairing any business practice of the Company, any
acquisition of property (tangible or intangible) by the Company or the conduct
of business by the Company. Without limiting the foregoing, the Company has not
entered into any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its products or services to any class
of customers, in any geographic area, during any period of time or in any
segment of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company does not own any real property, nor has it ever
owned any real property. Schedule 2.12(a) sets forth a list of all real property
currently leased by the Company and the name of each lessor. The Company has
provided true and complete copies of all real property leases and amendments
thereto to Parent. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default, or to the
Company's knowledge, any event which with notice or lapse of time, or both,
would constitute a default. To the Company's knowledge, neither the operations
of the Company on such real property nor such real property, including
improvements thereon, violate any applicable building code, zoning requirement,
or classification or pollution control ordinance or statute relating to the
particular property or such operations, and such non-violation is not dependent,
in any instance, on so-called non-conforming use exceptions.
(b) The Company has good and marketable title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens (as defined in Section
2.10(b)(vii)), except as reflected in the Company Financials or in Schedule
2.12(b) and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) Schedule 2.12(c) lists all items of material equipment (the
"EQUIPMENT") owned or leased by the Company. All facilities, machinery,
equipment, fixtures, vehicles, and other properties owned, leased or used by the
Company are (i) adequate for the conduct of the business of the Company as
currently conducted and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear and reasonably fit and usable for
the purposes for which they are being used, except where a failure to be in such
condition would not have a Material Adverse Effect on the Company.
2.13 Governmental Authorization. Schedule 2.13 accurately lists each
material consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (a) pursuant to which the Company currently
operates or holds any interest in any of its properties or (b) which is required
for the operation of its business or the holding of any such interest (herein
collectively called "COMPANY AUTHORIZATIONS"). The Company Authorizations are in
full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business or hold any interest in
its properties or assets. To the Company's knowledge,
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the Company is in compliance in all material respects with the terms of the
Company Authorizations.
2.14 Intellectual Property.
(a) Definitions. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
(i) "TECHNOLOGY" shall mean any or all of the following: (A)
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (B)
inventions (whether or not patentable), improvements and technology; (C)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secrets and know how; (D) databases, data compilations
and collections and technical data; (E) logos, trade names, trade dress,
trademarks and service marks; (F) World Wide Web addresses, domain names and
sites; (G) tools, methods and processes; and (H) all instances of the foregoing
in any form and embodied in any media.
(ii) "INTELLECTUAL PROPERTY RIGHTS" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (A) all
United States and foreign patents and utility models and applications therefor
and all reissues, divisions, re-examinations, renewals, extensions,
provisionals, continuations and continuations-in-part thereof and equivalent or
similar rights anywhere in the world in inventions and discoveries, including,
without limitation, invention disclosures ("Patents"); (B) all trade secrets and
other rights in know-how and confidential or proprietary information; (C) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("COPYRIGHTS"); (D) all mask
works, mask work registrations and applications therefor, and any equivalent or
similar rights in semiconductor masks, layouts, architectures or topology
("MASKWORKS"); (E) all industrial designs and any registrations and applications
therefor throughout the world; (F) all rights in World Wide Web addresses and
domain names and applications and registrations therefor; (G) all trade names,
logos, common law trademarks and service marks, trademark and service mark
registrations and applications therefor and all goodwill associated therewith
throughout the world ("TRADEMARKS"); and (H) any similar, corresponding or
equivalent rights to any of the foregoing anywhere in the world.
(iii) "COMPANY INTELLECTUAL PROPERTY" shall mean any Technology
and Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned (in whole or in part) by the
Company.
(iv) "REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean all
United States, international and foreign: (A) Patents, including applications
therefor; (B) registered Trademarks, applications to register Trademarks,
including intent-to-use applications, or other registrations or applications
related to Trademarks; (C) Copyrights registrations and applications to register
Copyrights; (D) Mask Work registrations and applications to register Mask Works;
and (E) any other Technology that is the subject of an application, certificate,
filing, registration or other
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document issued by, filed with, or recorded by, any state, government or other
public or private legal authority at any time.
(v) For all purposes of this Section 2.14, the term "COMPANY"
shall be deemed to refer to both Company and any of its subsidiaries.
(b) Schedule 2.14(b) lists all Registered Intellectual Property
Rights owned by, filed in the name of, or applied for, by the Company (the
"COMPANY REGISTERED INTELLECTUAL PROPERTY RIGHTS") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property Rights or Company
Intellectual Property.
(c) Each registration of Company Registered Intellectual Property
Rights is valid and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property
Rights have been paid and all necessary documents and certificates in connection
with such Company Registered Intellectual Property Rights have been filed with
the relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property Rights. Except as set forth on
Schedule 2.14(c), there are no actions that must be taken by the Company within
one hundred twenty (120) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any responses to PTO
office actions, documents, applications or certificates for the purposes of
obtaining, maintaining, perfecting or preserving or renewing any Registered
Intellectual Property Rights. In each case in which the Company has acquired all
rights, title and interest in, as opposed to the right to use, any Technology or
Intellectual Property Right from any person, the Company or such Subsidiary has
obtained a valid and enforceable assignment sufficient to irrevocably transfer
all rights in such Technology and the associated Intellectual Property Rights to
the Company. Except as set forth on Schedule 2.14(c), the Company has not
claimed a particular status, including "SMALL BUSINESS STATUS," in the
application for any Intellectual Property Rights, which claim of status was not
at the time made, or which has since become, inaccurate or false or that will no
longer be true and accurate as a result of the Closing.
(d) The Company has no knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. Except
as set forth on Schedule 2.14(d), without limiting the foregoing, the Company
knows of no information, materials, facts or circumstances, including any
information or fact that would constitute prior art, that would render any of
the Company Registered Intellectual Property Rights invalid or unenforceable, or
would adversely effect any pending application for any Company Registered
Intellectual Property Right and the Company has not misrepresented, or failed to
disclose, and has no knowledge of any misrepresentation or failure to disclose,
any fact or circumstances in any application for any Company Registered
Intellectual Property Right that would constitute fraud or a misrepresentation
with respect to such application or that would otherwise affect the validity or
enforceability of any Company Registered Intellectual Property Right.
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(e) Each item of Company Intellectual Property is free and clear of
any Liens except for non-exclusive licenses granted to end-user customers in the
ordinary course of business. The Company is the exclusive owner of all Company
Intellectual Property subject only to non-exclusive licenses granted to
distributors, resellers and end-users. Without limiting the foregoing, to the
knowledge of the Company: (i) the Company is the exclusive owner of all
Trademarks used in connection with the operation or conduct of the business of
the Company, including the sale, licensing, distribution or provision of any
products or services by the Company; and (ii) except as set forth on Schedule
2.14(e), the Company owns exclusively, and has good title to, all Copyrighted
Works that are products of the Company or which the Company otherwise purports
to own.
(f) Except as set forth in Schedule 2.14(f), all Company
Intellectual Property will be fully transferable, alienable or licensable by
Surviving Corporation and/or Parent without restriction except that any such
transfer, alienation or license shall be subject to non-exclusive licenses
granted to end user customers in the ordinary course of the Company's business
prior to the Merger and without payment of any kind to any third party other
than royalties and fees payable in the ordinary course of the Company's business
prior to the Merger.
(g) To the extent that any Company Technology has been developed or
created by a third party for the Company, the Company has a written agreement
with such third party with respect thereto and the Company thereby either (i)
has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to all such third party's Intellectual Property
Rights in such Technology by operation of law or by valid assignment, to the
fullest extent it is legally possible to do so.
(h) Except as set forth on Schedule 2.14 and with the exception of
"shrink-wrap" or similar widely-available commercial end-user licenses, all
Technology used in or necessary to the conduct of Company's business as
presently conducted or currently contemplated to be conducted by the Company was
written and created solely by either (i) employees of the Company acting within
the scope of their employment or (ii) by third parties who have validly and
irrevocably assigned all of their rights, including Intellectual Property Rights
therein, to the Company, and no third party owns or has any rights to any of the
Company Intellectual Property.
(i) All current and former employees of the Company and current and
former consultants and contractors engaged by the Company have entered into a
valid and binding written proprietary information confidentiality and assignment
agreement with the Company sufficient to vest title in the Company of all
Technology, including all accompanying Intellectual Property Rights, created by
such employee in the scope of his or her employment with the Company.
(j) Except as set forth on Schedule 2.14, no person who has licensed
Technology or Intellectual Property Rights to the Company has ownership rights
or license rights to improvements made by the Company in such Technology or
Intellectual Property Rights.
(k) The Company has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership
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of, any Technology or Intellectual Property Right that is or was Company
Intellectual Property, to any other person.
(l) Other than inbound "shrink-wrap" and similar publicly available
commercial binary code end-user licenses and outbound "shrink-wrap" licenses in
the form set forth on Schedule 2.14(l), Schedule 2.14(l) lists all contracts,
licenses and agreements to which the Company is a party with respect to any
Technology or Intellectual Property Rights. The Company is not in breach of nor
has the Company failed to perform under, any of the foregoing contracts,
licenses or agreements and, to the Company's knowledge, no other party to any
such contract, license or agreement is in breach thereof or has failed to
perform thereunder.
(m) Schedule 2.14(m) lists all material contracts, licenses and
agreements between the Company and any other person wherein or whereby the
Company has agreed to, or assumed, any obligation or duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any obligation
or liability or provide a right of rescission with respect to the infringement
or misappropriation by the Company or such other person of the Intellectual
Property Rights of any person other than the Company.
(n) To the knowledge of the Company, there are no contracts,
licenses or agreements between the Company and any other person with respect to
Company Intellectual Property under which there is any dispute regarding the
scope of such agreement, or performance under such agreement, including with
respect to any payments to be made or received by the Company thereunder.
(o) To the knowledge of the Company, the operation of the business
of the Company as it currently is conducted or is contemplated to be conducted
by the Company, including but not limited to the design, development, use,
import, branding, advertising, promotion, marketing, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not and will not and will not
when conducted by Parent and/or Surviving Corporation in substantially the same
manner following the Closing, infringe or misappropriate any Intellectual
Property Right of any person, violate any right of any person (including any
right to privacy or publicity) or constitute unfair competition or trade
practices under the laws of any jurisdiction, and the Company has not received
notice from any person claiming that such operation or any act, product,
technology or service (including products, technology or services currently
under development) of the Company infringes or misappropriates any Intellectual
Property Right of any person or constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
(p) To the Company's knowledge, no person is infringing or
misappropriating any Company Intellectual Property Right.
(q) No Company Intellectual Property or service of the Company is
subject to any proceeding or outstanding decree, order, judgment or settlement
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
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(r) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company or (iii) conduct
or statement of the Company constitutes obscene material, a defamatory statement
or material, false advertising or, to the Company's knowledge, otherwise
violates in any material respect any law or regulation.
(s) To the Company's knowledge, except as set forth on Schedule
2.14(s), and except for Technology or Intellectual Property subject to "shrink
wrap" or similar widely available commercial end user licenses, the Company
Intellectual Property constitutes all the Technology and Intellectual Property
Rights used in and/or necessary to the conduct of the business of the Company as
it currently is conducted, including, without limitation, the design,
development, manufacture, use, import and sale of products, technology and
performance of services.
(t) Except to the extent resulting from the continuation of
contracts and licenses of the Company following the Closing on the terms
applicable prior to the Closing, and except for the contracts identified in
Schedule 2.14(t), neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Parent or Surviving Corporation, by
operation of law or otherwise, of any contracts or agreements to which the
Company is a party, will result in (i) either Parent's or the Surviving
Corporation's granting to any third party any right to or with respect to any
Technology or Intellectual Property Right owned by, or licensed to, either of
them, (ii) either the Parent's or the Surviving Corporation's being obligated to
pay any royalties or other amounts to any third party in excess of those payable
by the Company, Parent or Surviving Corporation, respectively, prior to the
Closing.
(u) The Company's products and services have not failed and shall
not fail to perform any function specified in the product specifications
therefor, or otherwise be adversely affected in any material respect, solely as
a result of the date change from December 31, 1999 to January 1, 2000, including
without limitation, date data century recognition, calculations which
accommodate same century and multi-century formulas and date values, and date
data interface values which reflect the correct century. In addition, to the
Company's knowledge, all of the products and services upon which the Company is
materially reliant, either individually or in the aggregate, including, without
limitation, information technology systems such as financial and order entry
systems, non-information technology systems such as phones and facilities, third
party licensed software and the products and services of the Company's
customers, vendors and suppliers are designed to be used prior to, during, and
after calendar year 2000 A.D., and such products and services will operate
during each such time period without error relating to date data, including
without limitation any error relating to, or the product of, date data that
represents or references different centuries or more than one century.
2.15 Product Warranties; Defects; Liabilities. Each Company Product has
been in all material respects in conformity with all applicable contractual
commitments and all applicable express and implied warranties. The Company does
not have any liability or obligation (and to the Company's knowledge, there is
no current reasonable basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against the Company
giving rise to any liability or obligation) for replacement or repair thereof or
other damages in connection therewith except liabilities or obligations incurred
in the ordinary course of business consistent with
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past practice which do not have a Material Adverse Effect on the Company. Except
as disclosed in Schedule 2.15, no Company Product is subject to any guaranty,
warranty or other indemnity beyond the applicable standard terms and conditions
of sale, license or lease or beyond that implied or imposed by applicable law.
The Company has provided to Parent a copy of the standard terms and conditions
of sale, license or lease for each of the Company Products and copies of the
Company's standard forms of merchant agreements, portal agreements and
professional services agreements.
2.16 Agreements, Contracts and Commitments. As of the date hereof,
except as set forth on Schedule 2.16(a), the Company does not have, is not a
party to nor is it bound by:
(a) any collective bargaining agreements;
(b) any employment or consulting agreement, contract or commitment
with any officer, director, employee or member of the Company's Board of
Directors, other than those that are terminable by the Company without liability
of financial obligation of the Company;
(c) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement, under
which a firm or other organization provides services to the Company;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(e) any fidelity or surety bond or completion bond;
(f) any lease of personal property having a value individually in
excess of $10,000;
(g) any agreement of indemnification or guaranty other than standard
indemnification terms contained in contracts with resellers and distributors and
licensees of the Company's products;
(h) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company to engage in any line of business
or to compete with any person or granting any exclusive distribution rights;
(i) any agreement relating to capital expenditures and involving
future payments in excess of $10,000;
(j) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by the Company after the date of this
Agreement of a material amount of assets not in the ordinary course of business
or pursuant to which the Company has any material ownership interest in any
corporation, partnership, joint venture or other business enterprise;
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(k) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (g) hereof;
(l) any purchase order or contract involving $10,000 or more;
(m) any construction contracts;
(n) any dealer, distribution, joint marketing (including any pilot
program), development, content provider, destination site or merchant agreement;
(o) any agreement pursuant to which the Company has granted or may
be obligated to grant in the future, to any party a source-code license or
option or other right to use or acquire source-code, including any agreements
which provide for source code escrow arrangements;
(p) any sales representative, original equipment manufacturer, value
added, remarketer or other agreement for distribution of the Company's products
or services or the products or services of any other person or entity;
(q) any agreement pursuant to which the Company has advanced or
loaned any amount to any shareholder of the Company or any director, officer,
employee or consultant other than business travel advances in the ordinary
course of business consistent with past practice;
(r) any settlement agreement entered into since January 1, 1997 that
provides for continuing obligations of the Company; or
(s) any other agreement that involves $10,000 or more or is not
cancelable without penalty within thirty (30) days.
Except as set forth on Schedule 2.16(b), the Company has not breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the terms or conditions of any material agreement,
contract or commitment required to be set forth on Schedule 2.16(a) or Schedule
2.14 (any such agreement, contract or commitment, a "CONTRACT"). Each Contract
is in full force and effect and, except as otherwise disclosed in Schedule
2.16(b), is not subject to any default thereunder of which the Company has
knowledge by any party obligated to the Company pursuant thereto.
2.17 Interested Party Transactions. No employee, officer or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company. No
member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.
There are no receivables of the Company owing by any director, officer, employee
or consultant to the Company (or any ancestor, sibling, descendant, or
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spouse of any such persons, or any trust, partnership or corporation in which
any of such persons has an economic interest), other than advances in the
ordinary and usual course of business for reimbursable business expenses (as
determined in accordance with the Company's established employee reimbursement
policies and consistent with past practice). None of the Company shareholders
has agreed to, or assumed, any obligation or duty to guaranty or otherwise
assume or incur any obligation or liability of the Company.
2.18 Compliance with Laws. The Company is not in conflict in any
material respect with, or in default or violation of any order, judgment or
decree, or to its knowledge, any law, rule or regulation, applicable to the
Company or by which its properties are bound or affected. To the knowledge of
the Company, no investigation or review by any governmental or regulatory body
or authority is pending or threatened against the Company, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same, other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company, any
acquisition of material property by the Company or the conduct of business by
the Company.
2.19 Litigation. There is no action, suit or proceeding of any nature
pending or to the Company's knowledge threatened against the Company, its
properties or any of its officers, directors or employees (in their capacities
as officers, directors or employees, as the case may be), nor, to the knowledge
of the Company, is there any reasonable basis therefor. There is no
investigation pending or, to the Company's knowledge, threatened against the
Company, its properties or any of its officers, directors or employees (in their
capacities as officers, directors or employees, as the case may be) by or before
any Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to conduct its operations as presently
or previously conducted.
2.20 Insurance. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been denied or disputed by the underwriters of such policies or bonds. All
premiums due and payable under all such policies and bonds have been paid and
the Company is otherwise in material compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.21 Minute Books. The minute books of the Company made available to
Parent are the only minute books of the Company and contain an accurate summary
of all meetings of directors (or committees thereof) and shareholders or actions
by written consent since the time of incorporation of the Company through the
date hereof.
2.22 Environmental Matters. The Company (a) has obtained all applicable
and material permits, licenses and other authorizations that are required under
Environmental Laws; (b) to the Company's knowledge, is in compliance with all
material terms and conditions of such required permits, licenses and
authorizations, and also is in compliance with all other material limitations,
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restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (c) is not aware of and has not received
notice of any event, condition, circumstance, activity, practice, incident,
action or plan that is reasonably likely to interfere with or prevent continued
compliance or that would give rise to any common law or statutory liability, or
otherwise form the basis of any Environmental Claim with respect to the Company
or any person or entity whose liability for any Environmental Claim the Company
has retained or assumed either contractually or by operation of law; (d) has not
disposed of, released, discharged or emitted any Hazardous Materials into the
soil or groundwater at any properties owned or leased at any time by the
Company, or at any other property, or exposed any employee or other individual
to any Hazardous Materials or condition in such a manner as would result in any
material liability or result in any corrective or remedial action obligation;
and (e) has taken all actions necessary under Environmental Laws to register any
products or materials required to be registered by the Company (or any of its
agents) thereunder. To the Company's knowledge, no Hazardous Materials are
present in, on or under (or, to the knowledge of the Company, in the vicinity
of) any properties owned, leased or used at any time (including both land and
improvements thereon) by the Company so as to give rise to any material
liability or corrective or remedial obligation of the Company under any
Environmental Laws. For the purposes of this Section 2.22, "ENVIRONMENTAL CLAIM"
means any notice, claim, act, cause of action or investigation by any person
alleging potential liability (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries or penalties) arising out of, based on or
resulting from (a) the presence, or release into the environment, of any
Hazardous Materials or (b) any violation, or alleged violation, of any
Environmental Laws. "ENVIRONMENTAL LAWS" means all federal, state, local and
foreign laws and regulations relating to pollution or the environment (including
ambient air, surface water, ground water, land surface or subsurface strata) or
the protection of human health and worker safety, including, without limitation,
laws and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials. "HAZARDOUS MATERIALS" means chemicals,
pollutants, contaminants, wastes, toxic substances, radioactive and biological
materials, asbestos-containing materials (ACM), hazardous substances, petroleum
and petroleum products or any fraction thereof, excluding, however, Hazardous
Materials contained in products typically used for office and janitorial
purposes properly and safely maintained in accordance with Environmental Laws.
2.23 Brokers' and Finders' Fees. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.24 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "AFFILIATE"
set forth in Section 2.24(a)(i) below (such definition shall only apply to this
Section 2.24), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
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(i) "AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or otherwise, funded or
unfunded, including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained, contributed
to, or required to be contributed to, by the Company or any Affiliate for the
benefit of any Employee (as defined below), or with respect to whether the
Company has or may have any liability or obligation;
(iv) "DOL" shall mean the United States Department of Labor.
(v) "EMPLOYEE" shall include any current, former or retired
employee, officer, director or consultant of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall include each management,
employment, indemnification, severance, termination, consulting, relocation,
repatriation, expatriation, visa, work permit or other agreement, contract or
understanding between the Company or any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(ix) "IRS" shall mean the Internal Revenue Service;
(x) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(xi) "PENSION PLAN" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.24(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement. The Company does
not have any plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
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Agreement), or to enter into any Company Employee Plan or Employee Agreement nor
does it have any intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided or made available to Parent
(i) correct and complete copies of all documents embodying or relating to each
Company Employee Plan and each Employee Agreement including, without limitation,
all amendments thereto, all related trust documents and written interpretations
thereof; (ii) the most recent annual actuarial valuations, if any, prepared for
each Company Employee Plan; (iii) the three most recent annual reports (Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary(ies) of
material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters and rulings relating to Company Employee Plans and copies
of all applications and correspondence to or from the IRS, DOL or any other
governmental agency with respect to any Company Employee Plan; (vii) all
material written agreements and contracts relating to each Company Employee
Plan, including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (ix) all correspondence to or from any
governmental agency relating to any Company Employee Plan; (x) all COBRA forms
and related notices; (xi) all policies pertaining to fiduciary liability
insurance covering the fiduciaries of for each Company Employee Plan; (xii) all
discrimination tests for each Company Employee Plan for the most recent plan
year; and (xiii) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with each Company
Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.24(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of, and has
no knowledge of any default or violation of any other party to, each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Company Employee Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has a period of time remaining under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA,
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has occurred with respect to any Company Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the knowledge of the Company,
threatened (other than routine claims for benefits) against any Company Employee
Plan or against the assets of any Company Employee Plan; and (v) each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to the Company,
Parent or any of its Affiliates (other than ordinary administration expenses
typically incurred in a termination event); (vi) there are no audits, inquiries
or proceedings pending or, to the knowledge of the Company or any Affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 501(i) of ERISA or
Section 4975 through 4980 of the Code.
(e) Pension Plans. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company or any Affiliate
contributed to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule
2.24(g), no Company Employee Plan provides, or reflects or represents any
liability to provide, life insurance, health or other employee benefits to any
person upon his or her retirement or termination of employment for any reason,
except as may be required by statute, and the Company has never represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) or any other
person would be provided with life insurance, health or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior to the
Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA, the requirements of the Women's Healthcare
Cancer Rights Act, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996 or any similar provisions of state law applicable to its
Employees.
(i) Effect of Transaction.
(i) Except as provided in Section 1.6 of this Agreement or as
set forth on Schedule 2.24(i)(i), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any current or future payment (whether of severance or termination
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, indemnification, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.24(i)(ii), no payment or
benefit which will or may be made by the Company or Parent or any of their
respective affiliates with
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respect to any Employee resulting from the transactions contemplated by this
Agreement or otherwise will be characterized as a "parachute payment", within
the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. Schedule 2.24(j) lists all current officers,
directors and employees of the Company as of the date hereof. The Company (i) to
its knowledge, is in compliance in all material respects with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees (including any immigration
laws with respect to the same); (ii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iii) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). Schedule 2.24(j) also sets forth
all outstanding offers of employment, whether written or oral, made to any
employee or prospective employee, which offer has not been rejected by the
offeree.
(k) Labor. No work stoppage or labor strike against the Company is
pending, or to the Company's knowledge, threatened. The Company does not know of
any activities or proceedings of any labor union to organize any Employees.
Except as set forth in Schedule 2.24(k), there are no actions, suits, claims,
labor disputes or grievances pending, or, to the knowledge of the Company,
threatened relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in any material liability to the Company. Neither
the Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. Except as set
forth in Schedule 2.24(k), the Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
(l) No Interference or Conflict. To the knowledge of the Company, no
shareholder, officer, employee or consultant of the Company is obligated under
any contract or agreement subject to any judgment, decree or order of any court
or administrative agency that would interfere with such person's efforts to
promote the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business as presently conducted nor any activity of such
officers, directors, employees or consultants in connection with the carrying on
of the Company's business as presently conducted, will conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract or agreement under which any of such officers, directors,
employees or consultants is now bound.
2.25 Bank Accounts. Schedule 2.25 constitutes a full and complete list
of all the bank accounts and safe deposit boxes of the Company, the number of
each such account or box, and the names of the persons authorized to draw on
such accounts or to access such boxes. All cash in such
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accounts is held in demand deposits and is not subject to any restriction or
documentation as to withdrawal.
2.26 Indemnification Obligations. The Company has no knowledge of any
action, proceeding or other event pending or threatened against any officer or
director of the Company that would give rise to any indemnification obligation
of the Company to its officers and directors under its Articles of
Incorporation, Bylaws or any agreement between the Company and any of its
officers or directors.
2.27 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of the Company in connection with soliciting their consent
to the principal terms of this Agreement and the Merger (to the extent that such
documents were prepared by or include information provided by the Company),
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading. None of the
information supplied or to be supplied by or on behalf of the Company or the
shareholders for inclusion or incorporation by reference in the Information
Statement or any other any statement, recommendation, proposal or document
provided to the shareholders of the Company, at the time of any shareholders'
meeting or as of the Effective Time, contain any untrue statement of a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company,
subject to the exceptions specifically disclosed in writing in the disclosure
letter dated as of the date hereof (the "PARENT SCHEDULES"), as follows:
3.1 Organization, Good Standing and Qualification. Parent has been
duly incorporated and organized, and is validly existing in good standing, under
the laws of the State of Delaware. Merger Sub has been duly incorporated and
organized, and is validly existing, under the laws of the State of Oregon. Each
of Parent and Merger Sub has the corporate power and corporate authority to own
and operate its properties and assets and to carry on its business as currently
conducted. Parent is duly qualified to transact business and is in good standing
in the State of California.
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3.2 Capitalization and Voting Rights.
(a) As of December 15, 1999, the authorized capital of Parent
consisted of:
(i) Preferred Stock. 51,910,282 shares of Preferred Stock
(the "PREFERRED STOCK"), 10,000,000 of which have been designated Series F
Preferred Stock (the "SERIES F PREFERRED STOCK"), all of which are issued and
outstanding prior to the Closing, 5,142,851 shares of which have been designated
Series A Preferred Stock (the "SERIES A PREFERRED STOCK"), all of which are
issued and outstanding, 8,629,992 shares of which have been designated Series B
Preferred Stock (the "SERIES B PREFERRED STOCK"), 7,999,992 of which are issued
and outstanding, 9,987,439 shares of which will have been designated Series C
Preferred Stock (the "SERIES C PREFERRED STOCK"), all of which are issued and
outstanding, and 18,150,000 shares of which have been designated Series D
Preferred Stock (the "SERIES D PREFERRED STOCK"), 14,489,215 of which are issued
and outstanding. The outstanding shares of Preferred Stock are all duly and
validly authorized and issued, fully paid and nonassessable and were issued in
compliance with applicable federal and state securities laws and have been
approved by all requisite corporate and shareholder action.
(ii) Common Stock. 100,000,000 shares of Parent Common
Stock, of which 12,324,306 shares are issued and outstanding. The outstanding
shares of Parent Common Stock are all duly and validly authorized, issued, fully
paid and nonassessable and, were issued in compliance with applicable federal
and state securities laws and have been approved by all requisite corporate and
shareholder action.
(iii) Options, Warrants, Reserved Shares. Except for (i) the
conversion privileges of the Preferred Stock, (ii) the 8,000,000 shares of
Parent Common Stock reserved for issuance under Parent's 1998 Stock Plan under
which options to purchase 5,117,837 shares are outstanding, and (iii) warrants
to purchase 630,000 shares of Series B Preferred Stock, there is no outstanding
option, warrant, right (including conversion or preemptive rights) or agreement
for the purchase or acquisition from Parent of any shares of its capital stock
or any securities convertible into or ultimately exchangeable or exercisable for
any shares of Parent's capital stock. Apart from the exceptions noted in this
Section 3.2(a), and except for rights of first refusal held by Parent to
purchase shares of its stock issued under Parent's 1998 Stock Plan, no shares of
Parent's outstanding capital stock, or stock issuable upon exercise or exchange
of any outstanding options, warrants or rights, or other stock issuable by
Parent, are subject to any preemptive rights, rights of first refusal or other
rights to purchase such stock (whether in favor of Parent or any other person),
pursuant to any agreement or commitment of Parent.
(iv) Issuance of Parent Common Stock. Upon the Closing and
the issuance and delivery of the certificates representing the Parent Common
Stock to the shareholders of the Company, the Parent Common Stock will be
validly issued, fully paid and non-assessable, and subject to no Liens.
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3.3 Subsidiaries. Parent does not presently own or control, directly
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
3.4 Authorization. Parent and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of Parent and
Merger Sub and their respective officers, directors and stockholders necessary
for the authorization, execution and delivery of this Agreement, the performance
of all obligations of Parent and Merger Sub hereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Parent Common
Stock to be issued hereunder has been taken or will be taken prior to the
Closing, and the Agreement, when executed and delivered, will constitute valid
and legally binding obligations of Parent and Merger Sub, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting or relating to the enforcement of creditors' rights generally and (ii)
as limited by laws relating to the availability of and/or other equitable
remedies. The Parent Common Stock to be issued hereunder, when issued, paid for
and delivered in accordance with the terms of this Agreement for the
consideration expressed herein will be duly authorized and validly issued, fully
paid and nonassessable.
3.5 Consents and Agreements. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Entity on the part of Parent or Merger Sub is
required in order to enable Parent or Merger Sub to execute, deliver and perform
its obligations under this Agreement, except for such qualifications or filings
under applicable securities laws as may be required in connection with the
transactions contemplated by this Agreement and the filing of the Articles of
Merger with the Oregon Secretary of State. All such qualifications and filings
will, in the case of qualifications, be effective on the Closing and will, in
the case of filings, be made within the time prescribed by law.
3.6 Litigation. There is no action, suit or proceeding of any nature
pending or to Parent's knowledge threatened against Parent, its properties or
any of its officers, directors or employees (in their capacities as officers,
directors or employees, as the case may be), nor, to the knowledge of Parent, is
there any reasonable basis therefor. There is no investigation pending or, to
Parent's knowledge, threatened against Parent, its properties or any of its
officers, directors or employees (in their capacities as officers, directors or
employees, as the case may be) by or before any Governmental Entity. No
Governmental Entity has at any time challenged or questioned the legal right of
the Parent to conduct its operations as presently or previously conducted.
3.7 Proprietary Information and Inventions Agreements. Each present
and former employee, officer and consultant of Parent has executed a
Confidential Information and Inventions Assignment. Parent after reasonable
investigation is not aware that any of its employees, officers or consultants
are in violation thereof, and Parent will use its best efforts to prevent any
such violation. Parent is not aware that any officer or key employee intends to
terminate employment with Parent, nor does Parent have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
relating to wrongful termination of employees, the employment of each officer
and employee of Parent is terminable at the will of Parent.
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3.8 Title to Property and Assets. Parent owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair Parent's ownership or use of such property or assets. With
respect to the property and assets it leases, Parent is in compliance with such
leases and, to its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances.
3.9 Financial Statements. Prior to the Closing, Parent has made
available to the Company its audited balance sheet and income statement at and
for the year ended January 31, 1999 and the nine months ended October 31, 1999
(collectively, the "FINANCIAL STATEMENTS"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated, except that the
Financial Statements may not contain all footnotes required by GAAP. The
Financial Statements fairly present the financial condition and operating
results of Parent as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments which Parent does not expect to be
material. Except as set forth in the Financial Statements, Parent has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of the
Financial Statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business, which, in both cases, individually
or in the aggregate are not material to the financial condition or operating
results of Parent. Except as disclosed in the Financial Statements, Parent is
not a guarantor or indemnitor of any indebtedness of any other person, firm,
corporation or other entity (except for wholly owned subsidiaries of Parent).
3.10 Books and Records. The minute books of Parent contain accurate
summary records of all meetings and written consents to action of Parent's
stockholders, Parent's Board of Directors and all committees, if any, appointed
by the Board of Directors. Parent's stock ledger is complete and reflects all
issuances, transfers, repurchases and cancellations of shares of capital stock
of Parent.
3.11 Rights of Registration. Except as contemplated in the Fourth
Amended and Restated Investor Rights Agreement dated as of November 17, 1999 by
and among Parents and certain of its stockholders, Parent has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity.
3.12 Proprietary Rights. Parent owns, has licensed or otherwise
possesses all trademarks, trade names, copyrights and other intellectual
property rights necessary to conduct its business as now being conducted without
any known conflict with or infringement upon any intellectual property rights of
others. Parent has not received any notice alleging that Parent has infringed
upon or is conflict with the asserted rights of others, nor is Parent aware of
any reasonable basis for any such allegation. Parent has certain trade secrets,
including know-how, computer software programs and other proprietary data (the
"PROPRIETARY INFORMATION") used, or proposed to be used, in the development,
manufacture and sale of its products. Parent has the right to use the
Proprietary Information, except that the possibility exists that other persons
may have independently developed trade secrets or technical information similar
or identical to those of Parent. Parent is not aware of any rights to any
patents, trademarks, service marks, tradenames, copyrights, trade secrets
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and proprietary rights and processes held by third parties that it will be
required to obtain in order to conduct its business as proposed to be conducted
that cannot be obtained on commercially reasonable terms from such parties.
There are no outstanding options, licenses, or agreements of any kind relating
to Parent's patents or trademarks.
3.13 No Conflict of Interest. Parent is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. To Parent's knowledge, none of Parent's officers or
directors, or any members of their immediate families, are, directly or
indirectly, indebted to Parent (other than in connection with purchases of
Parent's stock). To Parent's knowledge, none of Parent's officers or directors
or any members of their immediate families have, directly or indirectly, any
economic interest in any contract material to Parent other than with respect to
equity held in Parent.
3.14 Tax Returns. All tax returns, declarations, statements,
reports, schedules, forms and information returns ("RETURNS") required by all
U.S. federal, state and local and foreign jurisdictions (in each case, including
all political subdivisions thereof) relating to all U.S. federal, state, local
and foreign taxes and other assessments of a similar nature (whether imposed
directly or through withholding), including any interest, additions to tax, or
penalties applicable thereto ("TAXES"), if any, required to be filed by Parent
prior to the Closing have been (or will be) timely filed and such Returns are
(or will be) true, complete and correct in all material respects. All Taxes
shown on any such Returns to be due from Parent that are due and payable have
been paid, other than those being contested in good faith and for which an
adequate reserve or accrual has been established in accordance with GAAP. Parent
does not know of any actual or proposed material addition Tax assessments
against Parent.
3.15 Compliance with Laws. Parent has obtained and maintained in
good standing all of its licenses, permits, consents and authorizations required
to be obtained by it or them under federal, state and local laws (collectively,
"LAWS"), except for those which, individually or in the aggregate, would not
have a material adverse effect on the assets, condition, affairs or prospects of
Parent, financially or otherwise, and all such licenses, permits, consents and
authorizations remain in full force and effect. Parent is in material compliance
with such Laws, and there is no pending or, to Parent's knowledge, threatened,
action or proceeding against Parent under any of such Laws, other than any such
actions or proceedings which, individually or in the aggregate, if adversely
determined, would not have a material adverse effect on the assets, condition,
affairs or prospects of Parent, financially or otherwise.
3.16 Year 2000 Compliance. Parent's products and services have not
failed and shall not fail to perform any function specified in the product
specifications therefor, or otherwise be adversely affected in any material
respect, solely as a result of the date change from December 31, 1999 to January
1, 2000, including without limitation, date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values which reflect the correct century. In
addition, to the best of Parent's knowledge, all of the products and services
upon which Parent is materially reliant, either individually or in the
aggregate, including, without limitation, information technology systems such as
financial and order
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entry systems, non-information technology systems such as phones and facilities,
third party licensed software and the products and services of Parent's
customers, vendors and suppliers are designed to be used prior to, during, and
after calendar year 2000 A.D., and such products and services will operate
during each such time period without error relating to date data, including
without limitation any error relating to, or the product of, date data that
represents or references different centuries or more than one century.
3.17 No Contravention. Neither Parent nor Merger Sub is in violation
or default of any provision of its Certificate or Articles of Incorporation or
Bylaws or of any instrument, judgment, order, writ, decree, or contract to which
it is a party or by which it is bound or of any provision of federal or state
statute, rule or regulation applicable to Parent or Merger Sub. The execution,
delivery and performance by Parent and Merger Sub of this Agreement, including,
without limitation, the issuance of the Parent Common Stock: (a) do not and will
not contravene the terms of the Certificate or Articles of Incorporation, as
amended, or Bylaws, as amended, of the Parent or Merger Sub or any law, rule,
regulation or similar requirement applicable to Parent or Merger Sub or its
assets, business or properties; (b) do not and will not (i) conflict with,
contravene, result in any violation or breach of or default under (with or
without the giving of notice or the lapse of time or both), (ii) create in any
other person or entity a right or claim of termination or amendment, or (iii)
require modification, acceleration or cancellation of any agreement, contract,
or other instrument or contractual obligation of Parent or Merger Sub; and (c)
do not and will not result in the creation of any lien, charge or encumbrance
(or obligation to create a lien, charge or encumbrance) against any property,
asset or business of Parent or Merger Sub.
3.18 Disclosure. Parent has fully provided the Company with all the
information which such party has reasonably requested for deciding whether to
enter into this Agreement. Neither this Agreement nor any other statements,
exhibits or certificates made or delivered in connection herewith, when taken as
a whole, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading
in light of the circumstances under which they were made.
ARTICLE IV
SECURITIES ACT COMPLIANCE; REGISTRATION
Parent and the Company acknowledge and agree that they shall seek an
opinion from the Oregon Department of Consumer and Business Services (the
"OREGON GOVERNMENTAL AUTHORITY") approving this Agreement as being fair, just
and equitable and free from fraud under Section 59.095 of the Oregon Securities
Law (the "OREGON FAIRNESS STATUTE"). Sections 4.1 to 4.3 below shall be
applicable in the event that an exemption from federal registration is not
obtained under Section 3(a)(10) of the Securities Act with respect to the Parent
Common Stock to be issued hereunder.
4.1 Securities Act Exemption. The Parent Common Stock to be issued
pursuant to this Agreement initially will not be registered under the Securities
Act in reliance on the exemptions from the registration requirements of Section
5 of the Securities Act set forth in Section 4(2) thereof
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or Rule 506 thereunder. Prior to the Closing Date, each of the Company's
shareholders shall have provided Parent such representations, warranties,
certifications and additional information as Parent may reasonably request to
ensure the availability of such exemptions from the registration requirements of
the Securities Act.
4.2 Stock Restrictions. In addition to any legend imposed by applicable
state securities laws or by any contract that continues in effect after the
Effective Time, the certificates representing the shares of Parent Common Stock
issued pursuant to this Agreement shall bear a restrictive legend (and stop
transfer orders shall be placed against the transfer thereof with Parent's
transfer agent), stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR
HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
4.3 The Company Shareholders' Restrictions Regarding Securities Law
Matters. Each shareholder of the Company, by virtue of the Merger and the
conversion into Parent Common Stock of the Company Common Stock held by such
shareholder, shall be bound by the following provisions:
(a) Such shareholder will not offer, sell or otherwise dispose of
any shares of Parent Common Stock except in compliance with the Securities Act
and the rules and regulations thereunder.
(b) Such shareholder will not sell, transfer or otherwise dispose of
any shares of Parent Common Stock unless (i) such sale, transfer or other
disposition is within the limitations of and in compliance with Rule 144
promulgated by the SEC under the Securities Act and the shareholder furnishes
Parent with reasonable proof of compliance with such Rule, (ii) in the opinion
of counsel, reasonably satisfactory to Parent and its counsel, some other
exemption from registration under the Securities Act is available with respect
to any such proposed sale, transfer, or other disposition of Parent Common Stock
or (iii) the offer and sale of Parent Common Stock is registered under the
Securities Act.
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ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company agrees
(except to the extent that Parent shall otherwise consent in writing) to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted. The Company shall promptly notify Parent of
any materially negative event involving or adversely affecting the Company or
its business.
In addition, except as permitted by the terms of this Agreement,
without the prior written consent of Parent, which consent shall not be
unreasonably withheld, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, the Company (and the Executives as to
subsection (i) only) shall not do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change
the period of exercisability of any outstanding Company Options or Company
Common Stock subject to vesting, or reprice Company Options granted under the
Option Plan (or otherwise) or authorize cash payments in exchange for any such
options;
(b) Make any payments or enter into any commitment or transaction
outside of the ordinary course of business;
(c) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company is a party or
waive, release or assign any material rights or claims thereunder;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property Rights (other
than pursuant to end-user licenses granted to customers of the Company in the
ordinary course of business, provided that no such license shall (i) contain any
right of refusal to the license or (ii) involve the transfer of product(s) to
any person or entity in violation of applicable U.S. export laws and
regulations) or enter into grants to future patent rights;
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(f) Amend or otherwise modify (or agree to do so), or violate the
terms of, any of the Contracts;
(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or
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reclassify any Company Capital Stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for any Company
Capital Stock;
(h) Purchase, redeem or otherwise acquire, directly or indirectly,
any Company Capital Stock, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any employee
or consultant pursuant to stock option or purchase agreements in effect on the
date hereof;
(i) Issue, grant, deliver, sell, pledge or authorize, any Company
Capital Stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities (except
for the issuance of any Company Capital Stock upon exercise or conversion of
presently outstanding Company Options or Warrants, the grant of stock options to
new employees pursuant to outstanding written offers of employment), or the
transfer by Peter Ozolin of up to 40,000 shares to Laila Kaiser;
(j) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association, joint venture or other
business organization or division thereof, or otherwise acquire or agree to
acquire outside of the ordinary course of business any assets in any amount, or
in the ordinary course of business in an amount in excess of $10,000 in the case
of a single transaction or in excess of $50,000 in the aggregate;
(l) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice and except for the sale, lease or
disposition (other than through licensing) of a property or assets that are not
material, individually or in the aggregate, to the business of the Company;
(m) Incur individual liabilities in excess of $10,000 (in any one
case) or $50,000 (in the aggregate) or incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt
securities of the Company, enter into any "keep well" or other agreement to
maintain any financial statement condition or enter into any arrangement having
the economic effect of any of the foregoing other than in connection with the
financing of ordinary course trade payables consistent with past practice;
(n) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to written
agreements outstanding on the date hereof and as disclosed in the Company
Schedules, or adopt any new severance plan;
(o) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any bonus or
special or extraordinary remuneration to any director or employee, or increase
the salaries or wage rates of its employees,
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except as consistent with the ordinary course of the Company consistent with
past practice with employees who are terminable "at will," pay any special bonus
or special remuneration to any director or employee, or increase the salaries or
wage rates or fringe benefits (including rights to severance or indemnification)
of its directors, officers, employees or consultants;
(p) Effect or agree to effect, including by way of hiring or
involuntary termination, any change in the Company's directors, officers or key
employees;
(q) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business, or except as required by GAAP, make any
change in accounting methods, principles or practices;
(r) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financials (or the
notes thereto) or that arose in the ordinary course of business subsequent to
December 31, 1999, in an amount in excess of $10,000 (in any one case) or
$50,000 (in the aggregate), or expenses consistent with the provisions of this
Agreement incurred in connection with any transaction contemplated hereby;
(s) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(t) Enter into any strategic alliance, joint development or joint
marketing agreement;
(u) Commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where it, in good faith, determines that failure to
commence suit would result in the material impairment of a valuable aspect of
its business, provided that it consults with Parent prior to the filing of such
a suit or (iii) for a breach of this Agreement;
(v) Materially reduce the amount of any insurance coverage provided
by or fail to renew any existing insurance policies;
(w) Engage in any action with the intent and purpose to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement;
(x) Engage in any action that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code; or
(y) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (x) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
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5.2 Notices. The Company shall give all notices and other information
required to be given to the employees of the Company, any collective bargaining
unit representing any group of employees of the Company and any applicable
government authority under the WARN Act, the National Labor Relations Act, the
Code, the Consolidated Omnibus Budget Reconciliation Act and any other
applicable law in connection with the transaction provided for in this
Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Oregon Fairness Hearing Documents and Information
Statement. As soon as practicable after the execution of this Agreement, the
Company shall prepare, with the cooperation of Parent, the documents required in
connection with the Oregon Fairness Statute, including, but not limited to, the
hearing notice and an Information Statement for the shareholders of the Company
to approve the principal terms of this Agreement and the Merger (collectively,
the "NOTICE MATERIALS"). The purpose of the Notice Materials, which shall be
filed with the Oregon Governmental Authority as promptly as practicable, shall
be to perfect the exemption from registration provided by Section 3(a)(10) of
the Securities Act. The Information Statement shall constitute a disclosure
document for the offer and issuance of the shares of Parent Common Stock to be
received by the holders of Company Common Stock in the Merger. Parent and the
Company shall each use its best efforts to cause the Notice Materials to be
declared effective and approved for distribution to Company shareholders, and to
cause the Information Statement to comply in all material respects with
applicable federal and state securities laws requirements. Each of Parent and
the Company agrees to provide promptly to the other such information concerning
its business and financial statements and affairs as, in the reasonable judgment
of the providing party or its counsel, may be required or appropriate for
inclusion in the Notice Materials, or in any amendments or supplements thereto,
and to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Notice Materials. The Company will promptly
advise Parent and Parent will promptly advise the Company, in writing if at any
time prior to the Effective Time either the Company or Parent shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Notice Materials in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. The Information Statement shall contain the unanimous recommendation of the
Board of Directors of the Company that the Company shareholders approve the
principal terms of this Agreement and the Merger and the conclusion of the Board
of Directors that the terms and conditions of the Merger are fair and reasonable
to the shareholders of the Company. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Notice Materials any
information with respect to Parent or its affiliates or associates, the form and
content of which information shall not have been approved by Parent prior to
such inclusion.
6.2 Shareholder Approval. The Company shall, promptly after the date
hereof and in accordance with Oregon Law and the Company's Articles of
Incorporation and Bylaws, obtain the approval of the Company's shareholders of
the principal terms of this Agreement and the Merger.
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The Company shall ensure that the shareholder approval is solicited in
compliance with Oregon Law, the Articles of Incorporation and Bylaws of the
Company and all other applicable legal requirements. The Company agrees to use
its reasonable best efforts to secure the necessary votes required by Oregon Law
to effect the Merger. Parent will make a representative available to
shareholders to answer any questions Company shareholders may have regarding the
Parent's business, management and financial affairs.
6.3 Access to Information. Each of the Company and the Parent shall
afford the other and their respective accountants, legal counsel and other
representatives reasonable access during normal business hours during the period
prior to the Effective Time to (a) all of its properties, books, contracts,
commitments and records and (b) all other information concerning its business,
properties, and personnel as Parent or the Company may reasonably request. Each
of Parent and the Company agrees to provide the other and its accountants, legal
counsel and other representatives copies of internal financial statements
promptly upon request. No information or knowledge obtained in any investigation
pursuant to this Section 6.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
6.4 Confidentiality. The parties acknowledge that the Company and Parent
have previously executed a Confidentiality Agreement, dated as of December 2,
1999 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
6.5 Consents. The Company shall promptly apply for or otherwise seek and
use its best efforts to obtain all consents and approvals required to be
obtained by it for the consummation of the Merger, including all consents,
waivers or approvals under any of the Contracts in order to preserve the
benefits thereunder for the Surviving Corporation and otherwise in connection
with the Merger. All of such consents and approvals are set forth in Schedule
2.6.
6.6 Legal Conditions to the Merger. Each of Parent, Merger Sub and the
Company will take all reasonable actions necessary to comply promptly with all
legal requirements that may be imposed on such party with respect to the Merger
and will promptly cooperate with and furnish information to any other party
hereto in connection with any such requirements imposed upon such other party in
connection with the Merger. Each party will take all reasonable actions to
obtain (and will cooperate with the other parties in obtaining) any consent,
authorization, order or approval of or any registration, declaration or filing
with, or an exemption by, any Governmental Entity, or other third party,
required to be obtained or made by such party or its subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement.
6.7 Best Efforts; Additional Documents and Further Assurances. Each of
the parties agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement, including
using reasonable best efforts to accomplish the following: (a) the taking of all
acts necessary to cause the conditions precedent set
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forth in Article VII to be satisfied, (b) the obtaining of all necessary actions
or nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (c) the obtaining of all necessary consents, approvals or
waivers from third parties, (d) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (e) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
6.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event that is likely to cause any
representation or warranty of the Company and Parent or Merger Sub,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time except as contemplated by
this Agreement (including the Company Schedules) and (b) any failure of the
Company or Parent, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.9 shall not limit or otherwise affect any remedies available to
the party receiving such notice or affect the representations, warranties,
covenants or agreements of the parties or conditions to the obligation of the
parties under this Agreement.
6.9 Reorganization. It is the intent of the Company, Parent, Merger Sub
and the Surviving Corporation that this Merger qualifies as a tax-free
reorganization under Section 368(a) of the Code, and the Company, Parent, Merger
Sub and the Surviving Corporation covenant and agree not to take any actions
inconsistent with such intent.
6.10 Voting Agreements. If requested by Parent, the Company will use its
reasonable best efforts to cause each Executive and Thomas J. Holce, Frank Gill,
Milton D. Mittelstedt, Stephen Babson and Graham Weeks to execute a Voting
Agreement, agreeing, among other things, to vote in favor of the Merger and
against any competing proposals.
6.11 Non-Competition Agreements. On or before the Closing, the Company
will use its reasonable best efforts to cause each of the Executives to execute
a Non-Competition Agreement.
6.12 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock and Parent Options
pursuant hereto. The Company shall use its best efforts to assist Parent as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Parent
Common Stock and Parent Options pursuant hereto.
6.13 Benefit Arrangements.
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(a) Parent will consult with the Executives with respect to
determining the Company employees to be retained by Parent following the
Closing; provided, however, that Parent shall make employment offers only to
those Company employees as Parent determines in its business discretion and
shall not have any obligation to make an offer to any particular employee or
employees of the Company. Such employees of the Company who have continued as
employees of Parent or the Surviving Corporation following the Closing Date are
referred to hereinafter as "CONTINUING EMPLOYEES." Terms of employment offered
to Continuing Employees will include compensation and options to purchase Parent
Common Stock commensurate with each person's education and experience levels
relative to Parent's current employees, and shall be contingent upon the
Closing. Continuing Employees shall be eligible (without temporary or permanent
exclusion for pre-existing conditions, to the extent such Continuing Employees
are covered under applicable medical plans of the Company as of the Effective
Time) to participate in all Parent employee benefit plans. Employment of any
Company employees by Parent or the Surviving Corporation following the Closing
shall be subject to Parent's established policies generally applicable to new
employees. The Company will use its best efforts to cooperate with Parent to
ensure that Company employees that Parent wishes to retain become employees of
Parent.
(b) On or prior to the Closing Date, Parent and each of the
Executives shall negotiate mutually acceptable employment arrangements for each
of the Executives contingent upon the Closing, which agreements will contain the
principal terms set forth on Schedule 6.13.
(c) Robert Wiggins, Peter Ozolin and Ryan Malarkey will amend their
respective stock option agreements with the Company prior to the Closing to
provide that 21,875, 10,937 and 7,500 shares, respectively, subject to such
stock option agreements will not vest until one year after the Closing
6.14 No Solicitation. From and after the date of this Agreement until
the earlier to occur of the Effective Time or termination of this Agreement
pursuant to its terms, the Company and its shareholders will not, and the
Company will instruct its directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly (a)
solicit, initiate, entertain or encourage submission of any "ACQUISITION
PROPOSAL" (as defined herein) by any person, entity or group (other than Parent
and its affiliates, agents, and representatives) or (b) participate in any
discussions or negotiations with, or disclose any non-public information
concerning the Company to, or afford access to the properties, books or records
of the Company, or otherwise assist or facilitate, or enter into any agreement
or understanding with, any person, entity or group (other than Parent and its
affiliates, agents, and representatives) in connection with any Acquisition
Proposal with respect to the Company. For purposes of this Agreement, an
"ACQUISITION PROPOSAL" means any proposal or offer relating to (a) any merger,
consolidation, sale or license of substantial assets or similar transactions
involving the Company (other than sales or licenses of assets or inventory in
the ordinary course of business or as permitted by this Agreement), (b)
dissolution of the Company, (c) sales by the Company of any Company Capital
Stock (including, without limitation, by way of a tender offer or an exchange
offer) or (d) sales or transfers by the Executives (other than the transfer by
Peter Ozolin of up to 40,000 shares of Company Common Stock to Laila Kaiser of
any Company Capital Stock or rights thereto or debt instruments of the Company.
The Company and the Executives will immediately cease any and all existing
activities,
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discussion or negotiations with any parties conducted heretofore with respect to
any of the foregoing. The Company and the Executives will promptly (a) notify
Parent if, after the date of this Agreement, it receives any proposal or written
inquiry or written request for information in connection with an Acquisition
Proposal or potential Acquisition Proposal and (b) notify Parent of the
significant terms and conditions of any such Acquisition Proposal including the
identity of the party making an Acquisition Proposal. In addition, from and
after the date of this Agreement, until the earlier to occur of the Effective
Time or termination of this Agreement pursuant to its terms, the Company and the
Executives will not, and will instruct its directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, make or authorize any public statement, recommendation or
solicitation in support of any Acquisition Proposal made by any person, entity
or group (other than Parent).
6.15 Declaration of Registration Rights; Fairness Hearing. Parent agrees
that the shareholders of the Company receiving Parent Common Stock in the Merger
pursuant to Section 1.6(b) hereto shall be entitled to the registration rights
set forth in the Declaration of Registration Rights attached as Exhibit D;
provided, however, that Parent may alternatively elect to exempt the resale of
the Parent Common Stock from registration by means of a fairness hearing
pursuant to Section 3(a)(10) of the Securities Act. If the Oregon Governmental
Authority does not issue an opinion on or before January 31, 2000 finding this
Agreement and the transactions contemplated hereby to be fair, just and
equitable and without fraud to the shareholders of Legal Anywhere, Parent and
the Company shall use their reasonable best efforts to complete the issuance of
the Niku Common Stock in the Merger pursuant to an exemption from the
registration and prospectus delivery requirements under the Securities Act
(other than the exemption afforded by Section 3(a)(10) of the Securities Act).
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. The principal terms of this Agreement, the
Merger and the transactions contemplated hereby shall have been approved and
adopted by the shareholders of the Company by the requisite vote under
applicable law and the Company's Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
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(c) Closing Date Payment Schedule. Parent and the Company shall each
have reviewed and approved a schedule (the "CLOSING DATE PAYMENT SCHEDULE")
reflecting, as of the Effective Time (i) for each holder of Company Common
Stock, the number of shares of Company Common Stock held, the aggregate number
of shares of Parent Common Stock payable to such holder in the Merger, the
number of such shares payable promptly after the Effective Time (in accordance
with Section 1.6) and payable into the Escrow Fund (as defined in Section
8.2(a)), and the amount of cash payable to such holder for any fractional
shares.
(d) Executives' Employment. Each Executive and Parent shall have
entered into an employment arrangement providing for Parent's continued
employment of such Executive after the Effective Time.
(e) Fairness Opinion; Declaration of Registration Rights. The Oregon
Governmental Authority shall have issued an opinion declaring the Notice
Materials and Information Statement effective and this Agreement to be fair,
just and equitable and without fraud under the Oregon Fairness Statute, or
Parent shall have executed and delivered the Declaration of Registration Rights
if the resale of the Parent Common Stock has not otherwise been exempted from
registration.
7.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct on and as of the Closing Date, except for (i) changes contemplated
by this Agreement, (ii) those representations and warranties that address
matters only as of a particular date (which shall remain true and correct as of
such date) and (iii) where the failure of such representations and warranties to
be true and correct would not have a material adverse effect on Parent, with the
same force and effect as if made on and as of the Closing Date, and the Company
shall have received a certificate to such effect signed on behalf of Parent by a
duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject to
Parent's or Merger Sub's ability to cure as provided in Section 9.1(e) below) in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed by a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal opinion
from Fenwick & West LLP, counsel to Parent, in substantially the form attached
hereto as Exhibit E.
7.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this
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Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement (including the Company
Schedules) shall be true and correct on and as of the Effective Time, except for
(i) changes contemplated by this Agreement, (ii) those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date) and (iii) where the failure of such
representations and warranties to be true and correct would not have a Material
Adverse Effect, with the same force and effect as if made on and as of the
Closing Date; and Parent and Merger Sub shall have received a certificate to
such effect signed on behalf of the Company by the President and Chief Financial
Officer of the Company;
(b) Agreements and Covenants. The Company and each Executive shall
have performed or complied (which performance or compliance shall be subject to
the Company's ability to cure as provided in Section 9.1(d) below) in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Closing Date, and
Parent and Merger Sub shall have received a certificate to such effect signed by
the President and Chief Financial Officer of the Company;
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 2.6.
(d) Legal Opinion. Parent shall have received a legal opinion from
legal counsel to the Company, in substantially the form attached hereto as
Exhibit F.
(e) Appraisal Rights. Holders of not more than 3% of the outstanding
shares of Company Capital Stock shall have exercised, nor shall they have any
rights or continued right to exercise, appraisal rights under Oregon Law with
respect to the transactions contemplated by this Agreement.
(f) Escrow Schedule. The Company shall have executed and delivered
to Parent the Escrow Schedule (as defined in Section 8.2 hereof).
(g) Non-Competition Agreements. The Non-Competition Agreements as
required by Section 6.11 hereof shall have been duly executed and delivered to
Parent.
(h) Release Agreements. Each employee of the Company not offered
employment by Parent following the Closing shall have executed a release
agreement on terms and conditions acceptable to Parent.
(i) Investor Representations. Each of the Company's shareholders
shall have executed and delivered an Investment Representation Letter (including
a lock-up agreement) in the form provided by Parent and have fully complied with
Section 4.1 above (as applicable). The
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availability of exemptions from registration shall have been ensured to the
satisfaction of Parent and its counsel.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
8.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the date
which is the one year anniversary of the Closing Date (the "EXPIRATION DATE").
8.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time the Company's shareholders
will be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Parent after the
Effective Time) without any act of any shareholder. As soon as practicable after
the Effective Time, the Escrow Amount, without any act of any Company
shareholder, will be deposited with Chase Manhattan Bank and Trust Company, N.A.
(or other institution acceptable to Parent and the Securityholder Agent (as
defined in Section 8.2(h) below)) as Escrow Agent (the "ESCROW AGENT"), such
deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by the
terms set forth herein. The portion of the Escrow Amount contributed on behalf
of each shareholder of the Company shall be in proportion to the aggregate
Parent Common Stock to which such holder would otherwise be entitled under
Section 1.6(b) and shall be in the respective share amounts and percentages
listed opposite each Company's shareholder's names listed in a schedule to be
executed by the Company and delivered to Parent at Closing (the "ESCROW
SCHEDULE"). The Escrow Fund shall be available to compensate Parent and its
affiliates (including the Surviving Corporation) for any claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses, and expenses of investigation and defense
(hereinafter individually a "LOSS" and collectively "LOSSES") incurred by
Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of (i) any inaccuracy or breach
of a representation or warranty of the Company contained herein (or in any
certificate, instrument, schedule or document attached to this Agreement and
delivered by the Company in connection with the Merger), (ii) any failure by the
Company to perform or comply with any covenant or obligation contained herein or
(iii) any claims brought by employees or consultants of the Company who were or
are terminated prior to the Closing; provided that such claims must be asserted
on or before 5:00 p.m. (California Time) on the Expiration Date. Except as
otherwise provided herein, Parent may not receive any shares from the Escrow
Fund unless and until Officer's Certificates (as defined in Section 8.2(d)
below) identifying Losses, the aggregate amount of which exceed $50,000 (except
in the case of Losses arising from any breach or inaccuracy of Section 2.3, as
to which such threshold shall not apply), have been delivered to the Escrow
Agent as
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provided in paragraph (f) and such amount is determined pursuant to this Article
VIII to be payable; in such case, Parent may recover shares from the Escrow Fund
equal in value to all indemnified Losses (including any Losses within the
$50,000 threshold) for which there is no objection or any objection had been
resolved in accordance with the provisions of this Article VIII; provided,
however, that to the extent third-party expenses, including, without limitation,
legal and accounting fees incurred by the Company in connection with this
Agreement and the Merger exceed $125,000 in the aggregate, such excess shall be
deemed a Loss for purposes of Article VIII and shall be immediately reimbursable
to Parent in accordance with this Article VIII (without regard to the $50,000
minimum threshold for Losses and without counting toward the $50,000 threshold).
For purposes of this Article VIII, the phrases "Company shareholders" and
"shareholders of the Company" shall refer to the shareholders of the Company
immediately prior to the Effective Time.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "ESCROW PERIOD"); provided,
however, that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof), that together with the aggregate amount remaining in
the Escrow Fund is necessary in the reasonable judgment of Parent, subject to
the objection of the Securityholder Agent and the subsequent arbitration of the
matter in the manner provided in Section 8.2(g) hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, as evidenced by written memorandum
of the Securityholder Agent and Parent, the Escrow Agent shall deliver to the
shareholders of the Company the remaining portion of the Escrow Fund not
required to satisfy such claims; provided, however, the Escrow Agent shall
release to the shareholders of the Company on the Expiration Date such portion
of the Escrow Fund that is in excess of the amount in dispute of any unsatisfied
claims. Deliveries of Escrow Amounts to the shareholders of the Company pursuant
to this Section 8.2(b) shall be made in proportion to their respective original
contributions to the Escrow Fund (as set forth on the Escrow Schedule). At all
times during the Escrow Period, the Company shareholders shall be deemed to be
the record holders of their respective amounts of the Parent Common Stock and
Parent Preferred Stock comprising the Escrow Amount. Securityholder Agent (as
defined below) shall provide to the Escrow Agent a current schedule of Company
shareholders' names and addresses and pro rata share of the Escrow Amount prior
to the date of distribution of the Escrow Amount.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split or stock dividend) ("NEW SHARES") in respect of Parent Common Stock in the
Escrow Fund which have not been released from
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the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New
Shares issued in respect of shares of Parent Common Stock which have been
released from the Escrow Fund shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof. Cash dividends on Parent Common Stock
shall not be added to the Escrow Fund but shall be distributed to the
recordholders thereof.
(iii) Each Company shareholder shall be deemed the record holder
of, and shall have voting, dividend, distribution and all other rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such shareholder (and on any voting securities and other equity securities added
to the Escrow Fund in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before
the Expiration Date of a certificate signed by any officer of Parent (an
"OFFICER'S Certificate"): (A) stating that Parent has paid or properly accrued
(in accordance with GAAP) Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, and the nature of the misrepresentation,
breach of warranty, covenant, obligation or claim to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 8.2(f) hereof,
deliver to Parent out of the Escrow Fund, as promptly as practicable, shares of
Parent Common Stock held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 8.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
$11.00 per share. Notwithstanding the foregoing, the Securityholder Agent shall
have the right to pay any indemnifiable Losses owed to Parent hereunder in cash,
in lieu of having the Escrow Agent release the number of Shares of Parent Common
Stock in satisfaction of such claim, and upon the Escrow Agent receiving cash in
an amount of the indemnifiable Losses, the Escrow Agent shall release to the
shareholders that number of shares as it would have released to Parent hereunder
in satisfaction of such claim.
(e) Transfers.
(i) In the event funds transfer instructions are given (other
than in writing at the time of execution of this Agreement), whether in writing,
by telecopier or otherwise, the Escrow Agent is authorized to seek confirmation
of such instructions by telephone call-back to the person or persons designated
on Exhibit G hereto, and the Escrow Agent may rely upon the confirmations of
anyone purporting to be the person or persons so designated. The persons and
telephone numbers for call-backs may be changed only in a writing actually
received and acknowledged by the Escrow Agent. The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.
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(ii) It is understood that the Escrow Agent and the
beneficiary's bank in any funds transfer may rely solely upon any account
numbers or similar identifying number provided by either of the other parties
hereto to identify (i) the beneficiary, (ii) the beneficiary's bank, or (iii) an
order it executes using any such identifying number, even where its use may
result in a person other than the beneficiary being paid, or the transfer of
funds to a bank other than the beneficiary's bank, or an intermediary bank
designated.
(iii) Tax Identification Number. Each party hereto and Company
shareholder, except the Escrow Agent, shall provide the Escrow Agent with their
Tax Identification Number (TIN) as assigned by the Internal Revenue Service. All
interest or other income earned under the Escrow Agreement shall be allocated
and paid as provided herein and reported by the recipient to the Internal
Revenue Service as having been so allocated and paid.
(f) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such
certificate to the Securityholder Agent and for a period of thirty (30) days
after such delivery, the Escrow Agent shall not deliver to Parent any Escrow
Amounts pursuant to Section 8.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from the Escrow Fund in
accordance with Section 8.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object in writing
to any claim or claims made in any Officer's Certificate, the Securityholder
Agent and Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Securityholder
Agent and Parent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and distribute shares of Parent Common Stock from the Escrow Fund in accordance
with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, and in any event not later than sixty (60) days after receipt of
the written objection of the Securityholder Agent, either Parent or the
Securityholder Agent may demand arbitration of the matter unless the amount of
the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Parent and the
Securityholder Agent shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator, each of which arbitrators shall be
independent and have at least ten years relevant experience. The arbitrators
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrators, to discover relevant information from
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the opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys fees and costs, to the extent
as a court of competent law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of a
majority of the three arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 8.2(f) hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance therewith. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
San Francisco, California under the rules then in effect of the Judicial
Arbitration and Mediation Services, Inc. For purposes of this Section 8.2(g), in
any arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Parent shall be deemed to be the
Non-Prevailing Party in the event that the arbitrators award Parent the sum of
one-half (1/2) or less of the disputed amount plus any amounts not in dispute;
otherwise, the shareholders of the Company as represented by the Securityholder
Agent shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party
to an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration, and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration, independent of the escrow fund.
(h) Securityholder Agent of the Shareholders; Power of Attorney.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any shareholder, Bruce Jamerson shall be
appointed as agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for each
shareholder of the Company (except such shareholders, if any, as shall have
perfected their appraisal rights under Oregon Law, for and on behalf of
shareholders of the Company, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such agency may be
changed by the shareholders of the Company from time to time upon not less than
thirty (30) days prior written notice to Parent; provided that the
Securityholder Agent may not be removed unless holders of a two-thirds interest
of the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to or
from each of the shareholders of the Company.
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(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith and
in the exercise of reasonable judgment. The shareholders of the Company on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall jointly and
severally indemnify the Securityholder Agent and hold the Securityholder Agent
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Securityholder Agent and arising out of or in
connection with the acceptance or administration of the Securityholder Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Securityholder Agent.
(i) Actions of the Securityholder Agent. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
shareholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such shareholders, and the Escrow Agent and Parent may rely upon any
such written decision, consent or instruction of the Securityholder Agent as
being the decision, consent or instruction of each every such shareholder of the
Company. The Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, consent
or instruction of the Securityholder Agent.
(j) Third-Party Claims.
(i) If any third party shall notify Parent or its affiliates
hereto with respect to any matter (hereinafter referred to as a "THIRD PARTY
CLAIM"), which may give rise to a claim by Parent against the Escrow Fund, then
Parent shall give notice to the Securityholder Agent within 30 days of Parent
becoming aware of any such Third Party Claim or of facts upon which any such
Third Party Claim will be based setting forth such material information with
respect to the Third party Claim as is reasonably available to Parent; provided,
however, that no delay or failure on the part of Parent in notifying the
Securityholder Agent shall relieve the Securityholder Agent and the Company
shareholders from any obligation hereunder unless the Securityholder Agent and
the Company shareholders are thereby materially prejudiced (and then solely to
the extent of such prejudice). The Securityholder Agent and the Company
shareholders shall not be liable for any attorneys fees and expenses incurred by
Parent prior to Parent's giving notice to the Securityholder Agent of a Third
Party Claim. The notice from Parent to the Securityholder Agent shall set forth
such material information with respect to the Third Party Claim as is then
reasonably available to Parent.
(ii) In case any Third Party Claim is asserted against Parent or
its affiliates, and Parent notifies the Securityholder Agent thereof pursuant to
Section 8.2(j)(i) hereinabove, the Securityholder Agent and the Company
shareholders will be entitled, if the Securityholder Agent so elects by written
notice delivered to Parent within 30 days after receiving Parent's notice, to
assume the defense thereof, at the expense of the Company shareholders
independent of the Escrow Fund, with counsel reasonably satisfactory to Parent
so long as:
(A) Parent has reasonably determined that Losses which may
be incurred as a result of the Third Party Claim do not exceed either
individually, or when aggregated with all other Third Party Claims, the total
dollar value of the Escrow Fund determined in accordance with Section 8.2(d)(ii)
hereof;
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(B) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief;
(C) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of Parent, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests of Parent; and
(D) counsel selected by the Securityholder Agent is
reasonably acceptable to Parent.
If the Securityholder Agent and the Company shareholders so assume any
such defense, the Securityholder Agent and the Company shareholders shall
conduct the defense of the Third Party Claim actively and diligently. The
Securityholder Agent and the Company shareholders shall not compromise or settle
such Third Party Claim or consent to entry of any judgment in respect thereof
without the prior written consent of Parent and/or its affiliates, as
applicable, which shall not be unreasonably withheld.
(iii) In the event that the Securityholder Agent assumes the
defense of the Third Party Claim in accordance with Section 8.2(j)(ii) above,
Parent or its affiliates may retain separate counsel and participate in the
defense of the Third Party Claim, but the fees and expenses of such counsel
shall be at the expense of Parent. Parent or its affiliates will not consent to
the entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Securityholder Agent.
Parent will cooperate in the defense of the Third Party Claim and will provide
full access to documents, assets, properties, books and records reasonably
requested by Securityholder Agent and material to the claim and will make
available all officers, directors and employees reasonably requested by
Securityholder Agent for investigation, depositions and trial.
(iv) In the event that the Securityholder Agent fails or elects
not to assume the defense of Parent or its affiliates against such Third Party
Claim, which Securityholder Agent had the right to assume under Section
8.2(j)(ii) above, Parent or its affiliates shall have the right to undertake the
defense and Parent shall not compromise or settle such Third Party Claim or
consent to entry of any judgment in respect thereof without the prior written
consent of Securityholder Agent. In the event that the Securityholder Agent is
not entitled to assume the defense of Parent or its affiliates against such
Third Party Claim pursuant to Section 8.2(j)(ii) above, Parent or its affiliates
shall have the right to undertake the defense, consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim in
any manner it may deem appropriate (and Parent or its affiliates need not
consult with, or obtain any consent from, the Securityholder Agent in connection
therewith); provided, however, that except with the written consent of the
Securityholder Agent, no settlement of any such claim or consent to the entry of
any judgment with respect to such Third Party Claim shall alone be determinative
of the validity of the claim against the Escrow Fund. In each case, Parent or
its affiliates shall conduct the defense of the Third Party Claim actively and
diligently, and the Securityholder Agent and the Company shareholders will
cooperate with Parent or its affiliates in the defense of that claim and will
provide full access to documents, assets, properties,
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books and records reasonably requested by Parent and material to the claim and
will make available all individuals reasonably requested by Parent for
investigation, depositions and trial.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Securityholder Agent and agreed to and signed by the Escrow Agent, and may rely
and shall be protected in relying or refraining from acting on any instrument
reasonably believed to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be liable for any act done
or omitted hereunder as Escrow Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any written instrument, including any written statement or
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or responsible
for forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
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(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) Parent and the Surviving Corporation agree jointly and
severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with the performance of his/her
duties under this Agreement, including but not limited to any litigation arising
from this Agreement or involving its subject matter; provided, however, that in
the event the Securityholder Agent shall be the Non-Prevailing Party in
connection with any claim or action initiated by a Company shareholder or
Company shareholders, then such Company shareholder or Company shareholders
shall be responsible for the indemnification of the Escrow Agent to the full
extent provided by this paragraph.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(ix) Anything in this Agreement to the contrary notwithstanding,
in no event shall the Escrow Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Escrow Agent has been advised of the likelihood of
such loss or damage and regardless of the form of action.
(x) It is further understood that any corporation into which the
Escrow Agent is its individual capacity may be merged or converted or with which
it may be consolidated, or
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any corporation resulting from any merger, conversion or consolidation to which
the Escrow Agent in its individual capacity shall be a party, or any corporation
to which substantially all the corporate trust business of the Escrow Agent in
its individual capacity my be transferred, shall be the Escrow Agent under this
Escrow Agreement without further act.
(l) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorneys' fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
(m) Maximum Liability and Remedies. Except for fraud and willful
misconduct and Losses arising from any breach or inaccuracy of Section 2.3, the
rights of Parent to make claims upon the Escrow Fund in accordance with this
Article VIII shall be the sole and exclusive remedy of Parent and the Surviving
Corporation after the Closing with respect to any representation, warranty,
covenant, or obligation or agreement made by the Company under this Agreement
and no former shareholder, option holder, warrant holder, director, officer,
employee or agent of the Company shall have any personal liability to Parent or
the Surviving Corporation after the Closing in connection with the Merger
(except in the case of any fraud committed by the Executives).
8.3 Indemnification by Parent. Parent shall indemnify and hold the
Company shareholders, free and harmless from and against any and all Losses
incurred by the Company shareholders as a result of (i) any inaccuracy or breach
of a representation or warranty of Parent contained herein (or in any
certificate, instrument, schedule or document attached to this Agreement and
delivered by Parent in connection with the Merger) or (ii) any failure by Parent
to perform or comply with any covenant or obligation contained herein; provided
that such claim must be asserted on or before 5:00 p.m. (California time) on the
Expiration Date. Notwithstanding the foregoing, (i) Parent shall have no
obligation to indemnify a Company shareholder (if at all) until such shareholder
has incurred aggregate Losses in excess of that portion of $50,000 that the
aggregate number of shares received by such shareholder under Section 1.6 bears
to 995,000 (in which case such shareholder may seek indemnity for all Losses
subject to (ii) below) and (ii) the maximum aggregate liability of Parent under
this Section 8.3 for Losses incurred by Company shareholders is $1,000,000. Any
and all claims by Company shareholders against Parent shall be resolved in a
manner consistent with Section 8.2(g). Any amounts paid by Parent under this
Section 8.3 may, in the discretion of Parent, be paid wholly or partially in
publicly traded and listed common stock of Parent, based on the market price of
such stock at the time of payment.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Closing
Date:
(a) by mutual written consent duly authorized by the Board of
Directors of the Company and Parent;
(b) by either Parent or the Company if: (i) the Closing Date has not
occurred by February 15, 2000 (provided that the right to terminate this
Agreement under this clause 9.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date
and such action or failure constitutes a breach of this Agreement); (ii) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any portion of the business or assets of the Company or
Parent;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
7.3(a) or 7.3(b), as the case may be, would not then be satisfied; provided,
however, that if such breach is curable by the Company prior to February 15,
2000 through the exercise of its reasonable best efforts, then for so long as
the Company continues to exercise such reasonable best efforts Parent may not
terminate this Agreement under this Section 9.1(d) unless such breach is not
cured prior to February 15, 2000 (but no cure period shall be required for a
breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and as a result of such breach the conditions
set forth in Section 7.2(a) or 7.2(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or Merger
Sub prior to February 15, 2000 through the exercise of its reasonable best
efforts, then for so long as Parent or Merger Sub continues to exercise such
reasonable best efforts the Company may not terminate this Agreement under this
55
<PAGE> 62
Section 9.1(e) unless such breach is not cured prior to February 15, 2000 (but
no cure period shall be required for a breach which by its nature cannot be
cured).
Where action is taken to terminate this Agreement pursuant to Section
9.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
9.2 Effect of Termination. Except as set forth in Section 10.2, any
termination of this Agreement under Section 9.1 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto. In the event of the termination of this Agreement as
provided in Section 9.1, this Agreement shall be of no further force or effect,
except (a) as set forth in this Section 9.2 and Article X (general provisions,
including expenses), each of which shall survive the termination of this
Agreement, and (b) nothing herein shall relieve any party from liability for any
breach of this Agreement. Notwithstanding the foregoing, upon termination of
this Agreement, neither Parent nor the Company shall be liable for the breach or
inaccuracy of any representation or warranty resulting from the occurrence of
any event after the date hereof. No termination of this Agreement shall affect
the obligations of the parties contained in the Confidentiality Agreement, all
of which obligations shall survive termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law, prior
to the Closing, this Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed by Parent and the Company.
Except as is otherwise required by applicable law, after the Closing, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed by Parent and by Company shareholders who receive
more than 50% of the Parent Common Stock issued or to be issued pursuant to
Section 1.6, or by all of the Company shareholders in the case of an amendment
to Articles VIII.
9.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations of the other party hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of
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complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Niku Corporation
305 Main Street
Redwood City, California 94063
Attention: Joshua Pickus
President, Vertical Markets
Telephone: (650) 701-2704
Facsimile: (650) 701-2728
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94303
Attention: Dennis R. DeBroeck, Esq.
Telephone: (650) 494-0600
Facsimile: (650) 494-1417
(b) if to the Company, to:
Legal Anywhere, Inc.
7855 SW Mohawk
Tualatin, Oregon 97062
Attention: Robert Wiggins
Chief Executive Officer
Telephone: (503) 612-9919
Facsimile: (503) 612-6698
with a copy to:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Attention: Todd A. Bauman
Telephone: (503) 294-9812
Facsimile: (503) 220-2480
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(c) if to the Securityholder Agent:
Bruce Jamerson
Conifer Investments, LLC
5550 SW Macadam, Suite 330
Portland, Oregon 97201
Telephone: (503) 225-1977
Facsimile: (503) 225-9980
(d) if to the Escrow Agent:
Chase Manhattan Bank and Trust Company, N.A.
101 California Street, Suite 2725
San Francisco, California 94111
Attention: Mitch Gardner
Telephone: (415) 954-9561
Facsimile: (415) 693-8850
10.2 Expenses.
(a) In the event the Merger is not consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
(b) Subject to the provisions of Section 8.2, in the event the
Merger is consummated, the Surviving Corporation shall be responsible for the
payment of all Third Party Expenses, including Third Party Expenses incurred by
the Company.
10.3 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "AGREEMENT" when used herein shall be deemed in
each case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement; Assignment. Except for the Confidentiality
Agreement, this Agreement, the schedules and Exhibits hereto, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among
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the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
10.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.7 Other Remedies. Except as otherwise provided herein (including as
set forth in Section 8.2(l)), any and all remedies herein expressly conferred
upon a party will be deemed exclusive, and no party hereto shall have any other
remedy conferred by law or equity upon such party, where a remedy or remedies
have been expressly conferred upon such party herein. No party shall be able to
avoid the limitations expressly set forth in Article VIII.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California or Oregon, as
applicable, for such persons and waives and covenants not to assert or plead any
objection which they might otherwise have to such jurisdiction and such process.
10.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Executives, the
Securityholder Agent (as to Article VIII only) and the Escrow Agent (as to
matters set forth in Article VIII only) have caused this Agreement to be signed
by their duly authorized respective officers, all as of the date first written
above.
LEGAL ANYWHERE, INC. NIKU CORPORATION
an Oregon corporation a Delaware corporation
By: By:
-------------------------------- ----------------------------------
Robert Wiggins Joshua Pickus
Chief Executive Officer President, Vertical Markets
EXECUTIVES: LA ACQUISITION CORPORATION
an Oregon corporation
By:
- ---------------------------------------- ----------------------------------
Robert Wiggins Joshua Pickus
President
- ----------------------------------------
Peter Ozolin
- ----------------------------------------
Ryan Malarkey
SECURITYHOLDER AGENT:
- ----------------------------------------
Name: Bruce Jamerson
ESCROW AGENT
CHASE MANHATTAN BANK AND TRUST COMPANY, N.A.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 67
EXHIBIT A
VOTING AGREEMENT
This VOTING AGREEMENT (this "AGREEMENT") is entered into as of January
___, 2000 (the "AGREEMENT DATE") by and between Niku Corporation, a Delaware
corporation ("PARENT") and [Legal Anywhere Stockholder] ("STOCKHOLDER").
RECITALS
A. Parent, LA Acquisition Corporation, an Oregon corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), Legal Anywhere, Inc., an
Oregon corporation (the "COMPANY") and certain executives of the Company are
entering into an Agreement and Plan of Reorganization dated as of January __,
2000, as such may be hereafter amended from time to time (the "PLAN") that
provides (subject to the conditions set forth therein) for the merger of Merger
Sub with and into the Company (the "MERGER") with the Company to survive the
Merger. Upon the effectiveness of the Merger, the outstanding shares of the
Company's Common Stock will be converted into shares of Parent Common Stock, all
as more particularly set forth in the Plan. Capitalized terms used but not
otherwise defined in this Agreement will have the same meanings ascribed to such
terms in the Plan.
B. As of the Agreement Date, Stockholder owns in the aggregate (including
shares held both beneficially and of record and other shares held either
beneficially or of record) the number of shares of Company Common Stock set
forth below Stockholder's name on the signature page of this Agreement (all such
shares, together with any shares of Company Capital Stock or any other shares of
capital stock of the Company that may hereafter be acquired by Stockholder,
being collectively referred to herein as the "SUBJECT SHARES"). If, between the
Agreement Date and the Expiration Date (as defined herein), the outstanding
shares of Company Common Stock are changed into a different number or class of
shares by reason of any stock split, stock dividend, reverse stock split,
reclassification, recapitalization or other similar transaction, then the shares
constituting the Subject Shares shall be appropriately adjusted, and shall
include any shares or other securities of the Company issued on, or with respect
to, the Subject Shares in such a transaction.
C. As a condition to the willingness of Parent and Merger Sub to enter
into the Plan, Parent and Merger Sub have required that Stockholder agree, and
in order to induce Parent and Merger Sub to enter into the Plan, Stockholder has
agreed to enter into this Agreement.
<PAGE> 68
The parties to this Agreement, intending to be legally bound by this
Agreement, hereby agree as follows:
SECTION 1. TRANSFER OF SUBJECT SHARES
1.1 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES.
(a) Stockholder hereby covenants and agrees with Parent and Merger
Sub that, prior to the Expiration Date (as defined below), Stockholder will not,
directly or indirectly, (i) offer, sell, offer to sell, or contract or agree to
sell any of the Subject Shares, (ii) grant any option to purchase or otherwise
dispose of any Subject Shares, (iii) pledge, encumber or transfer any Subject
Shares or (iv) announce any offer, sale, offer of sale, contract of sale or
grant of any option to purchase or otherwise dispose of, or any pledge,
encumbrance or transfer of, any of the Subject Shares, to any person or entity
other than Parent [; provided, however, that Stockholder Peter Ozolin may
transfer up to 40,000 shares of Company Common Stock to Laila Kaiser.]
(b) As used in this Agreement, the term "EXPIRATION DATE" shall mean
the earlier of (i) the date upon which the Plan is validly terminated in
accordance with its terms or (ii) the Effective Time of the Merger.
1.2 TRANSFER OF VOTING RIGHTS. Stockholder covenants and agrees that,
prior to the Expiration Date, Stockholder will not deposit any of the Subject
Shares into a voting trust or grant a proxy or enter into an agreement of any
kind with respect to any of the Subject Shares, except for the Proxy called for
by Section 2.2 of this Agreement.
SECTION 2. VOTING OF SUBJECT SHARES
2.1 AGREEMENT. Stockholder hereby agrees that, prior to the Expiration
Date, at any meeting of the stockholders of the Company, however called, and in
any action taken by the written consent of stockholders of the Company without a
meeting, unless otherwise directed in writing by Parent, Stockholder shall vote
the Subject Shares:
(i) in favor of the Merger, the execution and delivery by the
Company of the Plan and the adoption and approval of the terms thereof
and in favor of each of the other actions contemplated by the Plan and
any action required in furtherance hereof and thereof;
(ii) against any action or agreement that would result in a breach
of any representation, warranty, covenant or obligation of the Company
in the Plan or that would
<PAGE> 69
preclude fulfillment of a condition precedent under the Plan to the
Company's, Parent's or Merger Sub's obligation to consummate the Merger;
and
(iii) in favor of the termination (by amendment of any such
agreement or otherwise), effective immediately prior to the
effectiveness of the Merger, of any rights of first refusal, rights of
notice, rights of co-sale, information rights, registration rights,
preemptive rights or similar rights of Stockholder under any agreement,
arrangement or understanding applicable to the Subject Shares.
Prior to the Expiration Date, Stockholder shall not enter into any
agreement or understanding with any Person to vote or give instructions in any
manner inconsistent with clause "(i)", "(ii)" or "(iii)" of this Section 2.1.
2.2 PROXY. Contemporaneously with the execution of this Agreement,
Stockholder shall deliver to Parent a proxy with respect to the Subject Shares
in the form attached hereto as Exhibit 1, which proxy shall be irrevocable to
the fullest extent permitted by law (the "PROXY").
SECTION 3. WAIVERS
3.1 APPRAISAL RIGHTS. Stockholder hereby agrees not to exercise any
rights of appraisal and any dissenters' rights that Stockholder may have
(whether under applicable law or otherwise) or could potentially have or acquire
in connection with the Merger.
3.2 RIGHTS OF FIRST REFUSAL, ETC. Stockholder hereby waives any rights
of first refusal, rights of co-sale, registration rights, preemptive rights,
rights of redemption or repurchase, rights to notice and similar rights of
Stockholder under any agreement, arrangement of understanding applicable to the
Subject Shares or any other shares of Company Capital Stock, in each case as the
same may apply to the execution and delivery of the Plan and the consummation of
the Merger and the other transactions contemplated by the Plan. Effective
immediately prior to the effectiveness of the Merger, Stockholder hereby agrees
and consents to the termination of any such rights and agreements. Stockholder
agrees to take such actions, and execute and deliver such agreements and
documents, as may reasonably be requested by Parent in order to effect, confirm
or evidence the foregoing waivers and terminations.
SECTION 4. NO SOLICITATION
Stockholder covenants and agrees that, during the period commencing on
the date of this Agreement and ending on the Expiration Date, Stockholder shall
not, directly or indirectly, and shall not authorize or permit any agent or
representative of Stockholder, directly or indirectly, to:
<PAGE> 70
(i) solicit, initiate, cooperate with, facilitate, encourage or induce the
making, submission or announcement of, any offer, or any effort or attempt
concerning any Acquisition Proposal (as defined in the Plan) or take any action
that could reasonably be expected to lead to an Acquisition Proposal; (ii)
furnish any information regarding the Company to any person or entity in
connection with or in response to any Acquisition Proposal or potential
Acquisition Proposal or any proposal for an Acquisition Proposal; (iii) consider
any inquiries or proposals received from any party concerning any Acquisition
Proposal; (iv) participate or engage in any discussions or negotiations with any
person or entity with respect to any Acquisition Proposal; (v) approve, endorse
or recommend any Acquisition Proposal; or (vi) enter into any letter of intent
or other similar document or any written, oral or other agreement, contract or
legally binding commitment contemplating or otherwise relating to any
Acquisition Proposal. Stockholder shall immediately cease any existing
discussions with any person or entity that relate to any potential Acquisition
Proposal, provided, however, that the foregoing agreements and covenants are
made by Stockholder solely in such Stockholder's capacity as a stockholder of
the Company and not as a director of the Company, it being understood and agreed
that nothing in this Section 4 shall prevent any Stockholder from discharging
any fiduciary obligations that such Stockholder may have as a director of the
Company.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Parent as follows:
5.1 DUE ORGANIZATION, AUTHORIZATION, ETC. Stockholder has all requisite
power and capacity to execute and deliver this Agreement and to perform
Stockholder's obligations hereunder. This Agreement has been duly executed and
delivered by Stockholder and constitutes a legal, valid and binding obligation
of Stockholder, enforceable against Stockholder in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
5.2 NO CONFLICTS OR CONSENTS.
(a) The execution and delivery of this Agreement by Stockholder do
not, and the performance of this Agreement by Stockholder will not: (i) conflict
with or violate any order applicable to Stockholder or by which Stockholder or
any of Stockholder's properties or Subject Shares is bound or affected; or (ii)
result in any breach of or constitute a default (with notice or lapse of time,
or both) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien,
restriction, adverse claim, encumbrance or security interest in or to any of the
Subject Shares pursuant to, any written, oral or other agreement, contract or
legally binding commitment to which Stockholder is a party or by which
Stockholder or any of Stockholder's properties (including but not limited to the
Subject
<PAGE> 71
Shares) is bound or affected.
(b) The execution and delivery of this Agreement by Stockholder do
not, and the performance of this Agreement by Stockholder will not, require any
written, oral or other agreement, contract or legally binding commitment of any
third party.
5.3 TITLE TO SUBJECT SHARES. As of the Agreement Date, Stockholder owns
of record and beneficially the Subject Shares set forth under Stockholder's name
on the signature page hereof free and clear of any restrictions (other than
restrictions under applicable federal and state securities laws), liens,
encumbrances, security interests or adverse claims, and does not directly or
indirectly own, either beneficially or of record, any shares of capital stock of
the Company, or rights to acquire any shares of capital stock of the Company,
other than the Subject Shares set forth below Stockholder's name on the
signature page hereof.
5.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date.
SECTION 6. COVENANTS OF STOCKHOLDER
6.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Stockholder will execute and deliver, or cause to be executed and
delivered, such additional or further transfers, assignments, endorsements,
proxies, consents and other instruments, and perform such further acts, as
Parent may reasonably request for the purpose of effectively carrying out and
furthering the intent of this Agreement and the Proxy.
6.2 LEGEND. Upon the request of Parent, Stockholder shall instruct the
Company to cause each certificate of Stockholder evidencing the Subject Shares
to bear a legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE AND THE RIGHT TO VOTE
THESE SHARES ARE SUBJECT TO THE TERMS OF A VOTING AGREEMENT, DATED
JANUARY ____, 2000 (THE "VOTING AGREEMENT"), BETWEEN PARENT AND THE
REGISTERED HOLDER OF THIS CERTIFICATE. THESE SHARES MAY NOT BE VOTED,
SOLD, EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE VOTING AGREEMENT, AS IT
MAY BE AMENDED. A COPY OF THE VOTING AGREEMENT IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. SUCH AGREEMENT IS BINDING ON
ALL TRANSFEREES OF THESE SHARES.
<PAGE> 72
SECTION 7. MISCELLANEOUS
7.1 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid as provided in the
Plan.
7.2 GOVERNING LAW. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
7.3 ASSIGNMENT, BINDING EFFECT, THIRD PARTIES. Except as provided
herein, neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party, except that Parent may assign all or any of its rights hereunder to any
wholly-owned subsidiary of Parent. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of (i)
Stockholder and Stockholder's heirs, successors and assigns and (ii) Parent and
its successors and assigns. Notwithstanding anything contained in this Agreement
to the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person or entity other than the parties hereto or their respective
heirs, successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.4 SEVERABILITY. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, then
the remainder of this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto.
7.5 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
7.6 AMENDMENT; WAIVER. This Agreement may be amended by the written
agreement of the parties hereto. No waiver by any party hereto of any condition
or of any breach of any provision of this Agreement will be effective unless
such waiver is set forth in a writing signed by such party. No waiver by any
party of any such condition or breach, in any one instance, will be deemed to be
a further or continuing waiver of any such condition or breach or a waiver of
any other condition or breach of any other provision contained herein.
7.7 NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if
<PAGE> 73
hand delivered or sent by telecopier, four (4) days after mailing if sent by
mail, and one (l) business day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with this Section:
if to Stockholder:
at the address set forth below Stockholder's signature
on the signature page hereto;
if to Parent:
Niku Corporation
305 Main Street
Redwood City, CA 94063
Attn: Chief Financial Officer
Facsimile: (650) 298-5934
or to such other address as a party designates in a writing delivered to
each of the other parties hereto.
7.8 ENTIRE AGREEMENT. This Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement and understanding
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon either party hereto unless made in writing and
signed by both parties hereto. The parties hereto waive trial by jury in any
action at law or suit in equity based upon, or arising out of, this Agreement or
the subject matter hereof.
7.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that, in addition to any other remedy to which Parent
is entitled at law or in equity, Parent shall be entitled to injunctive relief
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any California court or in any other court of competent
jurisdiction.
7.10 OTHER AGREEMENTS. Nothing in this Agreement shall limit any of the
rights or remedies of Parent or any of the obligations of Stockholder under any
other agreement.
7.11 CONSTRUCTION. This Agreement has been negotiated by the respective
parties
<PAGE> 74
hereto and their attorneys and the language hereof will not be construed for or
against either party. Unless otherwise indicated herein, all references in this
Agreement to "Sections" refer to sections of this Agreement. The titles and
headings herein are for reference purposes only and will not in any manner limit
the construction of this Agreement which will be considered as a whole.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.]
<PAGE> 75
IN WITNESS WHEREOF, Parent and Stockholder have caused this Agreement to
be executed as of the Agreement Date first written above.
NIKU CORPORATION STOCKHOLDER
By: Name:
------------------------- ---------------------------------
(Please Print)
Title: By:
------------------------- ---------------------------------
(Signature)
Title:
-------------------------------
Address:
-----------------------------
Facsimile: ( )
--------------------
Number of Shares of Company Common
Stock owned by Stockholder as of the
Agreement Date: ________________
[SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 76
EXHIBIT 1
IRREVOCABLE PROXY
The undersigned stockholder of Legal Anywhere, Inc., an Oregon
corporation (the "COMPANY"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes the members of the Board of Directors of Niku
Corporation, a Delaware corporation ("PARENT"), and each of them, the attorneys
and proxies of the undersigned, with full power of substitution and
resubstitution, to the fullest extent of the undersigned's rights with respect
to (i) the shares of capital stock of the Company owned by the undersigned as of
the date of this proxy, which shares are specified on the final page of this
proxy and (ii) any and all other shares of capital stock of the Company which
the undersigned may acquire after the date hereof. (The shares of the capital
stock of the Company referred to in clauses (i) and (ii) of the immediately
preceding sentence are collectively referred to as the "SHARES.") Upon the
execution hereof, all prior proxies given by the undersigned with respect to any
of the Shares are hereby revoked, and no subsequent proxies will be given with
respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with that certain Voting Agreement, dated as of the date hereof,
between Parent and the undersigned (the "VOTING AGREEMENT"), and is granted in
consideration of Parent entering into the Agreement and Plan of Reorganization,
dated as of January ___, 2000, among Parent, LA Acquisition Corporation, an
Oregon corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), the
Company and certain executives of the Company (the "PLAN"). Capitalized terms
used but not otherwise defined in this proxy have the meanings ascribed to such
terms in the Plan.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the Expiration Date (as defined
in the Plan) at any meeting of the stockholders of the Company, however called,
or in any action by written consent of stockholders of the Company:
(i) in favor of the Merger, the execution and delivery by the
Company of the Plan, the adoption and approval of the terms thereof and
in favor of each of the other actions contemplated by the Plan, and any
action required in furtherance hereof and thereof;
(ii) against any action or agreement that would result in a breach
of any representation, warranty, covenant or obligation of the Company
in the Plan or that would preclude fulfillment of a condition precedent
under the Plan to the Company's, Parent's or Merger Sub's obligation to
consummate the Merger; and
<PAGE> 77
(iii) in favor of the termination (by amendment of any such
agreement or otherwise), effective immediately prior to the
effectiveness of the Merger, of any rights of first refusal, rights of
co-sale, information rights, registration rights, preemptive rights or
similar rights of Stockholder under any agreement, arrangement or
understanding applicable to the Subject Shares.
Prior to the Expiration Date (as such term is defined in the Voting
Agreement), at any meeting of the stockholders of the Company without a meeting,
however called, and in any action by written consent of stockholders of the
Company, the attorneys and proxies named above may, in their sole discretion,
elect to abstain from voting on any matter covered by the foregoing
subparagraphs (i) through (iv) above.
The undersigned stockholder may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
Any obligation of the undersigned hereunder shall be binding upon the
heirs, successors and assigns of the undersigned (including any transferee of
any of the Shares).
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE> 78
This proxy shall terminate upon the Expiration Date.
Dated: January ___, 2000
Stockholder Name:
--------------------------
Signature:
--------------------------
Title (If Applicable):
--------------
Number of Shares of Company Common
Stock Owned:
------------------------------
<PAGE> 79
EXHIBIT B
FORM OF NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "AGREEMENT") is made and entered
into as of January 19, 2000 (the "EXECUTION DATE") by and among Niku
Corporation, a Delaware corporation ("PARENT") and Legal Anywhere, Inc., an
Oregon corporation (the "COMPANY"), on the one hand, and ______________________
("EMPLOYEE"), on the other hand.
R E C I T A L S
A. Concurrently with the execution of this Agreement, Parent, LA
Acquisition Corporation, an Oregon corporation that is a wholly-owned subsidiary
of Parent ("MERGER Sub"), Company, Employee and certain other executives of the
Company have entered into an Agreement and Plan of Reorganization dated as of
January 19, 2000 (the "PLAN"), which provides for the merger (the "MERGER") of
Merger Sub with and into the Company, with the Company to be the surviving
corporation of the Merger. Upon the effectiveness of the Merger, the outstanding
capital stock of the Company will be converted into shares of Parent Common
Stock in the manner and on the basis set forth in the Plan. Capitalized terms
that are used in this Agreement and that are not defined herein shall have the
same respective meanings that are given to such terms in the Plan.
B. Employee owns Company Common Stock and is an officer and key employee
of the Company, and upon the effectiveness of the Merger, will receive shares of
Parent Common Stock having substantial value by virtue of the conversion of
Employee's Company Common Stock in the Merger. Employee's talents and abilities
are critical to the Company's ability to continue to successfully carry on its
business.
C. One of the material conditions precedent to the obligation of Parent
to consummate the Merger under the Plan is that Employee has executed, entered
into and is bound by this Agreement with Parent and the Company. Employee is
therefore entering into this Agreement as a material inducement and
consideration to Parent to enter into the Plan, to issue the consideration
payable to Employee and the other Company shareholders in the Merger and to
consummate the Merger, and to ensure that Parent effectively acquires the
goodwill of the Company through the Merger.
NOW, THEREFORE, in consideration of the facts stated in the foregoing
recitals and the promises made herein, Parent, the Company and Employee hereby
agree as follows:
1. EFFECTIVENESS OF OBLIGATIONS. This Agreement shall become effective
if and only if the Merger is consummated, and shall become effective upon the
date and time that the Merger is consummated and becomes legally effective (such
date and time being hereinafter referred to as the "EFFECTIVE TIME").
<PAGE> 80
2. CERTAIN DEFINITIONS.
(a) Affiliate. As used herein, the term "AFFILIATE" will have the
meaning given to such term in Rule 405 of Regulation C promulgated under the
Securities Act of 1933, as amended, and refers both to a present and future
Affiliate.
(b) Competing Business. As used herein, the term "COMPETING
BUSINESS" means the business of developing, marketing, licensing, or
distributing any technology products or web-based services to the legal
profession.
(c) Covenant Period. As used herein, the term "COVENANT PERIOD"
means that period of time commencing on the Effective Time and ending eighteen
(18) months after the Effective Time.
(d) Engaging in Business. As used in Section 3 of this Agreement,
each of the following activities, without limitation, shall be deemed to
constitute "ENGAGING IN A BUSINESS": to engage in, carry on, work with, be
employed by, consult for, invest in, solicit customers for, own stock or any
other equity or ownership interest in, advise, lend money to, guarantee the
debts or obligations of, contribute, sell or license intellectual property to,
or permit one's name or any part thereof to be used in connection with, any
enterprise or endeavor, either individually, in partnership or in conjunction
with any person, firm, association, partnership, joint venture, limited
liability company, corporation or other business, whether as principal, agent,
stockholder, lender, partner, joint venturer, member, director, officer,
employee or consultant. However, nothing contained in this Agreement shall
prohibit Employee from: (i) being employed by or serving as a consultant to
Parent (or any other Affiliate of Parent); (ii) acquiring or holding at any one
time less than five percent (5%) of the outstanding securities of any publicly
traded company (other than any publicly traded company with respect to which
Employee is engaged in any business (as defined in this Section) in violation of
Employee's covenants in Section 3 hereof); (iii) holding stock of Parent; or
(iv) acquiring or holding an interest in a mutual fund, limited partnership,
venture capital fund or similar investment entity of which Employee is not an
employee, officer or general partner and has no power to make, participate in or
directly influence the investment decisions of such mutual fund, limited
partnership, venture capital fund or investment entity.
(e) Surviving Corporation. As used herein, the term "SURVIVING
CORPORATION" means the Company, the surviving corporation of the Merger.
3. NON-COMPETITION AND NON-SOLICITATION COVENANTS.
(a) Non-Competition. Employee hereby covenants and agrees with
Parent and the Company that, at all times during the Covenant Period, Employee
shall not, either directly or indirectly, engage in any Competing Business (i)
in any state of the United States of America or (ii) in any country in which the
Company has conducted business on or before the Effective Time (including,
without limitation, any county, state, territory, possession or country in which
any customer of the Company who utilizes the Company's products or services is
located or in which the Company has solicited business as of the Effective
Time). Employee acknowledges and agrees with
<PAGE> 81
Parent and the Company that the Company shall be deemed for the purpose of this
Section 3 to have engaged in business at a national level in the United States
of America, in each state of the United States of America and in the country of
Canada.
(b) Non-Solicitation of Customers. In addition to, and not in
limitation of, the non-competition covenants of Employee in Section 3(a) above,
Employee agrees with Parent and the Company that, at all times during the
Covenant Period, Employee will not, either for Employee or for any other person
or entity, directly or indirectly (other than for Parent and any of its
Affiliates), solicit business relating to the Competing Business from, or
attempt to market, sell, distribute, license or otherwise provide technology
products or web-based services to the legal profession, or attempt to market or
provide training, support, consulting and other services with respect to the
installation, implementation or use of technology products or web-based services
to the legal profession to, any customer of the Company, Parent or any of their
respective Affiliates.
(c) Non-Solicitation of Employees or Consultants. In addition to,
and not in limitation of, the non-competition covenants of Employee in Section
3(a) above, Employee agrees with Parent and the Company that, at all times
during the Covenant Period, Employee will not, either for Employee or for any
other person or entity, directly or indirectly, solicit, induce or attempt to
induce any director, employee, consultant or contractor of Parent, the Surviving
Corporation or any of their Affiliates to terminate his or her employment or
his, her or its services with, Parent, the Surviving Corporation or any of their
respective Affiliates or to take employment with any other party.
4. SEVERABILITY. Should a court or other body of competent jurisdiction
determine that any term or provision of this Agreement is excessive in scope or
duration or is unenforceable, then the parties agree that such term or provision
shall not be voided or made unenforceable, but rather shall be modified to the
extent necessary to be enforceable, in accordance with the purposes stated in
this Agreement and with applicable law, and all other terms and provisions of
this Agreement shall remain valid and fully enforceable.
5. SPECIFIC PERFORMANCE. Employee agrees that, in the event of any
breach or threatened breach by Employee of any covenant or obligation contained
in this Agreement, each of Parent and the Company shall be entitled (in addition
to any other remedy that may be available to it, including monetary damages) to
seek and obtain (a) a decree or order of specific performance to enforce the
observance and performance of such covenant or obligation, and (b) an injunction
restraining such breach or threatened breach. Employee further agrees that
neither Parent nor the Company shall be required to obtain, furnish or post any
bond or similar instrument in connection with or as a condition to obtaining any
remedy referred to in this Section 5, and employee irrevocably waives any right
he may have to require Parent or the Company to obtain, furnish or post any such
bond or similarly instrument.
6. NON-EXCLUSIVITY. The rights and remedies of Parent and the Company
under this Agreement are not exclusive of or limited by any other rights or
remedies which they may have, whether at law, in equity, by contract or
otherwise, all of which shall be cumulative (and not alternative). Without
limiting the generality of the foregoing, the rights and remedies of Parent and
<PAGE> 82
the Company under this Agreement, and the obligations and liabilities of
Employee under this Agreement, are in addition to their respective rights,
remedies, obligations and liabilities under the law of unfair competition, under
laws relating to misappropriation of trade secrets, under other laws and common
law requirements and under all applicable rules and regulations. Nothing in this
Agreement shall limit any of Employee's obligations, or the rights or remedies
of Parent or the Company, under the Plan or any other agreement delivered in
connection therewith or shall limit any of Employee's obligations, or any of the
rights or remedies of Parent or the Company, under this Agreement. No breach on
the part of Parent, the Company or any other party of any covenant or obligation
contained in the Plan or any other agreement shall limit or otherwise affect any
right or remedy of Parent or the Company under this Agreement.
7. GOVERNING LAW. The internal laws of the State of Oregon (irrespective
of its choice of law principles) will govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
8. SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations
of Employee hereunder are personal to Employee and shall not be assignable,
delegable or transferable by Employee in any respect. This Agreement shall inure
to the benefit of the permitted successors and assigns of Parent and the
Company, including any successor to or assignee of all or substantially all of
the business and assets of Parent or the Company or any other part of the
business or assets of Parent and/or the Company.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, bear the signatures of all
parties reflected hereon as signatories.
10. AMENDMENT; WAIVER. This Agreement may be amended only by the written
agreement of Parent and Employee. No waiver by any party hereto of any condition
or of any breach of any provision of this Agreement will be effective unless
such waiver is set forth in a writing signed by such party. No waiver by any
party of any such condition or breach, in any one instance, will be deemed to be
a further or continuing waiver of any such condition or breach or a waiver of
any other condition or breach of any other provision contained herein.
11. NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, four (4) days after mailing if sent by mail,
and one (l) business day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with this Section:
<PAGE> 83
If to Parent or the Company: With a copy to:
Niku Corporation Fenwick & West LLP
305 Main Street Two Palo Alto Square, Suite 800
Redwood City, CA Palo Alto, CA 94306
Attention: President, Vertical Markets Attention: Dennis R. DeBroeck, Esq.
Fax Number: (650) 701-2728 Fax Number: (650) 494-1417
If to Employee: With a copy to:
Stoel Rives LLP
Parties: 900 SW Fifth Avenue, Suite 2600
------- Portland, OR 97204
Ryan Malarkey Attention: Todd Bauman, Esq.
Peter J. Ozolin Fax Number: (503) 220-2480
Robert S. Wiggins
or to such other address as Parent, the Company or the Employee, as the case may
be, designates in a writing delivered to the other parties hereto.
12. COSTS OF ENFORCEMENT. If any party to this Agreement seeks to
enforce its rights under this Agreement by legal proceedings or otherwise, the
non-prevailing party shall pay all costs and expenses incurred by the prevailing
party, including, without limitation, all reasonable attorneys' and experts'
fees.
13. ENTIRE AGREEMENT. This Agreement contains all of the terms and
conditions agreed upon by the parties relating to the subject matter of this
Agreement and, effective upon the Effective Time of the Merger, shall supersede
any and all prior and contemporaneous agreements, negotiations, correspondence,
understandings and communications of the parties, whether oral or written, with
respect to such subject matter; provided, however, that notwithstanding the
foregoing, any non-competition, non-solicitation or other covenants of the type
set forth in Section 3 of this Agreement that are contained in (a) any agreement
entered into between the Company and Employee prior to the date of this
Agreement, or (b) any employment agreement or in any employee invention
assignment and/or confidentiality agreement executed by Employee with Parent or
the Surviving Corporation that is in effect at any time during the Covenant
Period, shall each be construed to be a separate, independent and concurrent
covenant and obligation of Employee that is cumulative and in
<PAGE> 84
addition to, and not in lieu of or in conflict with, any of the covenants in
Section 3 of this Agreement, and the existence of any such separate, independent
and concurrent covenant or covenants shall have no effect on the covenants
contained in Section 3 of this Agreement.
14. RULES OF CONSTRUCTION. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. Unless otherwise indicated herein, all
references in this Agreement to "Sections" refer to sections of this Agreement.
The titles and headings herein are for reference purposes only and will not in
any manner limit the construction of this Agreement which will be considered as
a whole.
IN WITNESS WHEREOF, Employee, Parent and the Company have executed and
entered into this Agreement effective as of the Execution Date.
NIKU CORPORATION EMPLOYEE
By:
----------------------------------------- ------------------------------
Title:
------------------------------
LEGAL ANYWHERE, INC.
By:
----------------------------------------- ------------------------------
Title:
------------------------------
<PAGE> 85
EXHIBIT C
ARTICLES OF MERGER
OF
LA ACQUISITION CORPORATION
WITH AND INTO
LEGAL ANYWHERE, INC.
Pursuant to Section 60.494 of the Oregon Business Corporation Act, Legal
Anywhere, Inc., an Oregon corporation ("Legal Anywhere"), the surviving
corporation of the merger of LA Acquisition Corporation, an Oregon corporation
and wholly-owned subsidiary of Niku Corporation ("Niku"), a Delaware corporation
("Merger Sub"), with and into Legal Anywhere ("the Merger"), files these
Articles of Merger with the office of the Secretary of State.
1. THE PLAN OF MERGER. The plan of merger is set forth as Exhibit A and
is incorporated by reference. The Plan has been duly adopted and approved by the
Board of Directors of each of Legal Anywhere, Merger Sub and Niku.
2. SHAREHOLDER APPROVAL. The Merger required the approval of the
shareholders.
A. Legal Anywhere shareholders approved the Merger as follows:
(1) 3,657,280 shares of common stock were outstanding and
entitled to vote on the Plan.
<PAGE> 86
(2) ________ shares of common stock voted in favor of the Plan
and _______ shares voted against the Plan.
B. Merger Sub shareholder vote
(1) 1,000 shares of common stock of Merger Sub were outstanding
and entitled to vote on the Plan of Merger.
(2) 1,000 shares of common stock were voted for the Plan of
Merger, and no shares of Common Stock were voted against the
Plan of Merger.
3. EFFECTIVE DATE. These Articles of Merger are effective when filed with
the Secretary of State of the state of Oregon.
4. CONTACT. The person to contact about this filing is:
Richelle M. Tustin
Stoel Rives LLP
900 S.W. Fifth Ave., Suite 2600
Portland, OR 97204-1268
Telephone: (503) 294-9896
Dated: January 31, 2000
LEGAL ANYWHERE, INC.
an Oregon corporation
By:
------------------------
Name: Robert S. Wiggins
----------------------
Title: President
---------------------
<PAGE> 87
EXHIBIT A
PLAN OF MERGER OF
LA ACQUISITION CORPORATION
WITH AND INTO
LEGAL ANYWHERE, INC.
1. PARTIES.
(a) The name of the surviving corporation is Legal Anywhere, an
Oregon corporation (the "Company").
(b) The name of the corporation merging with and into the surviving
corporation is LA Acquisition Corporation, an Oregon corporation ("Merger Sub")
and a wholly-owned subsidiary of Niku Corporation, a Delaware corporation
("Niku").
2. TERMS AND CONDITIONS. The Merger shall become effective when the Plan
of Merger and Articles of Merger are filed with the Secretary of State of the
state of Oregon (the "Effective Time"). At the Effective Time, Merger Sub will
be merged with and into the Company (the "Merger"). The separate corporate
existence of Merger Sub will cease, and the Company will be the Surviving
Corporation of the Merger (the "Surviving Corporation"), and the Surviving
Corporation shall continue in existence under the laws of the state of Oregon.
pursuant to the Merger, Niku will issue, in exchange for all of the outstanding
common stock of the Company ("Company Common Stock"), a number of shares of Niku
common stock ("Niku Common Stock") as set forth in section 3 below.
3. CONVERSION OF SHARES. At the effective time, by virtue of the Merger
and without any action on the part of the holders thereof, each share of the
company Common Stock issued and outstanding immediately prior to the Effective
Time shall be automatically converted into the right to receive 0.233429 shares
of Niku Common Stock plus, in lieu of the fractional shares, cash equal to the
product of such fraction multiplied by $11.00 ("MERGER CONSIDERATION").
At the Effective Time, each outstanding option to acquire Company Common
Stock (the "OPTIONS") shall be assumed by Niku and simultaneously converted into
a right to receive nonqualified options under Niku's 1998 Stock Plan to purchase
a number of shares of Niku Common Stock equal to the product of the number of
shares of Company Common Stock subject to the original Option multiplied by
0.233429, at an exercise price equal to the quotient of the exercise price of
the original Option divided by 0.233429.
As soon as reasonably practicable after the Effective Time, Niku will mail
to each holder of a certificate or certificates that before the Effective Time
represented shares of Company Common Stock ("LEGAL ANYWHERE CERTIFICATES"), (i)
a notice and letter of transmittal specifying that delivery will be effected
only upon proper delivery of the Legal Anywhere Certificates to Niku and (ii)
instructions for exchanging the Legal Anywhere Certificates for the Merger
Consideration.
Upon proper surrender of a Legal Anywhere Certificate to Niku, the holder
of such Legal Anywhere Certificate will receive in exchange the Merger
Consideration for each share of Company Common Stock represented thereby.
4. ARTICLES OF INCORPORATION. At the Effective Time, the Articles of
Incorporation of the Company shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Articles of Incorporation.
5. BYLAWS. At the Effective Time, the Bylaws of the Company, as in effect
immediately prior the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
<PAGE> 88
EXHIBIT D
NIKU CORPORATION
DECLARATION OF REGISTRATION RIGHTS
This Declaration of Registration Rights ("Declaration") is made as of
January ___, 2000, by Niku Corporation, a Delaware corporation ("Parent"), for
the benefit of shareholders of Legal Anywhere, Inc., an Oregon corporation (the
"Company"), acquiring shares of Parent Common Stock pursuant to that Agreement
and Plan of Reorganization dated as of January __, 2000 (the "Reorganization
Agreement"), among the Company, Parent, LA Acquisition Corporation, an Oregon
corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and certain
executives of the Company, and in consideration of such shareholders' approving
the principal terms of the Reorganization Agreement and the transactions
contemplated thereby.
DEFINITIONS. AS USED IN THIS DECLARATION:
"Effective Date" means the date of expiration of the lock-up period as
agreed to by Parent and its underwriters in connection with Parent's initial
public offering of common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Securities Act as is in effect on
the date hereof or any registration form under the Securities Act subsequently
adopted by the SEC which similarly permits inclusion or incorporation of
substantial information by reference to other documents filed by Parent with the
SEC.
"Holder" means a shareholder of the Company to whom shares of Common
Stock of Parent are issued pursuant to the Reorganization Agreement or a
transferee to whom registration rights granted under this Declaration are
assigned pursuant to Section 6 of this Declaration.
"Registrable Securities" means for each Holder the number of shares of
Parent Common Stock issued to such Holder pursuant to the Reorganization
Agreement, and for all Holders the sum of the Registrable Securities held by
them; provided, however, that such shares of Parent Common Stock held by a
particular Holder shall cease to be Registrable Securities (i) after Parent has
satisfied its obligations to register for resale and maintain the effectiveness
of a registration statement relation to such shares on the terms and conditions
set forth in Section 2 hereof or (ii) at such time as such Holder is able to
sell such shares (including all Registrable Securities held by Affiliates of
such Holder, as defined pursuant to Rule 144 of the Securities Act) in their
entirety within a single 90 day period under Rule 144 of the Securities Act;
provided further, however, any shares of Parent
<PAGE> 89
Common Stock subject to the escrow provisions of Article VIII of the
Reorganization Agreement shall not be deemed Registrable Securities for purposes
of this Declaration.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the United States Securities and Exchange Commission.
Terms not otherwise defined herein have the meanings given to them in
the Reorganization Agreement.
REGISTRATION ON FORM S-1 OR S-3.
Parent shall use its best efforts to cause the Registrable Securities
then held by each Holder to be registered under the Securities Act so as to
permit the sale thereof following the Effective Date, and in connection
therewith shall use its best efforts to prepare and file with the SEC within 60
days after the Effective Date, a registration statement on Form S-1 or S-3, if
available (or any successor form) covering all Registrable Securities; provided,
that each Holder shall provide all such information and materials regarding such
Holder and take all such action as may be required by a Holder under applicable
laws and regulations in order to permit Parent to comply with all applicable
requirements of the Securities Act and the Exchange Act and to obtain any
desired acceleration of the effective date of such registration statement, such
provision of information and materials to be a condition precedent to the
obligations of Parent pursuant to this Declaration to register the Registrable
Securities held by each such Holder. The offerings made pursuant to such
registration shall not be underwritten.
Parent shall (i) use its best efforts to prepare and file with the SEC
the registration statement in accordance with Section 2 hereof with respect to
the Registrable Securities and shall use its best efforts to cause such
registration statement to become effective as promptly as practicable after
filing and to keep such registration statement effective until the sooner to
occur of (A) the date on which all Registrable Securities included within such
registration statement have been sold or (B) the 12 month anniversary of the
Effective Time; (ii) prepare and file with the SEC such amendments to such
registration statement and amendments or supplements to the prospectus used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
registered by such registration statement; (iii) furnish to each Holder such
number of copies of any prospectus (including any preliminary prospectus and any
amended or supplemented prospectus) in conformity with the requirements of the
Securities Act, and such other documents, as each Holder may reasonably request
in order to effect the offering and sale of the Registrable Securities to be
offered and sold, but only while Parent shall be required under the provisions
hereof to cause the registration statement to remain effective; (iv) use its
reasonable best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as each Holder shall reasonably request (provided that Parent
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such jurisdiction where
<PAGE> 90
it has not been qualified or is not otherwise subject to a general consent for
service of process), and do any and all other acts or things which may be
necessary or advisable to enable each Holder to consummate the public sale or
other disposition of such Registrable Securities in such jurisdictions; and (v)
notify each Holder, promptly after it shall receive notice thereof, of the date
and time the registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed.
(c) Parent shall use its best efforts to amend its Fourth Amended
and Restated Investor Rights Agreement dated as of November 17, 1999 to provide
that the stockholder parties thereto be prevented from selling their shares
under the registration statement contemplated hereunder.
SUSPENSION OF PROSPECTUS. PRIOR TO ANY PROPOSED DISPOSITION BY HOLDER OF ANY
REGISTRABLE SECURITIES UNDER ANY REGISTRATION STATEMENT FILED PURSUANT TO
SECTION 2 HEREOF, HOLDER SHALL NOTIFY PARENT IN WRITING OF SUCH PROPOSED
DISPOSITION. PARENT MAY RESTRICT DISPOSITION OF REGISTRABLE SECURITIES, AND A
HOLDER WILL NOT BE ABLE TO DISPOSE OF SUCH REGISTRABLE SECURITIES, IF PARENT
SHALL HAVE DELIVERED WITHIN THREE (3) BUSINESS DAYS THEREOF A NOTICE IN WRITING
TO SUCH HOLDER STATING THAT A DELAY IN THE DISPOSITION OF SUCH REGISTRABLE
SECURITIES IS NECESSARY BECAUSE PARENT, IN ITS REASONABLE JUDGMENT, HAS
DETERMINED IN GOOD FAITH THAT SUCH SALES WOULD REQUIRE PUBLIC DISCLOSURE BY
PARENT OF MATERIAL NONPUBLIC INFORMATION THAT IS NOT INCLUDED IN SUCH
REGISTRATION STATEMENT. IN THE EVENT OF THE DELIVERY OF THE NOTICE DESCRIBED
ABOVE BY PARENT, PARENT SHALL USE ITS REASONABLE BEST EFFORTS TO AMEND SUCH
REGISTRATION STATEMENT AND/OR AMEND OR SUPPLEMENT THE RELATED PROSPECTUS IF
NECESSARY AND TO TAKE ALL OTHER ACTIONS NECESSARY TO ALLOW THE PROPOSED SALE TO
TAKE PLACE AS PROMPTLY AS POSSIBLE, SUBJECT, HOWEVER, TO THE RIGHT OF PARENT TO
DELAY FURTHER SALES OF REGISTRABLE SECURITIES UNTIL THE CONDITIONS OR
CIRCUMSTANCES REFERRED TO IN THE NOTICE HAVE CEASED TO EXIST OR HAVE BEEN
DISCLOSED. SUCH RIGHT TO DELAY SALES OF REGISTRABLE SECURITIES SHALL NOT EXCEED
90 DAYS IN THE AGGREGATE AND NO LONGER THAN 30 DAYS AS TO ANY SINGLE DELAY.
EXPENSES. ALL OF THE OUT-OF-POCKET EXPENSES INCURRED IN CONNECTION WITH ANY
REGISTRATION OF REGISTRABLE SECURITIES PURSUANT TO THIS DECLARATION, INCLUDING,
WITHOUT LIMITATION, ALL SEC, NASDAQ NATIONAL MARKET AND BLUE SKY REGISTRATION
AND FILING FEES, PRINTING EXPENSES, TRANSFER AGENTS' AND REGISTRARS' FEES AND
THE REASONABLE FEES AND DISBURSEMENTS OF PARENT'S OUTSIDE COUNSEL AND
INDEPENDENT ACCOUNTANTS SHALL BE PAID BY PARENT. PARENT SHALL NOT BE RESPONSIBLE
TO PAY ANY LEGAL FEES FOR ANY HOLDER OR ANY SELLING EXPENSES OF ANY HOLDER
(INCLUDING, WITHOUT LIMITATION, ANY BROKER'S FEES OR COMMISSIONS).
<PAGE> 91
INDEMNIFICATION. IN THE EVENT OF ANY OFFERING REGISTERED PURSUANT TO THIS
DECLARATION:
Parent will indemnify each Holder, each of its officers, directors and
partners and such Holder's legal counsel, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act (each, a "Seller
Indemnified Party"), with respect to which registration, qualification or
compliance has been effected pursuant to this Declaration, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading,
or any violation by Parent of any rule or regulation promulgated under the
Securities Act, or state securities laws, or common law, applicable to Parent in
connection with any such registration, qualification or compliance, and will
reimburse each Seller Indemnified Party for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action; provided, however, that Parent
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based in any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to Parent in an instrument duly
executed by such Seller Indemnified Party and stated to be specifically for use
therein.
Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify Parent, each of its directors and
officers and its legal counsel and independent accountants, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act (each a "Parent
Indemnified Party"), against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Parent Indemnified Party for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to Parent by an instrument duly executed by such Holder and stated to
be specifically for use therein; provided, however, that the obligations of such
Holders hereunder shall be limited to an amount equal to the gross proceeds
(after deducting reasonable commissions) received by each such Holder of
Registrable Securities sold as contemplated herein.
Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly
<PAGE> 92
after such Indemnified Party has written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Declaration, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is compared as a result of such failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Indemnified Party of
a release from all liability in respect to such claim or litigation.
The obligations of Parent and each Holder under this Section 5 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Declaration and otherwise.
Notwithstanding the foregoing, to the extent the provisions of this
Section 5 are inconsistent with or conflict with the terms of any
indemnification, selling or similar agreement entered into by a Holder in
connection with the offer and sale of Registrable Securities pursuant to a
registration effected pursuant to this Declaration, the terms of such agreement
shall govern and shall supersede the provisions of this Declaration.
LIMITATION ON ASSIGNMENT OF REGISTRATION RIGHTS. THE RIGHTS TO CAUSE PARENT TO
REGISTER REGISTRABLE SECURITIES PURSUANT TO THIS DECLARATION MAY NOT BE ASSIGNED
BY A HOLDER UNLESS SUCH A TRANSFER IS TO SHAREHOLDERS, PARTNERS OR RETIRED
PARTNERS, OR MEMBERS OR RETIRED MEMBERS OF A HOLDER (INCLUDING SPOUSES AND
ANCESTORS, LINEAL DESCENDANTS, AND SIBLINGS OF SUCH SHAREHOLDERS, PARTNERS,
MEMBERS OR SPOUSES WHO ACQUIRE REGISTRABLE SECURITIES BY RIGHT, WILL OR
INTESTATE SUCCESSION) AND ALL SUCH TRANSFEREES OR ASSIGNEES AGREE IN WRITING TO
APPOINT A SINGLE REPRESENTATIVE AS THEIR ATTORNEY-IN-FACT FOR THE PURPOSE OF
RECEIVING ANY NOTICES AND EXERCISING THEIR RIGHTS UNDER THIS DECLARATION. PRIOR
TO A PERMITTED TRANSFER OF REGISTRATION RIGHTS UNDER THIS DECLARATION, HOLDER
MUST FURNISH PARENT WITH WRITTEN NOTICE OF THE NAME AND ADDRESS OF SUCH
TRANSFEREE AND THE REGISTRABLE SECURITIES WITH RESPECT TO WHICH SUCH
REGISTRATION RIGHTS ARE BEING ASSIGNED AND A COPY OF A DULY EXECUTED WRITTEN
INSTRUMENT IN FORM REASONABLY SATISFACTORY TO PARENT BY WHICH SUCH TRANSFEREE
ASSUMES ALL OF THE OBLIGATIONS AND LIABILITIES OF ITS TRANSFEROR HEREUNDER AND
AGREES ITSELF TO BE BOUND HEREBY. NO TRANSFER OF REGISTRATION RIGHTS UNDER THIS
DECLARATION SHALL BE PERMITTED IF IMMEDIATELY FOLLOWING SUCH TRANSFER THE
DISPOSITION OF SUCH REGISTRABLE SECURITIES BY THE TRANSFEREE IS NOT RESTRICTED
UNDER THE SECURITIES ACT.
<PAGE> 93
REPORTS UNDER EXCHANGE ACT. PARENT AGREES TO:
use its commercially reasonable efforts to file with the SEC in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Exchange Act; and
furnish to each Holder, forthwith upon request (i) a written statement
by Parent that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so qualifies), and (ii)
a copy of the most recent annual or quarterly report of Parent.
AMENDMENT OF REGISTRATION RIGHTS. HOLDERS OF A MAJORITY OF THE REGISTRABLE
SECURITIES FROM TIME TO TIME OUTSTANDING MAY, WITH THE CONSENT OF PARENT, AMEND
THE REGISTRATION RIGHTS GRANTED HEREUNDER.
GOVERNING LAW. THIS DECLARATION SHALL BE GOVERNED IN ALL RESPECTS BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
<PAGE> 94
IN WITNESS WHEREOF, this Declaration of Registration Rights is executed
as of the date first above written.
NIKU CORPORATION
By:
---------------------------
Joshua Pickus
President, Vertical Markets
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 95
EXHIBIT E
MATTERS TO BE COVERED IN THE OPINION
OF COUNSEL TO NIKU CORPORATION AND LA ACQUISITION CORPORATION
NOTE: Except as otherwise defined below, all capitalized terms used
below shall have the same meanings given to such terms in this Agreement and
Plan or Reorganization.
l. Parent has been duly incorporated and organized, and is validly
existing and in good standing, under the laws of the State of Delaware. Merger
Sub has been duly organized and is validly existing under the laws of the State
of Oregon. Parent has the corporate power and corporate authority to enter into
and perform the Agreement and each agreement to be entered into by Parent in
connection therewith (the "PARENT ANCILLARY AGREEMENTS"), to own and operate its
properties and to carry on its business as currently conducted. Merger Sub has
the corporate power and corporate authority to enter into and perform the
Agreement and each agreement to be entered into by Merger Sub in connection
therewith (the "MERGER SUB ANCILLARY AGREEMENTS"), to own and operate its
properties, and to carry on its business as currently conducted. To our
knowledge, neither Parent nor Merger Sub is in violation of any of the
provisions of its Certificate or Articles of Incorporation (as the case may be)
or Bylaws, each as amended and currently in effect.
2. Parent is qualified to do business as a foreign corporation in good
standing in the State of California.
3. The capitalization of Parent as of December 15, 1999 consists of the
following:
(a) Preferred Stock: A total of 51,910,282 authorized shares of
Preferred Stock (the "Preferred Stock"), of which 10,000,000 shares have
been designated Series F Preferred Stock, 5,142,851 shares have been
designated Series A Preferred Stock, 8,629,992 shares have been
designated Series B Preferred Stock, 9,987,439 shares have been
designated Series C Preferred Stock and 18,150,000 shares have been
designated as Series D Preferred Stock. To our knowledge, there are
issued and outstanding 10,000,000 shares of Series F Preferred Stock,
5,142,851 shares of Series A Preferred Stock, 7,999,992 shares of Series
B Preferred Stock, 9,987,439 shares of Series C Preferred Stock and
14,489,215 shares of Series D Preferred Stock. All of such issued and
outstanding shares are duly authorized, validly issued, fully paid and
nonassessable.
(b) Common Stock. A total of 100,000,000 authorized shares of
Common Stock. To our knowledge, 12,324,306 shares of such Common Stock
are issued and outstanding.
<PAGE> 96
All of such issued and outstanding shares are duly authorized, validly
issued, fully paid and nonassessable.
(c) Options, Etc. To our knowledge, there are no preemptive
rights or any options, warrants, conversion privileges or other rights
(or agreements for any such rights) outstanding to acquire any of
Parent's securities from Parent, except for (i) the conversion
privileges of the Preferred Stock, (ii) outstanding warrants to purchase
630,000 shares of Series B Preferred Stock, (iii) options to purchase an
aggregate of 8,000,000 shares of Common Stock reserved for issuance
pursuant to Parent's 1998 Stock Plan of which options to purchase
5,117,837 shares are outstanding, (iv) rights of first refusal pursuant
to the Fourth Amended and Restated Investor Rights Agreement dated as of
November 17, 1999 between Parent and certain holders of its equity
securities, and (v) any options granted following December 15, 1999.
4. The authorized capital stock of Merger Sub consists entirely of 1,000
shares of Merger Sub Common Stock, $[.001] par value, all of which are validly
issued and outstanding and, nonassessable, owned of record by Parent and, to our
knowledge, fully paid.
5. The Agreement and the Parent Ancillary Agreements have been duly
adopted and authorized, respectively, by all necessary corporate action on the
part of Parent's Board of Directors. The Agreement constitutes the valid and
binding obligation of Parent enforceable against Parent in accordance with its
terms [THIS OPINION MAY BE GIVEN SUBJECT TO LEGAL OPINION EXCEPTIONS AS TO
ENFORCEABILITY THAT ARE MUTUALLY AGREEABLE TO COUNSEL TO THE COMPANY AND
COUNSEL TO PARENT].
6. The Agreement and the Articles of Merger have been duly authorized
by all necessary corporate action on the part of Merger Sub's Board of
Directors and sole shareholder. The Agreement constitutes the valid and binding
obligation of Merger Sub enforceable against Merger Sub in accordance with its
terms [THIS OPINION MAY BE GIVEN SUBJECT TO LEGAL OPINION EXCEPTIONS AS TO
ENFORCEABILITY THAT ARE MUTUALLY AGREEABLE TO COUNSEL TO THE COMPANY AND
COUNSEL TO PARENT].
7. The execution and delivery of the Agreements and Ancillary
Agreements by Parent and Merger Sub, as applicable, and the performance by
Parent and Merger Sub of their respective obligations under the Agreements and
Ancillary Agreements to be performed as of the date hereof do not conflict
with, or result in a violation of: (a) the Certificate or Articles of
Incorporation (as the case may be) or Bylaws of Parent or Merger Sub, each as
amended and currently in effect; (b) to our knowledge, any statute, law,
ordinance, rule, regulation, or any judgment, order or decree of any court or
arbitrator to which Parent or Merger Sub is a party or is subject, or as to
which any assets or properties of Parent or Merger Sub are bound or subject.
8. The Parent Common Stock, when issued and paid for as provided in the
Agreement, will be duly authorized and validly issued, fully paid and
nonassessable.
<PAGE> 97
9. To our knowledge, all approvals, consents or authorizations of, and
filings with, any U.S. Federal, California State or Delaware State governmental
authority required on the part of Parent in order to enable Parent to execute,
deliver and (as of the date hereof) perform its obligations under the Agreement
have been made, except for (a) such as may be required under applicable federal
and state securities laws and (b) the filing of the Articles of Merger with the
Oregon Secretary of State.
10. To our knowledge, Parent is not a party to any pending or
threatened action, suit, proceeding, arbitration, investigation or claim in or
by any court, arbitrator or governmental authority. To our knowledge, Parent is
not subject to any currently effective order, writ, judgment, decree or
injunction naming Parent as subject thereto.
[IN ADDITION TO THE FOREGOING OPINIONS, COUNSEL FOR PARENT WILL ALSO
PROVIDE AN OPINION REGARDING THE EXEMPTION OF THE OFFER AND SALE OF THE NIKU
COMMON STOCK FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SECTION 5 OF THE SECURITIES ACT AND THE QUALIFICATION REQUIREMENTS OF THE
CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED. IF A SECTION 3(a)(10)
EXEMPTION IS NOT AVAILABLE, PARENT'S COUNSEL ANTICIPATES THAT SUCH OPINION WILL
BE SUBSTANTIALLY SIMILAR TO PARAGRAPH 9 OF THE OPINION GIVEN TO PROAMICS
CORPORATION. IF A SECTION 3(a)(10) EXEMPTION IS AVAILABLE AND RELIED ON BY
PARENT, SUCH OPINION WILL BE SUBJECT TO SUCH EXCEPTIONS, QUALIFICATIONS AND
ASSUMPTIONS AS ARE DEEMED NECESSARY AND APPROPRIATE BY PARENT'S COUNSEL.]
<PAGE> 98
EXHIBIT F
MATTERS TO BE COVERED IN THE OPINION OF COUNSEL FOR LEGAL ANYWHERE, INC.
NOTE: Except as otherwise defined below, all capitalized terms used
below shall have the same meanings give to such terms in this Agreement and Plan
of Reorganization.
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Oregon.
2. The Company has the requisite corporate power and corporate authority
to own, lease and operate its properties and to carry on its business as
presently conducted, and to execute and enter into the Agreement and Plan of
Reorganization dated as of January ___, 2000 among the Company, Parent, Merger
Sub and the Executives (the "PLAN") and each agreement to be entered into by the
Company in connection therewith (the "COMPANY ANCILLARY AGREEMENTS"), and to
perform its obligations under the Plan and under each Company Ancillary
Agreement. To our knowledge, the Company is not in violation of any of the
provisions of its Articles of Incorporation or Bylaws.
3. To our knowledge, all consents, approvals or authorizations of and
filings with any U.S. Federal or Oregon State governmental authority required on
the part of the Company for, or in connection with, the execution, delivery or
performance by the Company of the Plan or any of the Company Ancillary
Agreements have been made, except for (a) such as may be required under
applicable securities laws and (b) the filing of the Articles of Merger with the
Oregon Secretary of State.
4. The Plan and each of the Company Ancillary Agreements have each been
duly authorized, executed and delivered by the Company, and are valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms [THIS OPINION MAY BE GIVEN SUBJECT TO
LEGAL OPINION EXCEPTIONS AS TO ENFORCEABILITY THAT ARE MUTUALLY AGREEABLE TO
COUNSEL TO THE COMPANY AND COUNSEL TO PARENT].
5. The authorized capital stock of the Company consists entirely of
10,000,000 shares of Common Stock, of which, to our knowledge, a total of
3,657,280 shares are issued and outstanding, and 5,000,000 shares of preferred
stock, none of which are issued and outstanding.
6. The outstanding shares of the Company's Common Stock have been duly
authorized, validly issued and are fully paid and non-assessable. To our
knowledge, the outstanding shares of the Company's Common Stock are not subject
to any preemptive right, right of first refusal, right of first offer or right
of rescission created by law or arising from the Company's Articles of
Incorporation or Bylaws or to any agreements to which the Company is a party or
by which it is bound.
7. To such counsel's knowledge, as of immediately prior to the Effective
Time of
<PAGE> 99
the Merger there are (a) no outstanding subscriptions, warrants, options (except
for 605,250 Company Options), calls, rights, equity securities, partnership
interests, claims, commitments, convertible securities or other agreements or
arrangements under which the Company is or may be obligated to issue any shares
of its capital stock, and (b) no preemptive rights to subscribe for or to
purchase capital stock of the Company.
8. Neither the execution and delivery of the Plan or any Company
Ancillary Agreement, nor the consummation of any of the Merger or any of the
other transactions provided for therein or contemplated thereby, are in conflict
with any provision of: (a) the Articles of Incorporation or the Bylaws of the
Company, both as amended and currently in effect; (b) to such counsel's
knowledge, any statute, law, ordinance, rule or regulation or, any judgment,
order, or decree of any court or arbitrator to which the Company or any Company
stockholder is a party or subject, or to which any assets or properties of the
Company are bound or subject; or (c) to such counsel's knowledge, the Contracts
listed on Schedule 2.16(a).
9. To such counsel's knowledge, the Company is not a party to any
pending or threatened, action, suit, proceeding, arbitration, investigation, or
claim in or by any court, arbitrator or governmental authority. To such
counsel's knowledge, the Company is not subject to any currently effective
order, writ, judgment, decree or injunction.
<PAGE> 100
EXHIBIT G
Telephone Number(s) for Call Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
IF TO COMPANY:
NAME TELEPHONE NUMBER
1.
---------------------------------- --------------------------------------
2.
---------------------------------- --------------------------------------
3.
---------------------------------- --------------------------------------
IF TO PARENT:
NAME TELEPHONE NUMBER
1.
---------------------------------- --------------------------------------
2.
---------------------------------- --------------------------------------
3.
---------------------------------- --------------------------------------
Telephone call-backs shall be made to each of the Company and Parent is joint
instructions are required pursuant to the Agreement.
<PAGE> 101
COMPANY NAME: NIKU CORPORATION
DATE:
----------------
AUTHORIZE COMPANY REPRESENTATIVES
PRINTED NAME TITLE SIGNATURE
- ----------------------- ----------------------- ------------------------
- ----------------------- ----------------------- ------------------------
- ----------------------- ----------------------- ------------------------
- ----------------------- ----------------------- ------------------------
- ----------------------- ----------------------- ------------------------
THE ABOVE DESIGNATION OF AN "AUTHORIZED COMPANY REPRESENTATIVE" ON BEHALF OF THE
COMPANY MAY BE AMENDED OR RESCINDED AT ANY TIME HEREAFTER BY A REPLACEMENT
CERTIFICATE.
DATED:
BY:
-------------------------
NAME:
-----------------------
TITLE:
----------------------
<PAGE> 1
EXHIBIT 3.02
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NIKU CORPORATION
Niku Corporation, a Delaware corporation (the "Corporation"), which was
originally incorporated on __________ ___, 1999 under the name Niku Corporation,
hereby certifies that the Amended and Restated Certificate of Incorporation of
the Corporation attached hereto as Exhibit A, which is incorporated herein by
this reference, has been duly adopted by the Board of Directors and stockholders
of the Corporation in accordance with Sections 242 and 245 of the Delaware
General Corporation Law, with the approval of the stockholders having been given
by written consent without a meeting in accordance with Section 228 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, said Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its by duly authorized
officer.
Dated: ______________, 2000
NIKU CORPORATION
------------------------------------
Farzad Dibachi, President
<PAGE> 2
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NIKU CORPORATION
ARTICLE I
The name of the corporation is Niku Corporation.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of its
registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware. This corporation shall have perpetual existence.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is 260,000,000 shares, consisting of two classes:
250,000,000 shares of Common Stock, par value $0.0001 per share, and 10,000,000
shares of Preferred Stock, par value $0.0001 per share.
The voting, dividend and liquidation rights of the holders of the Common
Stock are subject to and qualified by the rights of the holders of the Preferred
Stock of any series as may be designated by the Board of Directors upon any
issuance of the Preferred Stock of any series. The holders of the Common Stock
shall have no preemptive rights to subscribe for any shares of any class of
stock of this corporation whether now or hereafter authorized. The holders of
the Common Stock are entitled to one vote for each share of Common Stock held at
all meetings of stockholders. There shall be no cumulative voting. Dividends may
be declared and paid on the Common Stock from funds lawfully available therefor
as and when determined by the Board of Directors and subject to any preferential
dividend rights of any then outstanding Preferred Stock. Upon the dissolution or
liquidation of the corporation, whether voluntary or involuntary, the holders of
Common Stock will be entitled to receive all assets of the corporation available
for distribution to its stockholders, subject to any preferential rights of any
then outstanding Preferred Stock.
1
<PAGE> 3
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series and, by filing a Certificate
of Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series, but not
below the number of shares of such series then outstanding. The number of
authorized shares of Preferred Stock may also be increased or decreased, but not
below the number of shares thereof then outstanding, by the affirmative vote of
the holders of a majority of the capital stock of the corporation entitled to
vote, unless a vote of any other holders is required pursuant to the Certificate
of Designation establishing a series of Preferred Stock. Any shares of Preferred
Stock that may be redeemed, purchased or acquired by the corporation may be
reissued except as otherwise provided by applicable law or the Certificate of
Designation establishing such series of Preferred Stock. The different series of
Preferred Stock that may be issued hereunder shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided in the Certificate of Designation providing for the
issue of such series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock or any future
class or series of Preferred Stock or Common Stock.
ARTICLE V
In furtherance of and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of this corporation, subject to the right of the stockholders
entitled to vote with respect thereto, in accordance with the provisions of such
Bylaws, to alter and repeal the Bylaws adopted or amended by the Board of
Directors. Notwithstanding any other provisions of law, this Certificate of
Incorporation or the Bylaws, each as amended, and notwithstanding the fact that
a lesser percentage may be specified by law, this Certificate of Incorporation
or the Bylaws, the affirmative vote of the holders of at least sixty six and
two-thirds percent (66 2/3%) of the outstanding voting stock then entitled to
vote at an election of directors, voting together as a single class, shall be
required to alter, change, amend, repeal or adopt any provision inconsistent
with this Article V.
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ARTICLE VI
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(a) The conduct of the affairs of the corporation shall be managed under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by resolution of the Board of Directors in the
manner provided in the Bylaws of the corporation.
(b) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(c) Subject to the rights of the holders of any series of Preferred
Stock, any vacancy occurring in the Board of Directors for any cause, and any
newly created directorship resulting from any increase in the authorized number
of directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and not by the stockholders. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
(d) Subject to the rights of the holders of any series of Preferred
Stock, the directors of the corporation may be removed only for cause by the
affirmative vote of the holders of at least sixty six and two-thirds percent (66
2/3%) of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote generally in the election of directors cast at
a meeting of the stockholders called for that purpose.
(e) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering of this corporation pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock to the public (the "INITIAL PUBLIC
OFFERING"), the directors shall be divided, with respect to the time for which
they severally hold office, into three classes designated as Class I, Class II
and Class III, respectively. The directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors,
with the number of directors in each class to be divided as equally as
reasonably possible. No one class shall have more than one director more than
any other class. The term of office of the Class I Directors shall expire at the
first annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II
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Directors shall expire at the second annual meeting of stockholders following
the closing of the Initial Public Offering, and the term of office of the Class
III Directors shall expire at the third annual meeting of stockholders following
the closing of the Initial Public Offering. At each annual meeting of
stockholders commencing with the first annual meeting of stockholders following
the closing of the Initial Public Offering, directors elected to succeed those
directors of the class whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election. Prior to the closing of the Initial Public Offering, or in the
event the corporation is prohibited from dividing its board of directors in the
manner described above through the operation of Section 2115 of the California
General Corporation Law following the record date of the first annual meeting of
stockholders following the closing of the Initial Public Offering, each director
shall hold office until the next annual meeting of stockholders and until such
director's successor is elected and qualified, or until such director's earlier
death, resignation or removal. In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
(f) Unless and except to the extent that the Bylaws of this corporation
shall so require, the election of directors need not be by written ballot.
(g) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws of the corporation, and no action shall be taken by the stockholders
by written consent in lieu of a meeting.
(h) The advance notice of stockholder nominations for the election of
directors of the corporation and of other business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Any business transacted at
special meetings of stockholders shall be confined to the purpose or purposes
stated in the notice of such meeting.
(i) Notwithstanding any other provisions of law, this Certificate of
Incorporation or the Bylaws, each as amended, and notwithstanding the fact that
a lesser percentage may be specified by applicable law, this Certificate of
Incorporation or the Bylaws, the affirmative vote of the holders of at least
sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock then
entitled to vote at an election of directors, voting together as a single class,
shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with this Article VI.
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ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable to the corporation or its stockholders for monetary
damages for any breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability. Without limiting the effect of the
preceding sentence, if the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law as so amended. No amendment to or repeal of this provision, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article VII, shall apply to or have any effect on the liability or
alleged liability of any director of the corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE VIII
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE IX
The books of this corporation may, subject to any stationary
requirements, be kept outside the State of Delaware as may be designated by the
Board of Directors or by the Bylaws of this corporation.
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EXHIBIT 3.04
AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairperson of the Board of
Directors, the Chief Executive Officer, or if there is no Chief Executive
Officer, the President, by a majority of the members of the Board of Directors
or by holders of at least a majority of the outstanding voting stock then
entitled to vote at an election of directors. Special meetings may not be called
by any other person or persons. If a special meeting of stockholders is called
at the request of any person or persons other than by a majority of the members
of the Board of Directors, then such person or persons shall request such
meeting by delivering a written request to call such meeting to each member of
the Board of Directors, and the Board of Directors shall then determine the
time, date and place of such special meeting, which shall be held not more than
one hundred twenty (120) nor less than thirty-five (35) days after the written
request to call such special meeting was delivered to each member of the Board
of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder of record entitled to vote at such meeting. Such notice shall be
given by the Secretary of the Corporation or by an officer of the Corporation
designated by the Board of Directors, or in the case of a special meeting of
stockholders, by the officer or persons calling such meeting. The business to be
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that 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, then a
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notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting the Corporation may
transact any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law or the Certificate of
Incorporation. If a quorum shall fail to attend any meeting, the chairperson of
the meeting or the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, at the meeting may adjourn the meeting. The
shares of the capital stock of the Corporation belonging to the Corporation , or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation are held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation or any other corporation to vote any shares of the
capital stock of the Corporation held by it in a fiduciary capacity.
Section 1.6: Organization. The meetings of stockholders shall be
presided over by such person as the Board of Directors may designate, or, in the
absence of such a person, the Chairperson of the Board of Directors, or, in the
absence of such person, the President of the Corporation, or, in the absence of
such person, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or represented by proxy, at
the meeting. Such person shall be chairperson of the meeting and, subject to
Section 1.11 hereof, shall determine the order of business and the procedure at
the meeting, including such regulation of the manner of voting and the conduct
of discussion as seems to him or her to be in order. The Secretary of the
Corporation shall act as secretary of the meeting, but in such person's absence
the chairperson of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in
any manner permitted by applicable law. The voting at meetings of stockholders
need not be by written ballot unless such is demanded at the meeting before
voting begins by a stockholder or stockholders holding shares, either directly
or represented by proxy, representing at least one percent (1%) of the votes
entitled to vote at such meeting; provided, however, that an election of
directors shall be by written ballot if demand is so made by any stockholder at
the meeting before voting begins. If a vote is to be taken by written ballot,
then each such ballot shall state the name of the stockholder or proxy voting
and such other information as the chairperson of the meeting deems appropriate.
The directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. Unless otherwise provided by applicable law, the
Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
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Section 1.8: Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or 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 by
the Board of Directors and which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. If no record date is fixed by the Board of Directors,
then the record date shall be as provided by applicable law. 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; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, 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 at the meeting.
Section 1.10: Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the Certificate of
Incorporation or required by the Delaware General Corporation Law, the following
provisions of this Section 1.10 shall apply only if and when the Corporation has
a class of voting stock that is: (i) listed on a national securities exchange;
(ii) authorized for quotation on an automated interdealer quotation system of a
registered national securities association; or (iii) held of record by more than
two thousand stockholders. In all other cases, observance of the provisions of
this Section 1.10 shall be optional, and at the discretion of the Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
such inspector's ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors
of election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes
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and ballots, (iv) determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced by the chairperson of the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.10 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.11: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the notice of such meeting,
(B) by or at the direction of the Board of Directors or (C) by any stockholder
of the Corporation who was a stockholder of record at the time of giving of the
notice provided for in this Section 1.11, who is entitled to vote at such
meeting and who complies with the notice procedures set forth in this Section
1.11.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.11, 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 must be in writing and delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting, except in the case of the first annual meeting after the
adoption of these Bylaws, for which such notice shall be timely if delivered in
the same time period as if such meeting were a special meeting governed by
subparagraph (b) of this Section 1.11;
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provided, however, that in the event that the date of the annual meeting is more
than thirty (30) days before or more than sixty (60) days after such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later of the sixtieth
(60th) day prior to such annual meeting or the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the Corporation. 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 pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected, as well as such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as a
director of the Corporation; (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 (1) the name and
address of such stockholder, as they appear on the books of the Corporation, and
of such beneficial owner, and (2) the class and number of shares of the
Corporation that are owned beneficially and held of record by such stockholder
and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.11 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.11 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the notice of such meeting. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the notice of such
meeting (i) by or at the direction of the Board of Directors or (ii) provided
that the Board of Directors has determined that directors shall be elected at
such meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice of the special meeting, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 1.11. In the event the Corporation calls a special meeting
of stockholders for the purpose of electing one or more directors to the Board
of Directors, any such stockholder may nominate a person or persons, as the case
may be, for
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election to such positions as specified in the notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.11 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.11 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.11. Except as otherwise provided by law or these
Bylaws, the chairperson of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.11 and, if any proposed nomination or
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Section 1.11, the term "PUBLIC
ANNOUNCEMENT" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
1.11, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the proxy
statement pursuant to Rule 14a-8 under the Exchange Act and any stockholder
proposal which complies with Rule 14a-8 of the proxy rules, or any successor
provision, promulgated under the Securities Exchange Act of 1934, as amended,
and is to be included in the proxy statement of this Corporation for an annual
meeting of stockholders shall be deemed to comply with the requirements of this
Section 1.11.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
consist of one or more members and shall be fixed from time to time by
resolution of the Board of Directors, but in no event shall the number of
directors be less than three. No decrease in the authorized number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director. The directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the person or persons elected by the
incorporator or named in the initial
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Certificate of Incorporation. Subject to the rights of the holders of any series
of Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering of the Corporation pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of common stock to the public (the "Initial
Public Offering"), the directors shall be divided, with respect to the time for
which they severally hold office, into three classes designated as Class I,
Class II and Class III, respectively. The directors shall be assigned to each
class in accordance with a resolution or resolutions adopted by the Board of
Directors, with the number of directors in each class to be divided as equally
as reasonably possible. No one class shall have more than one director more than
any other class. The term of office of the Class I directors shall expire at the
first annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire at the
second annual meeting of stockholders following the closing of the Initial
Public Offering, and the term of office of the Class III directors shall expire
at the third annual meeting of stockholders following the closing of the Initial
Public Offering. At each annual meeting of stockholders commencing with the
first annual meeting of stockholders following the closing of the Initial Public
Offering, directors elected to succeed those directors of the class whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. Prior to the
closing of the Initial Public Offering, or in the event the Corporation is
prohibited from dividing its Board of Directors in the manner described above
through the operation of Section 2115 of the California General Corporation Law
following the record date of the first annual meeting of stockholders following
the closing of the Initial Public Offering, each director shall hold office
until the next annual meeting of stockholders and until such director's
successor is elected and qualified, or until such director's earlier death,
resignation or removal. Any director may resign at any time upon written notice
to the Corporation. Subject to the rights of the holders of any series of
Preferred Stock, any director or the entire Board of Directors may be removed
only for cause by the holders of at least sixty-six and two-thirds percent (66
2/3%) of the shares then entitled to vote at an election of directors. Subject
to the rights of the holders of any series of Preferred Stock, any vacancy
occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors,
shall be filled only by the affirmative vote of a majority of the directors then
in office, although less than a quorum, or by a sole remaining director, and not
by the stockholders. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
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Section 2.3: Regular Meetings. The regular meetings of the Board of
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine. The
notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of
Directors may be called by the Chairperson of the Board of Directors, the
President or a majority of the members of the Board of Directors then in office
and may be held at any time, date or place, within or without the State of
Delaware, as the person or persons calling the meeting shall fix. Notice of the
time, date and place of such meeting shall be given, orally or in writing, by
the person or persons calling the meeting to all directors at least four (4)
days before the meeting if the notice is mailed, or at least twenty-four (24)
hours before the meeting if such notice is given by telephone, hand delivery,
telegram, telex, mailgram, facsimile or similar communication method. Unless
otherwise indicated in the notice, any and all business may be transacted at a
special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board of Directors, may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to conference telephone or similar communications equipment shall
constitute presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
Board of Directors, a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by
applicable law, the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 2.7: Organization. The meetings of the Board of Directors shall
be presided over by the Chairperson of the Board of Directors, or in such
person's absence by the President, or in such person's absence by a chairperson
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in such person's absence the chairperson of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.8: Written Action by Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee, respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting of
such committee who are not disqualified from voting, whether or not such member
or members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in a resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers that may require it. No such committee, however, shall
have the power or authority in reference to the following matters: (i) approving
or adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any bylaw of the
Corporation.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairperson of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
Chief Executive Officer of the Corporation to appoint officers other than the
Chairperson of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until such
person's successor is elected and qualified or until such person's earlier
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are: (a) to act as the general manager and, subject to the control
of the Board of Directors, to have general supervision, direction and
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control of the business and affairs of the Corporation; (b) to preside at all
meetings of the stockholders; (c) to call meetings of the stockholders to be
held at such times and, subject to the limitations prescribed by law or by these
Bylaws, at such places as he or she shall deem proper; and (d) to affix the
signature of the Corporation to all deeds, conveyances, mortgages, guarantees,
leases, obligations, bonds, certificates and other papers and instruments in
writing which have been authorized by the Board of Directors or which, in the
judgment of the Chief Executive Officer, should be executed on behalf of the
Corporation; to sign certificates for shares of stock of the Corporation; and,
subject to the direction of the Board of Directors, to have general charge of
the property of the Corporation and to supervise and control all officers,
agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the
Corporation unless the Board of Directors shall designate another officer to be
the Chief Executive Officer. If there is no President, and the Board of
Directors has not designated any other officer to be the Chief Executive
Officer, then the Chairperson of the Board of Directors shall be the Chief
Executive Officer.
Section 4.3: Chairperson of the Board. The Chairperson of the Board of
Directors shall have the power to preside at all meetings of the Board of
Directors and shall have such other powers and duties as provided in these
Bylaws and as the Board of Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer, if the
Chief Executive Officer is an officer other than the President, and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairperson of the Board of Directors, and/or to any other officer, the
President shall have the responsibility for the general management the control
of the business and affairs of the Corporation and the general supervision and
direction of all of the officers, employees and agents of the Corporation, other
than the Chief Executive Officer, if the Chief Executive Officer is an officer
other than the President, and shall perform all duties and have all powers that
are commonly incident to the office of President or that are delegated to the
President by the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board of Directors
to perform the duties and exercise the powers of the Chief Executive Officer in
the event of the absence or disability of the Chief Executive Officer.
Section 4.6: Chief Financial Officer. The Chief Financial Officer shall
be the Treasurer of the Corporation unless the Board of Directors shall have
designated another officer as the Treasurer of the Corporation. Subject to the
direction of the Board of Directors and the Chief Executive Officer, the Chief
Financial Officer shall perform all duties and have all powers that are commonly
incident to the office of Chief Financial Officer.
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Section 4.7: Treasurer. The Treasurer shall have custody of all monies
and securities of the Corporation. The Treasurer shall be the Chief Financial
Officer of the Corporation unless the Board of Directors shall have designated
another officer as Chief Financial Officer of the Corporation. The Treasurer
shall make such disbursements of the funds of the Corporation as are authorized
and shall render from time to time an account of all such transactions. The
Treasurer shall also perform such other duties and have such other powers as are
commonly incident to the office of Treasurer, or as the Board of Directors or
the Chief Executive Officer may from time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at the
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
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ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "PROCEEDING"), by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a director or officer of the Corporation or a Reincorporated Predecessor, as
defined below, or is or was serving at the request of the Corporation or a
Reincorporated Predecessor, as defined below, as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss, including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement, reasonably incurred or
suffered by such person in connection therewith, provided such person acted in
good faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. Such indemnification shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of such
person's heirs, executors and administrators. Notwithstanding the foregoing, the
Corporation shall indemnify any such person seeking indemnity in connection with
a Proceeding (or part thereof) initiated by such person only if such Proceeding
or part thereof was authorized by the Board of Directors of the Corporation. As
used herein, the term "REINCORPORATED PREDECESSOR" means a corporation that is
merged with and into the Corporation in a statutory merger where (a) the
Corporation is the surviving corporation of such merger and (b) the primary
purpose of such merger is to change the corporate domicile of the Reincorporated
Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all
expenses, including attorneys' fees, incurred by such a director or officer in
defending any such Proceeding as they are incurred in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such Proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a Proceeding, alleging that such person has breached
such person's duty of loyalty to the Corporation, committed an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this
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Article VI shall limit the ability of the Corporation, in its discretion, to
indemnify or advance expenses to persons whom the Corporation is not obligated
to indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery,
including use of a delivery service, by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, when dispatched, and (iv) in the case of
delivery via telegram, telex, mailgram or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any
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other corporation, partnership, association or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof that authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if: (i) the material facts as to his, her or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of such person's duties, be fully protected in relying
in good faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of the
officers or employees of the Corporation , or committees of the Board of
Directors, or by any other person as to matters the member reasonably believes
are within such other person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Certificate of Incorporation and Bylaws
of the Corporation, the provisions of the Certificate of Incorporation shall
govern.
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Section 9.6: Severability. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Certificate of Incorporation of the Corporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws, including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation, shall remain
in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Following the closing of the Initial Public
Offering and notwithstanding any other provision of law, the Certificate of
Incorporation or these Bylaws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock
then entitled to vote at an election of directors shall be required to alter,
amend or repeal any provision of these Bylaws or to adopt new Bylaws. Prior to
the closing of the Initial Public Offering, the affirmative vote of the holders
of at least a majority of the outstanding voting stock then entitled to vote at
an election of directors shall be required to alter, amend or repeal any
provision of these Bylaws or to adopt new Bylaws. To the extent provided in the
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal these Bylaws or to adopt new
Bylaws.
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CERTIFICATION OF AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
KNOW ALL BY THESE PRESENTS:
I, ____________________, certify that I am Secretary of Niku
Corporation, a Delaware corporation (the "COMPANY"), that I am duly authorized
to make and deliver this certification, that the attached Bylaws are a true and
correct copy of the Bylaws of the Company in effect as of the date of this
certificate.
Dated: January ___, 2000
--------------------------------------
Secretary
<PAGE> 17
AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS
Section 1.1: Annual Meetings........................................... 1
Section 1.2: Special Meetings.......................................... 1
Section 1.3: Notice of Meetings........................................ 1
Section 1.4: Adjournments.............................................. 1
Section 1.5: Quorum.................................................... 2
Section 1.6: Organization.............................................. 2
Section 1.7: Voting; Proxies........................................... 2
Section 1.8: Fixing Date for Determination of Stockholders of Record... 3
Section 1.9: List of Stockholders Entitled to Vote..................... 3
Section 1.10: Inspectors of Elections................................... 3
Section 1.11: Notice of Stockholder Business; Nominations............... 4
ARTICLE II - BOARD OF DIRECTORS
Section 2.1: Number; Qualifications.................................... 6
Section 2.2: Election; Resignation; Removal; Vacancies................. 6
Section 2.3: Regular Meetings.......................................... 8
Section 2.4: Special Meetings.......................................... 8
Section 2.5: Telephonic Meetings Permitted............................. 8
Section 2.6: Quorum; Vote Required for Action.......................... 8
</TABLE>
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AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.7: Organization............................................. 8
Section 2.8: Written Action by Directors.............................. 8
Section 2.9: Powers................................................... 8
Section 2.10: Compensation of Directors................................ 8
ARTICLE III - COMMITTEES
Section 3.1: Committees............................................... 9
Section 3.2: Committee Rules.......................................... 9
ARTICLE IV - OFFICERS
Section 4.1: Generally................................................ 9
Section 4.2: Chief Executive Officer.................................. 9
Section 4.3: Chairperson of the Board................................. 10
Section 4.4: President................................................ 10
Section 4.5: Vice President........................................... 10
Section 4.6: Chief Financial Officer.................................. 10
Section 4.7: Treasurer................................................ 11
Section 4.8: Secretary................................................ 11
Section 4.9: Delegation of Authority.................................. 11
Section 4.10: Removal.................................................. 11
</TABLE>
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AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
ARTICLE V - STOCK
<S> <C>
Section 5.l: Certificates............................................. 11
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate.............................. 11
Section 5.3: Other Regulations........................................ 11
ARTICLE VI - INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors................ 12
Section 6.2: Advance of Expenses...................................... 12
Section 6.3: Non-Exclusivity of Rights................................ 12
Section 6.4: Indemnification Contracts................................ 13
Section 6.5: Effect of Amendment...................................... 13
ARTICLE VII - NOTICES
Section 7.l: Notice................................................... 13
Section 7.2: Waiver of Notice......................................... 13
ARTICLE VIII - INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum............................. 13
ARTICLE IX - MISCELLANEOUS
Section 9.1: Fiscal Year.............................................. 14
Section 9.2: Seal..................................................... 14
Section 9.3: Form of Records.......................................... 14
</TABLE>
iii
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AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.4: Reliance Upon Books and Records.......................... 14
Section 9.5: Certificate of Incorporation Governs..................... 14
Section 9.6: Severability............................................. 15
ARTICLE X - AMENDMENT
Section 10.1: Amendments............................................... 15
</TABLE>
iv
<PAGE> 1
EXHIBIT 5.01
OPINION OF FENWICK & WEST LLP
January 31, 2000
Niku Corporation
305 Main Street
Redwood City, CA 94063
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-93439) (the "Registration Statement") filed by you with the
Securities and Exchange Commission (the "Commission") on December 22, 1999, as
subsequently amended, in connection with the registration under the Securities
Act of 1933, as amended, of an aggregate of up to 9,200,000 shares of your
Common Stock (the "Stock").
In rendering this opinion, we have examined the following:
1) Your registration statement on Form 8-A filed with the Commission on
January 6, 2000;
2) the Registration Statement, together with the Exhibits filed as a
part thereof;
3) the Prospectuses prepared in connection with the Registration
Statement;
4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books; and
5) the stock records that you have provided to us (consisting of a list
of stockholders) and a list of option and warrant holders respecting
your capital and of any rights to purchase capital stock that was
prepared by you and dated January 31,2000 verifying the number of
such issued and outstanding securities).
6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all natural persons
<PAGE> 2
executing the same and the lack of any undisclosed termination, modification,
waiver or amendment to any document reviewed by us.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records referred to above. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; however, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and the State of Delaware.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any shares of Stock, the Registration
Statement will have been declared effective under the Securities Act of 1933, as
amended, and will not have been modified or rescinded.
Based upon the foregoing, it is our opinion that the 9,200,000 shares of
Stock to be to be issued and sold by you, when issued and sold in accordance in
the manner referred to in the relevant Prospectus associated with the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of the effective date of the Registration
Statement and we assume no obligation to update this opinion should
circumstances change after the date hereof.
Very truly yours,
FENWICK & WEST LLP
By:
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<PAGE> 1
EXHIBIT 23.02
CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS
We consent to the use of our report included herein dated December 17, 1999,
except as to Note 9(d) which is as of January 31, 2000, relating to the
consolidated balance sheets of Niku Corporation and subsidiaries as of January
31, 1999, and October 31, 1999, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
January 31, 1999, and the nine months ended October 31, 1999. We also consent to
the use of our firm under the headings "Selected Consolidated Financial Data"
and "Experts."
/s/ KPMG LLP
Mountain View, California
January 31, 2000
<PAGE> 1
EXHIBIT 23.03
CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS
We consent to the use of our report included herein dated December 20, 1999,
relating to the consolidated balance sheets of Proamics Corporation and
subsidiaries as of December 31, 1998 and September 30, 1999, and the relative
consolidated statements of operations, shareholders' deficit and cash flows for
each of the years in the two-year period ended December 31, 1998 and for the
nine months ended September 30, 1999. We also consent to the reference of our
firm under the heading "Experts."
/s/ KPMG LLP
- ---------------------------------
Chicago, Illinois
January 31, 2000
<PAGE> 1
EXHIBIT 23.04
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
We consent to the use of our report included herein dated January 15, 2000,
except as to Note 11 which is as of January 31, 2000, relating to the balance
sheets of Legal Anywhere, Inc. (formerly Legal Anywhere LLC) as of December 31,
1998 and 1999, and the related statements of operations, stockholders' and
members' equity (deficit), and cash flows for the years then ended. We also
consent to the reference of our firm under the heading "Experts" in the
registration statement.
KPMG LLP
Portland, Oregon
January 31, 2000
