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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED JANUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 000-28797
NIKU CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0473454
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
305 MAIN STREET, REDWOOD CITY, CA 94063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 298-4600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$0.0001 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports). Yes [X] No [ ]
and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of
the registrant as of March 31, 2000 was approximately $1,603,525,383.
The number of shares outstanding of the registrant's common stock as of
March 31, 2000 was 69,392,746.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 22
Item 6. Selected Consolidated Financial Data........................ 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 7A. Qualitative and Quantitative Disclosures About Market
Risk........................................................ 33
Item 8. Financial Statements and Supplementary Data................. 34
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 56
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 56
Item 11. Executive Compensation...................................... 60
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 65
Item 13. Certain Relationships and Related Transactions.............. 67
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 69
Signatures............................................................ 71
Exhibit Index......................................................... 72
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FORWARD-LOOKING STATEMENTS
Except for historical information, this Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties. Such forward-looking statements
include, statements regarding our anticipated costs and expenses, as well as
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Future Results of Operations."
You should carefully review the risks described in other documents we file from
time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q that we will file in 2000. You are cautioned not
to place undue reliance on the forward-looking statements, which speak only as
of the date of this Annual Report on Form 10-K. We undertake no obligation to
publicly release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this document.
PART I
ITEM 1. BUSINESS
OVERVIEW
We provide Internet software products and 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 Business Objects, Computer Associates, EMC, Gateway 2000,
SalesLogix, Sybase, Tibco Software, Trilogy Software, 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.
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 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.
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- 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 a majority of our total
revenues for the fiscal year ended January 29, 2000. 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. 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
January 29, 2000, we had not derived any revenues for our xNiku product.
However, 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
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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 January 29, 2000, 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 approximately 32% of our total revenues
for the fiscal year ended January 29, 2000 and all of our total revenues for the
fiscal year ended January 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.
Niku Partners as of February 28, 2000 included Bristlecone, DataStudy,
Management Share, Neptune Technologies, Net-Centric Consulting Group, SE
Technologies, Sierra Atlantic, Softgate Technologies, Sogyo Information
Engineering and Technopreneurs.
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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
website. We will pay USi a monthly service fee aggregating over $2.5 million
during the term of the hosting agreement for USi's hosting and servicing of our
websites, 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 managed services agreement
with USi under which USi will promote and market eNiku products to potential
customers. Under the managed services agreement, 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 support to USi. 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. Under the software license
agreement, USi will pay us over $1.1 million in total license and support fees
during the term of the agreement. For the fiscal year ended January 29, 2000, we
recorded $543,000 of revenues relating to license sales and services to USi
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
website fails to meet performance standards that are mutually agreed upon. Under
the promotion agreement, we will host the co-branded site on our servers. In
addition, we will purchase certain amounts of promotions on Internet sites
operated by CNET, CNET will purchase promotions on our iNiku website, and CNET
will also purchase promotions for the co-branded site on third-party websites
and through other media. Under the promotion agreement, during the term of the
agreement, we will pay CNET an aggregate of up to $15.0 million on integration
fees and promotions on Internet sites operated by CNET, and CNET will pay an
aggregate of $5.0 million to us and to third parties for engineering and
maintenance fees and for promotions on our 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. For the fiscal year ended January 29, 2000, we
recorded $104,000 of revenues related to the co-branded site.
Content and Service Providers
As of February 28, 2000, we had 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
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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:
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1-800-Gift Certificate Forrester Research Net-Temps
Accompany Gartner Group NewsReal
Amazon.com General Magic NextCard
AmeriCom Goto.com Nolo.com
Beyond.com Informative onlineofficesupplies.com
Bigstep.com InsWeb PalmOrganizers.com
CNET iPrint.com Qspace.com
Compubank iShip.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 NetAbacus Tutorials.com
Fatbrain.com Net Earnings zapdata.com
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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 through January 29, 2000,
include:
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IT CONSULTING COMPUTER SOFTWARE COMPUTER HARDWARE
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AMX International Business Objects EMC
Analysts International* Computer Associates* Gateway 2000
Belenos Geac* OTHER
Bristlecone Neon Central Intelligence Agency
DataStudy NetDialog (Kana Clear Ink
DST International* Communications)
Electron Economy OneSoft
Excelon Pixion
Information Systems Project Software
Management* Development*
Inforte SalesLogix
Inteliant* Sybase
Jansen MI Consultants Tibco Software
Management Share TIS Worldwide
MicroAge Canada* Trilogy Software
Navisys* USinternetworking
Net-Centric Consulting Vantive (PeopleSoft)
Pecoma Holdings Walker Interactive**
SE Technologies
Sierra Atlantic
Softgate Technologies
Sogyo Information
Engineering
Tata Consultancy
TekEdge
Tier Technologies*
Xerox*
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* 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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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 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
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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.
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 our
products 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 software, 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.
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Research and development expenses were $1.6 million for the fiscal year
ended January 31, 1999 and $10.9 million for the fiscal year ended January 29,
2000.
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 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.
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 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
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 website 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.
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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. 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,
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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 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.
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.
We are seeking to hire a significant number of 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.
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FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
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.
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 $36.5 million for the fiscal year ended January 29, 2000
and $3.0 million for the year ended January 31, 1999. As of January 29, 2000, we
had an accumulated deficit of $39.5 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 acquisitions. In
addition, as a result of our acquisitions of Proamics in fiscal 2000 and Legal
Anywhere in early fiscal 2001, we will record a total of approximately $71.4
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 our initial public offering on February 28,
2000. 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.
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.
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 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. As of February 28, 2000, five of these other
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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
more 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. 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 29, 2000 and January 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. 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 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. These companies generally
consist of (1) companies to whom we license our Internet
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software and from whom we receive software to use in our business and (2)
members of our Niku Partners Network.
During the fiscal year ended January 29, 2000, we derived approximately
$3.5 million of our total revenues from customers from whom we received products
or services. In these relationships, we typically license our Internet software
to a company and that company licenses us software that it markets. These
software licenses are typically non-exclusive, have a perpetual term and may
only be terminated if the terms of the license are violated.
Revenues attributable to Niku Partners were approximately $931,000 of our
total revenues for the fiscal year ended January 29, 2000. Members of our Niku
Partners Network typically license our software in return for a fee. In
addition, we typically pay a fee to these companies to provide implementation
services to our customers or to provide development services for us. Our
agreements with Niku Partner Network members typically have a term of two years
and may be terminated sooner if there is a breach of the agreement.
It may be more difficult to sell our products and services to potential
customers if we do not also agree to use the software products or services that
a potential customer provides. 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 fiscal year ended January 29, 2000, three customers, each accounted
for 7% of our total revenues. In addition, 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, have 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 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.
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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 MAY NOT ACHIEVE MARKET ACCEPTANCE
We introduced the latest version of our iNiku website in February 2000.
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 early fiscal 2001, 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 website servers and networking hardware and software
infrastructure is critical to iNiku, our hosted professional services automation
software and our ability to provide high quality customer service. Currently,
our infrastructure and systems for iNiku, our hosted applications and our
corporate website are located at one site maintained by USi, at its data center
in Milpitas, California. The California hosting site is in an area susceptible
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 were due to temporary malfunctions of our website servers. To date,
these outages have resulted in our iNiku website being temporarily unavailable
to users for periods of several minutes to several hours. Any system
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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 websites 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.
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 a substantial number of new 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.
ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS
Future acquisitions could create risks for us, including:
- amortization of expenses related to goodwill and other intangible assets,
such as the approximately $51.4 million relating to our acquisition of
Proamics and the approximately $20.0 million relating to our acquisition
of Legal Anywhere;
- difficulties in assimilating the acquired personnel, operations,
technologies or products;
- our ability to effectively market and sell our products to the acquired
company's customers;
- unanticipated costs associated with the acquisitions;
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- the need to manage geographically-dispersed operations;
- diversion of management's attention from other business concerns;
- the inability to retain the acquired employees; and
- adverse effects on our or the acquired company's existing business
relationships.
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.
OUR INCREASED INTERNATIONAL ACTIVITIES MAY NOT RESULT IN INCREASED REVENUES
We only recently expanded our operations into Canada, the United Kingdom,
The Netherlands, Sweden, 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 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.
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;
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- 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.
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 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 websites;
- 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 website. 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.
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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.
ITEM 2. PROPERTIES
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.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended January 29, 2000,
stockholders adopted the following five proposals by written consent in lieu of
a stockholder meeting. These proposals were as follows:
PROPOSAL 1: Approval of adoption of a form of Indemnity Agreement to be
entered into by the Company with its officers and directors. This proposal
required the approval of the shares of common stock and preferred stock voting
together as a class, excluding shares held by directors, officers and
affiliates, which were not counted in determining the outcome on Proposal 1. The
number of shares for which consents were received approving the proposal, the
number of shares for which consents were not received or abstaining, the number
of shares for which consents were received, but voting against the proposal was
as follows:
<TABLE>
<CAPTION>
COMMON STOCK AND PREFERRED STOCK
VOTING ON AS-CONVERTED-TO-COMMON STOCK BASIS
--------------------------------------------
<S> <C>
FOR............................. 34,064,652
AGAINST......................... 0
ABSTAINED OR NOT VOTED.......... 26,128,094
</TABLE>
PROPOSAL 2: Approval of adoption of the 2000 Equity Incentive Plan and the
reservation for issuance thereunder of 6,000,000 shares of Common Stock plus any
authorized shares not issued or subject to outstanding grants under the
Company's 1998 Stock plus any shares issuable upon exercise of options granted
pursuant to the 1995 Plan that expire or are cancelled for any reason without
having been exercised in full, with an automatic annual increase equal to 5% of
the outstanding shares of common stock on December 31 of the preceding year.
This proposal required the approval of the shares of common stock and preferred
stock voting together as a class. The number of shares for which consents were
received approving the proposal, the number of shares for which consents were
not received, the number of shares for which consents were received, but voting
against or abstaining from the proposal was as follows:
<TABLE>
<CAPTION>
COMMON STOCK AND PREFERRED STOCK
VOTING ON AS-CONVERTED-TO-COMMON STOCK BASIS
--------------------------------------------
<S> <C>
FOR............................. 52,042,010
AGAINST......................... 5,000
ABSTAINED OR NOT VOTED.......... 8,145,736
</TABLE>
PROPOSAL 3: Approval of adoption by the Company an Employee Stock Purchase
Plan and the reservation of 1,000,000 shares of Common Stock for issuance
thereunder with an automatic annual increase
20
<PAGE> 21
equal to 1% of the outstanding shares of common stock on December 31 of the
preceding year. This proposal required the approval of the shares of common
stock and preferred stock voting together as a class. The number of shares for
which consents were received approving the proposal, the number of shares for
which consents were not received, the number of shares for which consents were
received, but voting against or abstaining from the proposal was as follows:
<TABLE>
<CAPTION>
COMMON STOCK AND PREFERRED STOCK
VOTING ON AS-CONVERTED-TO-COMMON STOCK BASIS
--------------------------------------------
<S> <C>
FOR............................. 52,047,010
AGAINST......................... 0
ABSTAINED OR NOT VOTED.......... 8,145,736
</TABLE>
PROPOSAL 4: Approval of an amendment of Niku's Certificate of Incorporation
to increase the authorized number of shares of common stock reserved for
issuance. This proposal required the approval of a majority of the shares of
common stock voting as a class and a majority of the shares of preferred stock
voting together as a class. The number of shares for which consents were
received approving the proposal, the number of shares for which consents were
not received, the number of shares for which consents were received, but voting
against or abstaining from the proposal was as follows:
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------ ---------------
<S> <C> <C>
FOR..................................... 10,907,266 40,783,769
AGAINST................................. 0 0
ABSTAINED OR NOT VOTED.................. 3,581,949 6,835,728
</TABLE>
PROPOSAL 5: Approval of the amendment to Niku's by-laws. This proposal
required the affirmative vote of 2/3 of the outstanding shares of the Niku's
Series C and D Preferred Stock, voting together as a separate class. The number
of shares for which consents were received approving the proposal, the number of
shares for which consents were not received, the number of shares for which
consents were received, but voting against or abstaining from the proposal was
as follows:
<TABLE>
<CAPTION>
SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK
--------------- ---------------
<S> <C> <C>
FOR..................................... 9,129,649 13,406,178
AGAINST................................. 0 0
ABSTAINED OR NOT VOTED.................. 857,790 1,083,037
</TABLE>
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since February 28, 2000, our common stock has been traded on The Nasdaq
Stock Market under the symbol NIKU. The approximate number of record holders of
our common stock as of March 31, 2000 was 133 (although we believe there was a
greater number of beneficial owners). We do not intend to pay dividends for the
foreseeable future.
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 our common stock is 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.
Sales of a large number of shares of our common stock in the market, or the
belief that these sales could occur, could cause a drop in the market price of
our common stock. Of the approximately 61,044,235 shares of common stock
outstanding immediately prior to our initial public offering:
- 40,722,293 shares will become eligible for resale beginning 180 days
after February 28, 2000, as a result of the expiration of lock-up
agreements with the underwriters of our initial public offering that
prohibit the sale of these shares;
- 8,356,137 shares will become freely tradeable after November 17, 2000;
- 8,289,236 shares will become freely tradeable after December 8, 2000;
- 167,384 shares will be freely tradeable after January 31, 2001;
- 64,930 shares will be freely tradeable after February 24, 2001;
- 2,245,643 shares will be freely tradeable after June 8, 2001; and
- 1,198,612 shares will be freely tradeable after that date.
However, the underwriters of our initial public offering have the right to
waive these lock-up restrictions prior to the end of the 180-day period. In
addition, the underwriters have the right to waive lock-up restrictions on the
sale of newly issued shares by us. The waiver of restrictions is solely at the
discretion of the underwriters and no specific criteria determine the timing of
a waiver or the number of shares released from lock-up. The shares subject to
lock-up may therefore be available for sale at any time.
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.
22
<PAGE> 23
SALES OF UNREGISTERED SECURITIES
1. In February 1999, Niku 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. Prior to the completion of the initial public offering, Comdisco, Inc.
elected to exercise the warrants and receive a lesser number of shares in
exchange for a reduction in the exercise price resulting in the issuance of
610,312 shares of Series B Preferred Stock.
2. In May 1999, Niku issued and sold 9,987,439 shares of Series C preferred
stock to a group of twelve individual investors, consisting of one member of the
board of directors of Niku, two trusts controlled by two members of the board of
directors of Niku and nine employees of Niku, thirteen venture capital funds and
one corporate investor, Comdisco, Inc., for an aggregate consideration of
$19,875,003 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.
3. In November 1999, Niku issued and sold 7,998,012 shares of Series D
preferred stock to a group of thirty unrelated individual investors, twenty-nine
venture capital funds and two corporate investors, Comdisco, Inc. and CNET
Investments, 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.
4. In November 1999, in connection with its acquisition of Proamics, Niku
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, Epicor Software Inc., 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.
5. From its inception on January 8, 1998 through January 29, 2000, Niku 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.
6. 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, 4,921,236 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.
7. In January 2000, in connection with its acquisition of Legal Anywhere,
Inc., Niku issued 853,689 shares of common stock to a group of forty-four
individual investors, three venture capital funds and one corporate investor,
FJF, Inc., 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 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 Niku, to information about
Niku.
23
<PAGE> 24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes to our
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Form 10-K. The
Company has a fiscal year that ends on the Saturday nearest January 31. For
presentation purposes, this selected consolidated financial data refers to the
calendar month end. The consolidated statement of operations data for the years
ended January 31, 2000 and 1999 and the balance sheet data as of January 31,
2000 and 1999, are derived from our audited consolidated financial statements
included elsewhere in this Form 10-K, which have been audited by KPMG LLP,
independent auditors. 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 historical results are not necessarily indicative of results to be
expected in any future period.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
2000 1999
---------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues:
License................................................... $ 5,480 $ --
Services.................................................. 2,573 15
Marketplace............................................... 104 --
-------- -------
Total revenues.................................... 8,157 15
-------- -------
Cost of revenues............................................ 2,620 4
-------- -------
Gross profit................................................ 5,537 11
Operating expenses:
Sales and marketing....................................... 15,521 290
Research and development.................................. 10,920 1,610
General and administrative................................ 4,737 996
Stock-based compensation.................................. 9,014 245
Amortization of goodwill and other intangible assets...... 2,381 20
-------- -------
Total operating expenses.......................... 42,573 3,161
-------- -------
Operating loss.............................................. (37,036) (3,150)
Interest and other income, net.............................. 549 130
-------- -------
Net loss.................................................... $(36,487) $(3,020)
======== =======
Basic and diluted net loss per share........................ $ (5.61) $ (0.62)
======== =======
Shares used in computing basic and diluted net loss per
share..................................................... 6,506 4,882
======== =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 44,515 $ 5,147
Working capital............................................. 32,691 4,786
Total assets................................................ 112,525 6,555
Long-term obligations, less current portion................. 1,725 --
Redeemable convertible preferred stock and warrants......... 100,919 8,259
Accumulated deficit......................................... (39,507) (3,020)
Total stockholders' deficit................................. (12,269) (2,363)
</TABLE>
24
<PAGE> 25
ITEM 7. 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 annual report.
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 annual report.
OVERVIEW
We provide Internet software products and an 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 February 2000, 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 early fiscal 2001,
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 fiscal
year ended January 29, 2000 and for the fiscal year ended January 31, 1999 of
$36.5 million and $3.0 million, respectively. We expect to incur net losses in
the foreseeable future. As of January 29, 2000, we had an accumulated deficit of
$39.5 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.
Sources of revenues and revenue recognition policy
Through January 29, 2000, 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 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
organiza-
25
<PAGE> 26
tions. 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 fiscal year ended January 29, 2000, approximately
$1.5 million of our total revenues 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 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 fiscal year
ended January 29, 2000, were $697,000 and revenues attributable to nonmonetary
transactions with Niku Partners were $234,000.
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
26
<PAGE> 27
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 revenue
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 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
$4.3 million of deferred revenue as of January 29, 2000, $281,000, 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.
In connection with the granting of stock options to, and restricted stock
purchases by, our employees through January 29, 2000, we recorded deferred
stock-based compensation totaling approximately $25.7 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. Amortization of the January 29, 2000 balance of deferred
stock-based compensation will result in charges to operations of $11.4 million,
$4.5 million, $1.6 million and $214,000 for fiscal years 2001, 2002, 2003 and
2004. We expect to record approximately $23.8 million of additional deferred
stock-based compensation related to stock options granted between January 30,
2000 and February 21, 2000, that will result in additional amortization of
deferred stock compensation of approximately $14.7 million, $5.6 million, $2.7
million and $800,000 for the fiscal years 2001, 2002, 2003 and 2004.
27
<PAGE> 28
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 1,040,160 shares of our common stock to the former employees of
Proamics who became our employees. Our acquisition of Proamics was accounted for
as a purchase. We recorded goodwill and other intangible assets of approximately
$51.4 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 the first quarter
of fiscal 2001, we acquired all of the outstanding capital stock of Legal
Anywhere in exchange for 853,689 shares of our common stock. In addition, we
assumed options to purchase shares of Legal Anywhere common stock which are
exercisable for 141,282 shares of our common stock. Our acquisition of Legal
Anywhere will be accounted for as a purchase. We expect to record goodwill and
other intangible assets of approximately $20.0 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.
Limited operating history
Our limited operating history makes the prediction of future operating
results very difficult. 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.
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 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
28
<PAGE> 29
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 annual report:
- our ability to attract new customers, including Proamics and Legal
Anywhere 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.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 29, 2000 AND JANUARY
31, 1999
Revenues
License. Our license revenues increased from no revenues for the fiscal
year ended January 31, 1999 to $5.5 million for the fiscal year ended January
29, 2000. 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
$286,000 for the fiscal year ended January 29, 2000.
Services. Our services revenues increased from $15,000 for the fiscal year
ended January 31, 1999 to $2.6 million for the fiscal year ended January 29,
2000. This increase is attributable to the increased activity described above,
which resulted in increased revenues from customer implementations and
maintenance contracts.
Marketplace. Our marketplace revenues increased from no revenues for the
fiscal year ended January 31, 1999 to $104,000 for the fiscal year ended January
29, 2000.
During the fiscal year ended January 29, 2000, Sybase, USi and Neon each
accounted for 7% 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 $4,000 for the fiscal year ended January
31, 1999 to $2.6 million for the fiscal year ended January 29, 2000. 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 $400,000 for the fiscal year ended January
29, 2000. 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 January 29, 2000. We
recorded cost of service revenues of $2.2 million for the fiscal year ended
January 29, 2000. We anticipate that the cost of revenues will increase in
future periods, primarily as a result of the addition of Proamics services
personnel.
29
<PAGE> 30
Gross profit
Gross profit increased from $11,000 for the fiscal year ended January 31,
1999 to $5.5 million for the fiscal year ended January 29, 2000. This increase
in gross profit is primarily due to the incremental amounts of revenues that we
recognized in each quarter. Gross profit margin was 68% for the fiscal year
ended January 29, 2000. 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.
Operating expenses
Sales and marketing. Sales and marketing expenses increased from $290,000
for the fiscal year ended January 31, 1999 to $15.5 million for the fiscal year
ended January 29, 2000. This increase primarily resulted from the addition of
personnel in our sales and marketing departments, and related costs, such as
increased sales commissions. 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 in December 1999. 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.
Research and development. Research and development expenses increased from
$1.6 million for the fiscal year ended January 31, 1999 to $10.9 million for the
fiscal year ended January 29, 2000. 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 January 29, 2000. To date,
all software development costs have been expensed in the period incurred. 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 in December 1999. 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.
General and administrative. General and administrative expenses increased
from $996,000 for the fiscal year ended January 31, 1999 to $4.7 million for the
fiscal year ended January 29, 2000. 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 January 29,
2000. 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 in December 1999, which will contribute to our
future general and administrative expenses.
Stock-based compensation. During the fiscal year ended January 29, 2000, we
recorded approximately $9.0 million of stock-based compensation amortization
expense, representing $69,000 cost of revenues, $5.2 million sales and
marketing, $3.2 million research and development and $585,000 general and
administrative expenses. During the fiscal year ended January 31, 1999, we
recorded $245,000 of stock-based compensation amortization expense.
Amortization of goodwill and other intangible assets. Amortization of
goodwill and other intangible assets was $20,000 for the fiscal year ended
January 29, 1999 and $2.4 million for the fiscal year ended January 29, 2000. In
connection with the acquisition of Proamics in December 1999, we recorded
goodwill and other intangible assets of approximately $51.4 million to be
amortized over the next three to five years. In addition, we acquired Legal
Anywhere in the first quarter of fiscal 2001 and expect to record goodwill and
other intangible assets of approximately $20.0 million to be amortized over the
next three years.
30
<PAGE> 31
Interest and other income, net
Interest and other income, net consists of interest income, interest
expense and other non-operating expenses. Interest and other income, net
increased from $130,000 for the year ended January 31, 1999 to $549,000 for the
year ended January 29, 2000. 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 $3.0 million and $36.5 million for the fiscal year ended
January 31, 1999 and fiscal year ended January 29, 2000, 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
capital stock, with net proceeds of $68.0 million through January 29, 2000, from
bank loans and through equipment leases. As of January 29, 2000, we had $44.5
million in cash, cash equivalents and short-term investments and $32.7 million
in working capital. In February 2000, in our initial public offering, we sold
9,200,000 shares of common stock for $24.00 per share for total cash proceeds,
net of offering costs, of approximately $202.6 million.
Net cash used in operating activities was $2.8 million in the fiscal year
ended January 31, 1999 and $20.6 million in the fiscal year ended January 29,
2000. Net cash flows from operating activities in the fiscal year ended January
29, 2000, reflect increasing net losses and, to a lesser extent, accounts
receivable offset in part by increases in accounts payable, accrued liabilities
and deferred revenue from customers.
Net cash used in investing activities was $366,000 in the fiscal year ended
January 31, 1999 and $20.9 million in the fiscal year ended January 29, 2000.
Cash used in investing activities reflects purchases of property and equipment
in each period and purchases of short-term investments and other assets in the
fiscal year ended January 29, 2000.
Capital expenditures were $193,000 in the fiscal year ended January 31,
1999 and $5.0 million in the fiscal year ended January 29, 2000. 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 fiscal year
ended January 31, 1999 and $63.9 million in the fiscal year ended January 29,
2000. These cash flows reflect primarily proceeds from private sales of
preferred stock and the net proceeds from borrowings under loans and lines of
credit.
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. As of January 29, 2000,
we had borrowed $3.8 million under the line of credit and $200,000 was available
for borrowing.
In February 1999, we entered into a term loan with another lender,
providing us with a bridge loan of up to $3.0 million. As of January 29, 2000,
we had borrowed $2.5 million under this term loan, and $500,000 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. As of January 29, 2000, we had leased $284,000 of equipment under this
lease line, and $216,000 was available for borrowing.
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
31
<PAGE> 32
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 to fund our working capital and expense requirements.
We have no current plans to undertake any future 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
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. To date we have not experienced any
material Year 2000 related issues.
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.
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 we do not currently hold any
derivative instruments and do not engage in hedging activities, we expect that
the adoption of SFAS No. 133 will not have a material impact on our consolidated
financial position or results of operations. We will be required to adopt SFAS
No. 133 in fiscal 2002.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
We do not expect the adoption of SAB 101 to have a material effect on our
consolidated financial position or results of operations.
In March 2000, the EITF published their consensus on EITF Issue No. 00-2,
Accounting for Web Site Development Costs, which outlines the accounting
criteria for costs related to the development of web sites. We will be required
to adopt EITF Issue No. 00-2 in fiscal quarters beginning after June 30, 2000.
We are in the process of assessing any impact that the adoption of EITF Issue
No. 00-2 will have on our consolidated financial position or results of
operations.
In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. EITF Issue No. 00-3 outlines the accounting criteria for
hosting arrangements. We do not expect the adoption of EITF Issue No. 00-3 to
have a material effect on our consolidated financial position or results of
operations.
32
<PAGE> 33
ITEM 7A. 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.
33
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 35
Consolidated Balance Sheets................................. 36
Consolidated Statements of Operations....................... 37
Consolidated Statements of Stockholders' Deficit............ 38
Consolidated Statements of Cash Flows....................... 39
Notes to Consolidated Financial Statements.................. 40
</TABLE>
34
<PAGE> 35
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, 2000 and 1999, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for each of the years then ended. 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
February 25, 2000, except as to
Note 9, which is as of
February 28, 2000
35
<PAGE> 36
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 27,650 $ 5,147
Short-term investments.................................... 16,865 --
Accounts receivable....................................... 8,261 165
Prepaid expenses and other current assets................. 2,065 133
-------- -------
Total current assets.............................. 54,841 5,445
Deposits and other assets................................... 1,952 --
Property and equipment, net................................. 6,048 394
Goodwill and other intangible assets, net................... 49,684 716
-------- -------
Total assets...................................... $112,525 $ 6,555
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 6,172 $ 145
Accrued liabilities....................................... 5,997 17
Current portion of long-term obligations.................. 5,720 --
Deferred revenue.......................................... 4,261 497
-------- -------
Total current liabilities......................... 22,150 659
Long-term obligations....................................... 1,725 --
-------- -------
Total liabilities................................. 23,875 659
-------- -------
Commitments
Redeemable convertible preferred stock and warrants, $0.0001
par value; 51,910,282 and 23,400,000 shares authorized as
of January 31, 2000 and 1999, respectively; 47,619,497 and
23,142,843 shares issued and outstanding as of January 31,
2000 and 1999, respectively; aggregate liquidation
preference of $123,826 and $8,300 as of January 31, 2000
and 1999, respectively;................................... 100,919 8,259
-------- -------
Stockholders' deficit:
Preferred stock; $0.0001 par value; 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $0.0001 par value; 100,000,000 and
50,000,000 shares authorized as of January 31, 2000 and
1999, respectively; 12,355,419 and 5,959,995 shares
issued and outstanding as of January 31, 2000 and 1999,
respectively........................................... 1 1
Additional paid-in capital................................ 46,848 2,277
Treasury stock............................................ (52) --
Deferred stock-based compensation......................... (17,745) (1,576)
Notes receivable from stockholders........................ (1,814) (45)
Accumulated deficit....................................... (39,507) (3,020)
-------- -------
Total stockholders' deficit....................... (12,269) (2,363)
-------- -------
Total liabilities and stockholders' deficit....... $112,525 $ 6,555
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 37
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
2000 1999
---------- ---------
<S> <C> <C>
Revenues:
License................................................... $ 5,480 $ --
Services.................................................. 2,573 15
Marketplace............................................... 104 --
-------- -------
Total revenues.................................... 8,157 15
-------- -------
Cost of revenues:
License................................................... 400 --
Services.................................................. 2,220 4
-------- -------
Total cost of revenues............................ 2,620 4
-------- -------
Gross profit...................................... 5,537 11
-------- -------
Operating expenses:
Sales and marketing....................................... 15,521 290
Research and development.................................. 10,920 1,610
General and administrative................................ 4,737 996
Stock-based compensation.................................. 9,014 245
Amortization of goodwill and other intangible assets...... 2,381 20
-------- -------
Total operating expenses.......................... 42,573 3,161
-------- -------
Operating loss.................................... (37,036) (3,150)
Interest income............................................. 1,304 130
Interest and other expense.................................. (755) --
-------- -------
Net loss.......................................... $(36,487) $(3,020)
======== =======
Basic and diluted net loss per share........................ $ (5.61) $ (0.62)
======== =======
Shares used in computing basic and diluted net loss per
share..................................................... 6,506 4,882
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 38
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' 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
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 -- --
Nonemployee 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............ 2,335,000 -- 1,815 -- -- (1,815) --
Issuance of common stock in
connection with the exercise
of employee stock options... 1,056,111 -- 88 -- -- -- --
Repurchase of common stock in
settlement of notes
receivable from
stockholders................ (515,625) -- -- (52) -- 52 --
Deferred stock compensation
related to stock option
grants...................... -- -- 24,000 -- (24,000) -- --
Amortization of stock-based
compensation................ -- -- -- -- 7,831 -- --
Nonemployee stock
compensation................ 18,000 -- 546 -- -- -- --
Stock compensation related to
forgiveness of note
receivable from
stockholder................. -- -- 612 -- -- 23 --
Issuance of common stock in
connection with the
acquisition of Proamics
Corporation................. 3,501,938 -- 17,510 -- -- -- --
Interest accrued on
stockholder note
receivable.................. -- -- -- -- -- (29) --
Net loss...................... -- -- -- -- -- -- (36,487)
---------- -- ------- ---- -------- ------- --------
Balances as of January 31,
2000........................ 12,355,419 $1 $46,848 $(52) $(17,745) $(1,814) $(39,507)
========== == ======= ==== ======== ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
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
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
Nonemployee 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... 88
Repurchase of common stock in
settlement of notes
receivable from
stockholders................ --
Deferred stock compensation
related to stock option
grants...................... --
Amortization of stock-based
compensation................ 7,831
Nonemployee stock
compensation................ 546
Stock compensation related to
forgiveness of note
receivable from
stockholder................. 635
Issuance of common stock in
connection with the
acquisition of Proamics
Corporation................. 17,510
Interest accrued on
stockholder note
receivable.................. (29)
Net loss...................... (36,487)
--------
Balances as of January 31,
2000........................ $(12,269)
========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 39
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------
2000 1999
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(36,487) $(3,020)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1,915 28
Employee stock-based compensation....................... 8,466 157
Revenue resulting from nonmonetary exchanges for
computer equipment,
software and services................................. (1,534) --
Expense resulting from nonmonetary exchanges for
services............................................... 154 --
Amortization debt discount.............................. 171 --
Amortization of goodwill and other intangible assets.... 2,381 20
Nonemployee stock-based compensation expense............ 546 88
Changes in operating assets and liabilities:
Accounts receivable................................... (5,529) (165)
Prepaid expenses and other current assets............. (1,738) --
Accounts payable...................................... 4,555 --
Accrued liabilities................................... 3,836 --
Deferred revenue...................................... 2,682 88
-------- -------
Net cash used in operating activities.............. (20,582) (2,804)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (5,028) (193)
Purchase of short-term investments........................ (16,865) --
Cash portion of Alyanza acquisition....................... -- (173)
Net cash acquired in Proamics acquisition................. 2,884 --
Other assets.............................................. (1,842) --
-------- -------
Net cash used in investing activities.............. (20,851) (366)
-------- -------
Cash flows from financing activities:
Net proceeds from sale of redeemable convertible preferred
stock................................................... 59,694 8,259
Issuance of common stock.................................. 88 58
Proceeds from debt issuances.............................. 7,982 --
Repayment of debt and capital lease obligations........... (3,828) --
-------- -------
Net cash provided by financing activities.......... 63,936 8,317
-------- -------
Net increase in cash and cash equivalents................... 22,503 5,147
Cash and cash equivalents, beginning of year................ 5,147 --
-------- -------
Cash and cash equivalents, end of year...................... $ 27,650 $ 5,147
======== =======
Supplemental disclosures of cash flow information:
Cash paid during year for interest........................ $ 584 $ --
======== =======
Noncash investing and financing activities:
Property and equipment acquired under capital leases
obligations............................................ $ 345 $ --
======== =======
Common stock issued for notes receivable................ $ 1,815 $ 45
======== =======
Common stock and redeemable convertible preferred stock
issued for acquisitions................................ $ 49,966 $ 354
======== =======
Repurchase of common stock in settlement of notes
receivable from stockholders........................... $ 52 $ --
======== =======
Deferred stock-based compensation....................... $ 24,000 $ 1,733
======== =======
Deferred revenue resulting from nonmonetary exchange for
computer equipment, software, and maintenance.......... $ -- $ 362
======== =======
Redeemable convertible preferred stock warrant issued in
conjunction with debt issuance......................... $ 510 $ --
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 40
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
(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, 1998. 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.
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. 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.
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
40
<PAGE> 41
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
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 (EITF) Issue
No. 86-29, Nonmonetary Transactions: Magnitude of Boot and Exceptions to the Use
of Fair Value, interpretation of Accounting Principles Board (APB) 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.
Marketplace revenue consists of revenues generated from a variety of
transactions. These transactions include, but are not limited to, Niku Services
Marketplace projects, subscriptions and sponsorship arrangements, such as
advertising and affiliations. Revenues from these transactions are generally
recognized ratably over the term of the arrangement, provided there are no
significant remaining obligations and collection of the resulting receivable is
probable.
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.
License and service revenue recognized during the year ended January 31,
2000, from arrangements involving nonmonetary exchanges of the Company's
products for customer products and services totaled approximately $1,534,000.
There were no corresponding cost of revenues related to these transactions. An
aggregate of $1,281,000 of equipment and software was acquired for internal use
as part of these arrangements, and $1,111,000 of research and development
expenses was recorded for the year ended January 31, 2000,
41
<PAGE> 42
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
relating to NPN professional services for internal use as codevelopment experts.
Revenue recognized during the year ended January 31, 2000, from monetary NPN
customer arrangements and the arrangement with the application service provider
totaled approximately $1,039,000. There were no corresponding cost of revenues
relating to these transactions.
(d) 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, 2000 and 1999, cash equivalents consisted principally of a
money market account and commercial paper. As defined in the line of credit
agreement with a lender, the Company is required to maintain a cash balance with
the lender of $6,000,000 through the term of the agreement, October 1, 2000.
(e) 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).
(f) Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable, accounts
payable and debt. The Company believes the reported carrying amounts of its
financial instruments approximates fair value based upon the short maturity of
cash equivalents, short-term investments, accounts receivable and payable, and
based on the current rates available to the Company on similar debt issues.
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. During the fiscal year ended January 31, 2000, the Company
established an allowance for doubtful accounts of $200,000, assumed $2,133,000
of an allowance for doubtful accounts in connection with the purchase of
Proamics Corporation and wrote-off $150,000 of uncollectible receivables. As of
January 31, 2000, and 1999, the Company has recorded an allowance for doubtful
accounts of $2,183,000 and $0, respectively.
(g) 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.
(h) Goodwill and Other Intangible Assets
Goodwill and other intangible assets were generated in the acquisition of
Alyanza Software Corporation (Alyanza) and Proamics Corporation (Proamics). Such
assets are being amortized on a straight-line basis
42
<PAGE> 43
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
over a three to five year period and consist of goodwill, developed technology,
customer lists, and assembled workforce (see Note 3).
(i) 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.
(j) 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.
(k) Advertising Costs
Niku's policy is to expense advertising costs as incurred. Niku's
advertising and promotion expense was $4,325,000 and $0 for the years ended
January 31, 2000 and 1999, respectively.
(l) 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.
(m) 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 the
enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts to be recovered.
(n) 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.
43
<PAGE> 44
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
(o) 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.
(p) Comprehensive Loss
The Company did not have any significant components of other comprehensive
loss for the years ended January 31, 2000 and 1999.
(q) 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 and unvested restricted stock using the treasury stock method and from
convertible securities on an "as if converted" basis. The following potential
common shares have been excluded from the computation of diluted net loss per
share because the effect would have been antidilutive (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Shares issuable under stock options........................ 4,776 3,474
Shares of restricted stock subject to repurchase........... 2,150 450
Shares issuable pursuant to warrants to purchase redeemable
convertible preferred stock.............................. 630 --
Shares of redeemable convertible preferred stock on an "as
if converted" basis...................................... 47,619 23,143
</TABLE>
The weighted-average exercise price of stock options was $1.03 and $0.08
for options outstanding as of January 31, 2000 and 1999, respectively. The
weighted-average purchase price of restricted stock subject to repurchase as of
January 31, 2000 and 1999, was $0.84 and $0.10 per share, respectively. The
exercise price of warrants was $0.75 for the year ended January 31, 2000.
(r) 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 or results of operations. The
Company will be required to adopt SFAS No. 133 in fiscal 2002.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for
44
<PAGE> 45
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
disclosures related to revenue recognition policies. The Company does not expect
the adoption of SAB 101 to have a material effect on its consolidated financial
position or results of operations.
In March 2000, the EITF published their consensus on EITF Issue No. 00-2,
Accounting for Web Site Development Costs, which outlines the accounting
criteria for costs related to the development of web sites. The Company will be
required to adopt EITF Issue No. 00-2 in fiscal quarters beginning after June
30, 2000. The Company is in the process of assessing any impact that the
adoption of EITF Issue No. 00-2 will have on its consolidated financial position
or results of operations.
In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. EITF Issue No. 00-3 outlines the accounting criteria for
hosting arrangements. The Company does not expect the adoption of EITF Issue No.
00-3 to have a material effect on its consolidated financial position or results
of operations.
(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 January
31, 2000. These investments are carried at amortized cost which approximates
fair value. The entire short-term investment balance is due within one year.
Short-term investments totaling $19,200,000 are included in cash and cash
equivalents at January 31, 2000 as these short-term investments have original
maturities of less than 90 days. Realized and unrealized gains and losses for
available-for-sale securities were immaterial for all periods presented.
(b) Property and Equipment
Property and equipment, net, consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------
2000 1999
------- ----
<S> <C> <C>
Computer equipment and office equipment.................... $ 3,707 $314
Software................................................... 1,848 95
Furniture and fixtures..................................... 1,323 13
Leasehold improvements..................................... 1,113 --
------- ----
7,991 422
Accumulated depreciation and amortization.................. (1,943) (28)
------- ----
$ 6,048 $394
======= ====
</TABLE>
Equipment under capital leases aggregated $1,660,000 and $0 as of January
31, 2000 and 1999, respectively Accumulated amortization on the assets under
capital leases aggregated $1,188,000 as of January 31, 2000.
45
<PAGE> 46
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
(c) Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------
2000 1999
------ ----
<S> <C> <C>
Accrued compensation and related costs...................... $2,465 $--
Other....................................................... $3,532 17
------ ---
$5,997 $17
====== ===
</TABLE>
(3) BUSINESS COMBINATIONS
In December 1998, Niku completed the acquisition of Alyanza, a privately
held software company in San Diego, California. Niku issued 524,995 shares of
its common stock and paid $135,000 cash for all of Alyanza's outstanding capital
stock. In addition, Niku assumed certain liabilities totaling $208,000 and
incurred merger-related costs of approximately $38,000. The purchase price of
approximately $735,000 was allocated $100,000 to developed technology, $200,000
to assembled workforce, and $435,000 to goodwill.
On December 8, 1999, Niku completed the acquisition of Proamics, a
privately held company in Chicago, Illinois. Niku issued 3,501,938 shares of its
common stock and 6,491,203 shares of its Series D redeemable convertible
preferred stock for all of Proamics outstanding capital stock. In addition, Niku
incurred direct acquisition related costs of approximately $400,000. The
purchase price of approximately $50,000,000 was allocated $18,700,000 to
developed technology, $1,500,000 to assembled workforce, $2,500,000 to customer
lists, and $28,700,000 to goodwill.
The acquisitions described above were accounted for by the purchase method
of accounting for business combinations with the results of operations of the
acquired companies included from their respective acquisition dates.
The following summary, prepared on an unaudited pro forma basis, combines
the Company's consolidated results of operations for the years ended January 31,
2000 and 1999, with Alyanza's and Proamics' results of operations for the years
ended December 31, 1999 and 1998, as if Alyanza and Proamics had been acquired
as of February 1, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenues.............................................. $ 19,653 $ 10,960
Net loss.............................................. $(54,135) $(17,885)
Basic and diluted net loss per share.................. $ (5.70) $ (2.08)
Shares used in pro forma per share calculation........ 9,497 8,604
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results, and do not
reflect any synergies that might be achieved from combined operations.
(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%. As of January 31, 2000,
$2,513,000 is outstanding under this loan. 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
46
<PAGE> 47
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
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 debt discount will be amortized on a straight-line basis over the
term of the loan. As of January 31, 2000, $340,000 of the debt discount remained
to be amortized.
As of January 31, 2000, the aggregate future maturities for fiscal 2001,
2002, and 2003, were $1,128,000, $1,272,000, and $113,000, respectively. This
loan is secured by our net tangible assets.
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% (9.5% January 31, 2000) under this line of credit. As
of January 31, 2000, the Company has an outstanding principal balance of
approximately $3,770,000 under this line of credit. Interest payments are due
monthly with the outstanding principal balance due October 1, 2000. At January
31, 2000 the company was in compliance with certain financial covenants
requiring that the Company maintain a minimum cash balance of $6,000,000 and a
tangible net worth of $9,000,000. This loan is secured by our tangible assets.
As of January 31, 2000, Niku was indebted to two employees for a total of
$500,000. These borrowings are due on demand and bear interest at a rate of 10%.
(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 January 31, 2000, the Company had drawn down approximately
$284,000 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 conjunction with the acquisition of Proamics, the Company
has assumed capital lease commitments related to purchased property and
equipment.
The Company leases office facilities and certain equipment under
noncancelable operating leases. The Company's rent expense was $1,081,000 and
$79,000 for the years ended January 31, 2000 and 1999, respectively.
47
<PAGE> 48
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
Future minimum annual lease payments as of January 31, 2000, is as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDED JANUARY 31, LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
2001................................................... $ 596 $ 1,339
2002................................................... 467 2,333
2003................................................... 39 2,418
2004................................................... -- 2,421
2005................................................... -- 2,270
Thereafter............................................. -- 1,523
------ -------
Total minimum lease payments........................... 1,102 $12,304
=======
Less amount representing interest...................... 100
------
Present value of minimum lease payments................ 1,002
Less current portion................................... 492
------
Capital lease obligation, less current portion......... $ 510
======
</TABLE>
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 up to $4,013,000 and $952,000 for fiscal 2001 and 2002,
respectively.
(6) STOCKHOLDERS' EQUITY
(a) Redeemable Convertible Preferred Stock and Warrants
In January 1998, the Company sold a total of 10,000,000 shares of Series F
redeemable convertible preferred stock for net proceeds of approximately
$493,000. In February, April, and May 1998, the Company sold a total of
5,142,851 shares of Series A redeemable convertible preferred stock for net
proceeds of approximately $1,791,000. In October, November, and December 1998,
the Company sold a total of 7,999,992 shares of Series B redeemable convertible
preferred stock for net proceeds of approximately $5,975,000. In February 1999,
the Company issued warrants to purchase 630,000 shares of Series B redeemable
convertible preferred stock. These warrants were valued at $510,000 using the
Black-Scholes option pricing model (see Note 4). In May 1999, the Company sold a
total of 9,987,439 shares of Series C redeemable convertible preferred stock for
net proceeds of approximately $19,811,000. In November 1999, the Company sold
7,998,012 shares of Series D redeemable convertible preferred stock for net
proceeds of approximately $39,883,000. In December 1999, the Company issued
6,491,203 shares of Series D redeemable convertible preferred stock valued at
approximately $32,456,000 in connection with its acquisition of Proamics (see
Note 3).
Redeemable convertible preferred stock outstanding as of January 31, 2000,
is as follows:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND CARRYING
DESIGNATED OUTSTANDING VALUE
---------- ----------- ------------
<S> <C> <C> <C>
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............................. 9,987,439 9,987,439 19,811,000
Series D............................. 18,150,000 14,489,215 72,339,000
---------- ---------- ------------
51,910,282 47,619,497 $100,409,000
========== ========== ============
</TABLE>
48
<PAGE> 49
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
The Company has warrants to purchase 630,000 shares of Series B redeemable
convertible preferred stock outstanding as of January 31, 2000, 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,
C, and D 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,
$0.10, and $0.25 per share for Series F, A, B, C, and D 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. Holders of Series D redeemable convertible preferred stock have a
liquidation preference of $6.25 per share through the first anniversary
date of issuance, $7.8125 per share through the second anniversary date
of issuance, and $9.80 per share through the third anniversary date of
the issuance, plus any declared but unpaid dividends over the holder's
common stock
- Each share of Series F, A, B, C, and D 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, and Series D 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 (1998 Plan) to directors,
employees, and consultants. The Plans provide for the issuance of stock purchase
rights, incentive stock options, or nonstatutory stock options.
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 January 31, 2000, the Company has issued 3,098,750 shares
under restricted stock purchase agreements, of which 515,625 shares have been
repurchased and 2,149,584 shares are subject to repurchase at a weighted-average
price of $0.84 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 6.11% and terms of four years.
Under the 1998 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
49
<PAGE> 50
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
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 1998 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 January 31, 2000, there were no additional shares available for grant
under the 1998 stock option plan.
During the fourth quarter of the fiscal year ended January 31, 2000, the
Company adopted 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 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.
During the fourth quarter of the fiscal year ended January 31, 2000, the
Company adopted the 2000 Employee Stock Purchase Plan (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.
(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 January 31, 2000. With respect to the stock options granted and
restricted stock sold from January 31, 1998 to January 31, 2000, the Company
recorded deferred stock compensation of
50
<PAGE> 51
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
$25,733,000 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 January 31, 2000 balance of deferred stock-based
compensation for the fiscal years ended 2001, 2002, 2003, and 2004, would
approximate $11,370,000, $4,524,000, $1,637,000, and $214,000, respectively.
The amortization of deferred stock compensation, combined with the expense
associated with stock options granted to nonemployees, relates to the following
items in the accompanying consolidated statements of operations (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
2000 1999
---------- ---------
<S> <C> <C>
Cost of revenues........................................ $ 69 $ --
Sales and marketing..................................... 5,205 56
Research and development................................ 3,155 90
General and administrative.............................. 585 99
-------- -------
Total......................................... $ 9,014 $ 245
======== =======
</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>
YEARS ENDED JANUARY 31,
-----------------------
2000 1999
---------- ---------
<S> <C> <C>
Net loss:
As reported........................................... $(36,487) $(3,020)
Pro forma............................................. (36,838) (3,031)
Basic and diluted net loss per share:
As reported........................................... $ (5.61) $ (0.62)
Pro forma............................................. (5.66) (0.62)
</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; expected life of 4 years; and risk-free interest rate of 5.95% and
4.97% for the years ended January 31, 2000 and 1999, respectively.
51
<PAGE> 52
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
A summary of the status of the Company's options under the Plans, is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
----------------------------------------------
2000 1999
---------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.................... 3,473,500 $0.08 -- $ --
Granted............................................. 3,575,960 1.42 4,277,000 0.08
Canceled............................................ (464,830) 0.18 (181,000) 0.10
Exercised........................................... (1,808,816) 0.20 (622,500) 0.08
---------- ---------
Outstanding at end of year.......................... 4,775,814 1.03 3,473,500 0.08
========== =========
Options exercisable at end of year.................. 516,379 1.62 893,249 0.10
========== =========
Weighted-average fair value of options granted
during the year 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 year with exercise prices less than
fair value at date of grant....................... 3,575,960 5.31 2,764,500 0.73
</TABLE>
As of January 31, 2000, 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-
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
OF LIFE EXERCISE OF EXERCISE
RANGE OF EXERCISE PRICES SHARES (YEARS) PRICE SHARES PRICE
- ------------------------ --------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 382,292 7.94 $0.01 -- $ --
$0.10 1,195,652 8.63 0.10 238,689 0.10
$0.25 1,138,000 9.35 0.25 6,250 0.25
$1.00 874,050 10.00 1.00 -- --
$2.98 - 3.50 1,185,820 10.00 3.05 271,440 2.98
--------- -------
4,775,814 1.03 516,379 1.62
========= =======
</TABLE>
52
<PAGE> 53
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
(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, amortization of goodwill, and
stock-based compensation not benefited.
The individual components of the Company's deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Net operating loss carryovers and credit carry
fowards............................................... $ 12,438 $ 1,200
Property and equipment.................................. 1,076 --
Accurals and reserves................................... 1,039 --
Deferred stock compensation............................. 814 --
-------- -------
Total deferred tax assets..................... 15,367 1,200
Valuation allowance..................................... (15,367) (1,200)
-------- -------
Net deferred tax assets....................... $ -- $ --
======== =======
</TABLE>
The net changes in the valuation allowance for the years ended January 31,
2000 and 1999, were increases of $14,167,000 and $1,200,000, 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 January 31, 2000 the Company had approximately $29,000,000 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 2018 and the state net operating loss
carryforwards expire if not utilized by 2006. In addition, the company had
approximately $480,000 and $370,000 of tax credit carryforwards for increased
research expenditures for federal and state purposes, respectively. The federal
increased research credits expire if not utilized by 2018 and the state
increased research credit can be carried over indefinitely. The Company also had
approximately $43,000 of manufacturer's investment credit carryforward for state
purpose, which may expire if not utilized by 2009.
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
53
<PAGE> 54
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
operations and the Company has no significant foreign operations. Therefore, the
Company operates in a single operating segment: Internet software. Disaggregated
information is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 31,
--------------
2000 1999
------ ----
<S> <C> <C>
Revenues:
License................................................... $5,480 $--
Services:
Consulting................................................ 2,182 15
Maintenance............................................... 391 --
Marketplace................................................. 104 --
------ ---
$8,157 $15
====== ===
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL REVENUE
JANUARY 31,
--------------
2000 1999
----- -----
<S> <C> <C>
Customer A.................................................. -- 100%
</TABLE>
For the year ended January 31, 2000, 14% of the Company's total revenue
were from customers with an officer and/or director serving as a board member of
the Company.
For the years ended January 31, 2000 and 1999, revenues generated from and
assets of international operations were not significant.
(9) SUBSEQUENT EVENTS
(a) Acquisition of Legal Anywhere
During the first quarter of fiscal 2001, 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 853,689 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 $21,000,000 purchase price will be allocated to
acquired net tangible and intangible assets and goodwill.
(b) Deferred Stock Compensation
During the period from February 1, 2000 to February 21, 2000, the Company
will record additional deferred stock compensation of approximately $23,746,000
related to approximately 2,305,500 stock options granted during that period.
Amortization of total deferred stock compensation recorded through February 21,
2000, will be approximately $26,000,000, $10,100,000, $4,300,000 and $1,100,000
to be amortized during fiscal 2001, 2002, 2003, and 2004, respectively.
(c) Initial Public Offering
On February 28, 2000, the Company completed an initial public offering
(IPO) of 9,200,000 shares (including over-allotment option exercised by the
underwriters) of its common stock for net proceeds of approximately
$203,000,000. Prior to the completion of the IPO, the holder of 630,000 warrants
elected to exercise the warrants and receive a lesser number of shares in
exchange for a reduction in the exercise price resulting in the issuance of
610,312 shares of Series B redeemable convertible preferred stock. Upon the
54
<PAGE> 55
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000 AND 1999
completion of the IPO, all outstanding shares of redeemable convertible
preferred stock were converted to common stock on a one-for-one basis. In
connection with the IPO, the Company increased the number of authorized shares
of common stock to 250,000,000 shares.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
2000 1999 1999 1999
----------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues......................................... $ 5,181 $ 2,016 $ 587 $ 373
-------- ------- ------- -------
Cost of revenues................................. 2,017 327 187 89
-------- ------- ------- -------
Gross profit..................................... 3,164 1,689 400 284
-------- ------- ------- -------
Operating expense:
Sales and marketing............................ 9,538 3,156 2,019 808
Research and development....................... 4,858 2,748 2,226 1,088
General and administrative..................... 2,900 1,048 464 325
Stock-based compensation....................... 6,996 1,109 596 313
Amortization of goodwill and other intangible
assets...................................... 2,197 62 61 61
-------- ------- ------- -------
Total operating expenses............... 26,489 8,123 5,366 2,595
-------- ------- ------- -------
Operating loss................................... (23,325) (6,434) (4,966) (2,311)
Interest and other income, net................... 371 96 127 (45)
-------- ------- ------- -------
Net loss......................................... $(22,954) $(6,338) $(4,839) $(2,356)
======== ======= ======= =======
Basic and diluted net loss per share............. $ (2.72) $ (1.04) $ (0.82) $ (0.42)
======== ======= ======= =======
Shares used in computing basic and diluted
net loss per share............................. 8,433 6,089 5,879 5,639
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
1999 1998 1998 1998
----------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues......................................... $ 15 $ -- $ -- $ --
------- ------- ------- -------
Cost of revenues................................. 4 -- -- --
------- ------- ------- -------
Gross profit..................................... 11 -- -- --
------- ------- ------- -------
Operating expense:
Sales and marketing............................ 215 59 14 2
Research and development....................... 761 403 316 130
General and administrative..................... 276 240 212 268
Stock-based compensation....................... 168 77 -- --
Amortization of goodwill and other intangible
assets...................................... 20 -- -- --
------- ------- ------- -------
Total operating expenses............... 1,440 779 542 400
Operating loss................................... (1,429) (779) (542) (400)
------- ------- ------- -------
Interest and other income, net................... 74 25 16 15
Net loss......................................... $(1,355) $ (754) $ (526) $ (385)
======= ======= ======= =======
Basic and diluted net loss per share............. $ (0.26) $ (0.16) $ (0.11) $ (0.08)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share............................. 5,143 4,833 4,833 4,748
======= ======= ======= =======
</TABLE>
55
<PAGE> 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of March 31, 2000
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Farzad Dibachi....................... 36 Chief Executive Officer and Chairman of the
Board
Joshua Pickus........................ 39 President, Vertical Markets
Mark Nelson.......................... 40 Chief Financial Officer
Rhonda Dibachi....................... 38 Senior Vice President of Development
Kenneth Johnson...................... 43 Senior Vice President of Sales
Harold Slawik........................ 40 Senior Vice President of Corporate Development
John Danforth........................ 42 Senior Vice President and General Counsel
Michael Brooks....................... 55 Director
John Chen............................ 44 Director
Terence Garnett...................... 42 Director
Frank Gill........................... 56 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.
John Danforth has served as the senior vice president and general counsel
of Niku since February 2000. Prior to joining Niku, Mr. Danforth served as vice
president and general counsel for Creative Labs Inc., a
56
<PAGE> 57
subsidiary of Creative Technology Ltd. Prior to Creative Labs, Mr. Danforth was
a partner with Morrison & Foerster. Mr. Danforth holds a bachelor's degree with
honors from Yale College and a J.D. with honors from Columbia Law School, after
which he served as a law clerk for Judge Dorothy Nelson of the United States
Ninth Circuit Court of Appeals. He is a member of the bar in California and New
York.
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 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 Media Metrix, Inc., SunGard Data Systems
Inc., USinternetworking, 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 is the
president, chief executive officer, and chairman of the board of Sybase, a
database company. He has served as chief executive officer and chairman of the
board since November 1998 and as president and a director since August 1997. Mr.
Chen served as co-chief executive officer between February 1998 and November
1998 and as chief operating officer between August 1997 and February 1998.
Before joining Sybase, Mr. Chen served between March 1995 and July 1997 as the
president of the open enterprise computing division of Siemens Nixdorf, a
computer and electronics company, and as chief executive officer and chairman of
the Siemens Pyramid subsidiary of Siemens Nixdorf. 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.
57
<PAGE> 58
Frank Gill has been a director of Niku since March 2000. Mr. Gill is a 23
year veteran of Intel Corporation where he was executive vice president until
retirement in 1998. While at Intel, he led the Sales and Marketing Group until
1990, the System Group until 1995, and the Internet and Communications Group
until 1998. Mr. Gill currently is a private investor and serves as a director of
Inktomi Inc, Tektronix Inc, and several private technology companies. He holds a
BSEE from the University of California at Davis.
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.
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. and FusionOne. 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 2001 annual meeting of stockholders. The Class II directors, initially
Messrs. Raduchel and Webb, will stand for reelection at the 2002 annual meeting
of stockholders. The Class III directors, initially Messrs. Chen and Garnett,
will stand for reelection or election at the 2003 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 terminated upon completion of our initial public 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
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<PAGE> 59
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 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 annual report
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 for our initial public offering
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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<PAGE> 60
ITEM 11. EXECUTIVE COMPENSATION
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.
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<PAGE> 61
OPTION/SAR GRANTS IN LAST FISCAL YEAR
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.
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 the initial public offering
price of $24.00 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 7,292 175,000 174,935 4,198,250
</TABLE>
EMPLOYEE BENEFIT PLANS
1998 Stock Plan. As of January 29, 2000, options to purchase 4,921,236
shares of our common stock were outstanding under our 1998 Stock Plan and
647,148 shares of our common stock remained available for issuance upon the
exercise of options that may be granted in the future. The options outstanding
includes options to purchase shares of Legal Anywhere common stock representing
options to purchase up to 141,282 shares of our common stock, which were assumed
in connection with our acquisition of Legal Anywhere in the first quarter of
fiscal 2001. The options outstanding as of January 29, 2000 had a weighted
average exercise price of $1.03 per share. Our 1998 Stock Plan terminated upon
our initial public 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. 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 became effective
on the date of our initial public offering and is 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 our initial public offering 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;
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<PAGE> 62
- 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.
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 authorizes the award of options, restricted stock
awards and stock bonuses. No person is eligible to receive more than 2,000,000
shares in any calendar year under the plan other than a new employee of Niku,
who is eligible to receive up to 2,500,000 shares in the calendar year in which
the employee commences employment.
Our 2000 Equity Incentive Plan is administered by our board of directors.
The board has 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
became effective on our public offering. We have initially reserved 1,000,000
shares of our common stock under this plan. On each
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<PAGE> 63
January 1, the aggregate number of shares reserved for issuance under our 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 is administered by our compensation
committee. Our compensation committee has 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 are
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 began on February 29, 2000. Offering
periods and purchase periods will begin on March 1 and September 1 of each year.
Our 2000 Employee Stock Purchase Plan provides 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 has 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
has 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 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.
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<PAGE> 64
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
167,708 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 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.
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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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as to the beneficial ownership of
our common stock as of April 21, 2000 for:
- 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.
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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 April 21, 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 61,044,235 shares of common stock outstanding on that date, including 853,689
shares of our common stock issued to former stockholders of Legal Anywhere in
connection with our acquisition of Legal Anywhere in the first quarter of fiscal
2001 and assuming that all outstanding preferred stock has been converted into
common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
------------------------ ------------------ --------------------------
<S> <C> <C>
Farzad and Rhonda Dibachi(1).......................... 11,558,094 16.7%
Entities and individuals associated with Venrock
Associates(2)....................................... 7,998,519 11.6
2499 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Vector Capital II, L.P.(3)............................ 6,226,195 9.0
465 Montgomery Street, 19th Floor
San Francisco, CA 94104
Terence Garnett(4).................................... 5,908,365 8.6
Entitles and individuals associated with J.H.
Whitney(5).......................................... 5,290,821 7.7
177 Broad Street
Stamford, CT 06901
Michael Brooks(6)..................................... 5,290,821 7.7
Harold Slawik(7)...................................... 2,385,297 3.5
Joshua Pickus(8)...................................... 1,296,904 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)........................................ 26,773,604 38.7
</TABLE>
- ---------------
* 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.
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(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 282,708 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 21,875 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 1,196,904 shares held by the Pickus Family Trust and 100,000
shares held by the Pickus Family Irrevocable 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 26,582,284 shares held by all directors and executive officers
as a group and 191,320 shares subject to options exercisable within 60 days
of January 29, 2000 held by all directors and executive officers as a
group.
As of January 29, 2000, our officers, directors and 5% or greater
stockholders beneficially owned or controlled, directly or indirectly,
40,998,318 shares of our capital stock, which in the aggregate represented
approximately 67% 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the employment arrangements described in "Management" and the
transactions described below, during our last fiscal year, 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.
67
<PAGE> 68
PREFERRED STOCK FINANCINGS
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 C SERIES D
STOCKHOLDER PREFERRED STOCK PREFERRED STOCK
----------- --------------- ---------------
<S> <C> <C>
Mark Nelson..................................... -- 10,000
Terence Garnett................................. 577,890 500,000
Maynard Webb.................................... 50,251 --
Vector Capital II, L.P.......................... -- 6,226,195
Entities associated with Venrock Associates..... 2,437,186 388,000
Entities associated with J.H. Whitney........... 4,522,613 768,208
</TABLE>
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
68
<PAGE> 69
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements: See Index to Consolidated
Financial Statements at Item 8 on page of this report.
(2) Exhibits are incorporated herein by reference or are filed with
this report as indicated below (numbered in accordance with Item 601 of
Regulation S-K):
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- -------- -------------
<C> <S>
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+ Registrant's Amended and Restated Bylaws.
4.01+ Fourth Amended and Restated Investors' Rights Agreement,
dated November 18, 1999, as amended December 8, 1999.
4.02+ Series F Preferred Stock Purchase Agreement, dated January
23, 1998.
4.03+ Series A Preferred Stock Purchase Agreement, dated February
13, 1998.
4.04+ Series B Preferred Stock Purchase Agreement, dated October
13, 1998.
4.05+ Series C Preferred Stock Purchase Agreement, dated May 13,
1999.
4.06+ Series D Preferred Stock Purchase Agreement, dated November
18, 1999.
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 2000 Equity Incentive Plan.
10.04 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.
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- -------- -------------
<C> <S>
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.
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 Subsidiaries.
23.01 Consent of KPMG LLP, independent auditors.
27.01 Financial Data Schedule.
</TABLE>
- ---------------
+ Incorporated by reference to exhibits previously filed with the Securities
and Exchange Commission as exhibits to the Registrant's Registration Statement
on Form S-1 (File No. 333-9349).
** Confidential treatment was granted requested with regard to certain portions
of this document. Such portions were filed separately with the Securities
and Exchange Commission.
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.
(b) Reports on Form 8-K
Not applicable.
70
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Redwood City, State of
California, on the 28th day of April, 2000.
NIKU CORPORATION
By /s/ FARZAD DIBACHI
------------------------------------
Farzad Dibachi
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Mark Nelson and John Danforth and each of
them, his true lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granted unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intends and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his, her or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on the 28th day of April, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FARZAD DIBACHI Chief Executive Officer and April 28, 2000
- --------------------------------------------------- Director
Farzad Dibachi
/s/ MARK NELSON Chief Financial Officer April 28, 2000
- ---------------------------------------------------
Mark Nelson
Director April 28, 2000
- ---------------------------------------------------
Michael Brooks
/s/ JOHN CHEN Director April 28, 2000
- ---------------------------------------------------
John Chen
/s/ TERENCE GARNETT Director April 28, 2000
- ---------------------------------------------------
Terence Garnett
/s/ WILLIAM RADUCHEL Director April 28, 2000
- ---------------------------------------------------
William Raduchel
/s/ MAYNARD WEBB Director April 28, 2000
- ---------------------------------------------------
Maynard Webb
/s/ FRANK GILL Director April 28, 2000
- ---------------------------------------------------
Frank Gill
</TABLE>
71
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
3.01 Registrant's Amended and Restated Certificate of
Incorporation.
3.02 Registrant's Amended and Restated Bylaws.
10.03 2000 Equity Incentive Plan.
10.04 2000 Employee Stock Purchase Plan.
23.01 Consent of KPMG, independent auditors.
27.01 Financial Data Schedule.
</TABLE>
72
<PAGE> 1
EXHIBIT 3.01
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NIKU CORPORATION
Niku Corporation, a Delaware corporation (the "Corporation"), which was
originally incorporated on January 8, 1998 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 duly authorized
officer.
Dated: March 3, 2000
NIKU CORPORATION
/s/ Farzad Dibachi
-----------------------------------------
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 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
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.
2
<PAGE> 4
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
3
<PAGE> 5
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.
4
<PAGE> 6
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.
5
<PAGE> 1
EXHIBIT 3.02
AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
i
<PAGE> 2
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>
ii
<PAGE> 3
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>
iii
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
NIKU CORPORATION
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE V - STOCK
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>
iv
<PAGE> 5
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>
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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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EXHIBIT 10.03
NIKU CORPORATION
2000 EQUITY INCENTIVE PLAN
As Adopted December 8, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 6,000,000 Shares plus Shares that are subject to: (a) issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option; (b) an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price; and (c)
an Award that otherwise terminates without Shares being issued. In addition, any
authorized shares not issued or subject to outstanding grants under the
Company's 1998 Stock Plan (the "PRIOR PLAN") on the Effective Date (as defined
below) and any shares issued under the Prior Plan that are forfeited or
repurchased by the Company or that are issuable upon exercise of options granted
pursuant to the Prior Plan that expire or become unexercisable for any reason
without having been exercised in full, will no longer be available for grant and
issuance under the Prior Plan, but will be available for grant and issuance
under this Plan. In addition, on each January 1, the aggregate number of Shares
reserved and available for grant and issuance pursuant to this Plan will be
increased automatically by a number of Shares equal to 5% of the total
outstanding shares of the Company as of the immediately preceding December 31,
provided that no more than 20,000,000 shares shall be issued as ISOs (as defined
in Section 5 below). At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
number of Shares that may be granted pursuant to Sections 3 and 9 below, (c) the
Exercise Prices of and number of Shares subject to outstanding Options, and (d)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 2,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 2,500,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
<PAGE> 2
NIKU Corporation
2000 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required
by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
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NIKU Corporation
2000 Equity Incentive Plan
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three (3)
months after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have
been exercisable by Participant on the Termination Date and
must be exercised by Participant (or Participant's legal
representative or authorized assignee) no later than twelve
(12) months after the Termination Date (or such shorter or
longer time period not exceeding five (5) years as may be
determined by the Committee, with any such exercise beyond
(a) three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's
death or Disability, or (b) twelve (12) months after the
Termination Date when the Termination is for Participant's
death or Disability, deemed to be an NQSO), but in any event
no later than the expiration date of the Options.
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NIKU Corporation
2000 Equity Incentive Plan
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if
a Participant is terminated for Cause, neither the
Participant, the Participant's estate nor such other person
who may then hold the Option shall be entitled to exercise
any Option with respect to any Shares whatsoever, after
termination of service, whether or not after termination of
service the Participant may receive payment from the Company
or Subsidiary for vacation pay, for services rendered prior
to termination, for services rendered for the day on which
termination occurs, for salary in lieu of notice, or for any
other benefits. In making such determination, the Board shall
give the Participant an opportunity to present to the Board
evidence on his behalf. For the purpose of this paragraph,
termination of service shall be deemed to occur on the date
when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is
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NIKU Corporation
2000 Equity Incentive Plan
delivered to the person. If such person does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the number
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant. Prior
to the payment of any Stock Bonus, the Committee shall determine the extent to
which such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Shares may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the
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Committee deems necessary or appropriate to reflect the impact of extraordinary
or unusual items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares);
or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion of
the Shares so purchased to pay for the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or
(2) through a "margin" commitment from the Participant and
a NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
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9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
9.1 Types of Options and Shares. Options granted under this Plan and
subject to this Section 9 shall be NQSOs.
9.2 Eligibility. Options subject to this Section 9 shall be granted
only to Outside Directors.
9.3 Initial Grant. Each Outside Director who first becomes a member
of the Board on or after the Effective Date will automatically be granted an
Option for 50,000 Shares (an "INITIAL GRANT") on the date such Outside Director
first becomes a member of the Board, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who became a
member of the Board prior to the Effective Date and who did not receive a prior
Option grant will receive an Initial Grant immediately following the Effective
Date.
9.4 Succeeding Grant. Immediately following each Annual Meeting of
stockholders, each Outside Director will automatically be granted an Option for
25,000 Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member
of the Board on such date and has served continuously as a member of the Board
for a period of at least one year since the date of such Outside Director's
Initial Grant. Notwithstanding anything in this Section 9.4 to the contrary, the
Board may make discretionary supplemental grants to an Outside Director who has
served for less than one year from the date of such Outside Director's Initial
Grant, provided that no Outside Director may receive more than 75,000 Shares in
any calendar year pursuant to this Section 9.
9.5 Vesting. The date an Outside Director receives an Initial Grant
or a Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to 2.778% of
the Shares on each monthly anniversary of the Start Date, so
long as the Outside Director continuously remains a director
or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
2.778% of the Shares on each monthly anniversary of the Start
Date, so long as the Outside Director continuously remains a
director or a consultant of the Company.
Notwithstanding any provision to the contrary, in the event of a Corporate
Transaction described in Section 18.1, the vesting of all options granted to
Outside Directors pursuant to this Section 9 will accelerate and such options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and must be exercised,
if at all, within three months of the consummation of said event. Any options
not exercised within such three-month period shall expire.
9.6 Exercise Price. The exercise price of an Option pursuant to an
Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares,
at the time that the Option is granted.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow
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the Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be
determined. All elections by a Participant to have Shares withheld for this
purpose will be made in accordance with the requirements established by the
Committee and be in writing in a form acceptable to the Committee.
11. TRANSFERABILITY.
11.1 Except as otherwise provided in this Section 11, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than NQSO's
shall be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.
12.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
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13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. Except for
automatic grants to Outside Directors pursuant to Section 9 hereof, in the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
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2000 Equity Incentive Plan
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction (each, a "CORPORATE TRANSACTION"), (i) the vesting of all
outstanding Awards will accelerate as to an additional 25% of the Shares that
are unvested on the date of the Corporate Transaction and, (ii) thereafter,
unless otherwise set forth below, all unvested shares subject to outstanding
Awards will continue to vest in equal monthly installments over the remaining
original vesting term as set forth in the Award Agreement. Upon a Corporate
Transaction, all outstanding Awards shall be assumed by the successor or
acquiring corporation (if any), which assumption will be binding on all
Participants. In the alternative, the successor or acquiring corporation may
substitute equivalent Awards or provide substantially similar consideration to
Participants as was provided to shareholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue, in
place of outstanding unvested Shares of the Company held by the Participants,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant. In the event such successor
corporation (if any) refuses to assume or substitute Awards, as provided above,
pursuant to a Corporate Transaction described in this Subsection 18.1, such
Awards will expire on such Corporate Transaction at such time and on such
conditions as the Committee will determine. Notwithstanding anything in this
Plan to the contrary, the Committee may, in its sole discretion, provide that
the vesting of any or all Awards granted pursuant to this Plan will accelerate
upon a Corporate Transaction described in this Section 18. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the Corporate Transaction, they shall
terminate at such time as determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any Corporate Transaction described in Section
18.1, any outstanding Awards will be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, or sale of
assets.
18.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date on which the registration statement filed by the Company with the
SEC under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares
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issued pursuant to any Awards shall be cancelled and any purchase of Shares
issued hereunder shall be rescinded; and (d) in the event that stockholder
approval of such increase is not obtained within the time period provided
herein, all Awards granted pursuant to such increase will be cancelled, any
Shares issued pursuant to any Award granted pursuant to such increase will be
cancelled, and any purchase of Shares pursuant to such increase will be
rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means NIKU Corporation or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
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(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date
of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported
in The Wall Street Journal;
(d) in the case of an Award made on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with
the SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law of the Participant,
including any such person with such relationship to the
Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than
fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting
interest.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Parent, Subsidiary or Affiliate of the Company.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
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"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this NIKU Corporation 2000 Equity Incentive Plan, as
amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other
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NIKU Corporation
2000 Equity Incentive Plan
leave of absence approved by the Committee, provided, that such leave is for a
period of not more than 90 days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute or unless provided otherwise pursuant
to formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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EXHIBIT 10.04
NIKU CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
As Adopted December 8, 1999
1. ESTABLISHMENT OF PLAN. NIKU Corporation (the "COMPANY") proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Participating Subsidiaries (as hereinafter defined)
pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of
this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 1,000,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. In addition, on each January 1, the aggregate number of shares
of the Company's Common Stock reserved for issuance under the Plan shall be
increased automatically by a number of shares equal to 1% of the total number of
outstanding shares of the Company Common Stock on the immediately preceding
December 31; provided, that the Board or the Committee may in its sole
discretion reduce the amount of the increase in any particular year; and,
provided further, that the aggregate number of shares issued over the term of
this Plan shall not exceed 10,000,000 shares. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary prior to the beginning of such Offering Period or prior to such other
time period as specified by the Committee, except that employees who are
employed on the Effective Date of the Registration Statement filed by the
Company with the Securities and Exchange Commission ("SEC") under the Securities
Act of 1933, as amended (the "SECURITIES ACT") registering the initial public
offering of the Company's Common Stock shall be eligible to participate in the
first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five
<PAGE> 2
NIKU Corporation
2000 Employee Stock Purchase Plan
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Participating Subsidiaries or who, as a
result of being granted an option under this Plan with respect to such Offering
Period, would own stock or hold options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on March 1 and
September 1 of each year and ending on February 28 and August 31 of each year;
provided, however, that the first such Offering Period shall commence on the
first business day on which price quotations for the Company's Common Stock are
available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall
end on February 28, 2002. Except for the first Offering Period, each Offering
Period shall consist of four (4) six month purchase periods (individually, a
"PURCHASE PERIOD") during which payroll deductions of the participants are
accumulated under this Plan. The first Offering Period shall consist of no more
than five and no fewer than three Purchase Periods, any of which may be greater
or less than six months as determined by the Committee. The first business day
of each Offering Period is referred to as the "OFFERING DATE". The last business
day of each Purchase Period is referred to as the "PURCHASE DATE". The Committee
shall have the power to change the Offering Dates, the Purchase Dates and the
duration of Offering Periods or Purchase Periods without stockholder approval if
such change is announced prior to the relevant Offering Period or prior to such
other time period as specified by the Committee.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company prior to such Offering Date, or such other time period
as specified by the Committee. Notwithstanding the foregoing, the Committee may
set a later time for filing the subscription agreement authorizing payroll
deductions for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Company by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Company prior to such Offering Date, or such other time
period as specified by the Committee. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (x) the maximum number of shares set by the Committee pursuant to
Section 10(c) below with respect to the applicable Purchase Date, or (y) the
maximum number of shares which may be purchased pursuant to Section 10(b) below
with respect to the applicable Purchase Date. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
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NIKU Corporation
2000 Employee Stock Purchase Plan
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the price per share
at which shares of the Company's Common Stock are initially offered for sale to
the public by the Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than one percent (1%), nor greater than ten percent (10%) or such lower
limit set by the Committee; provided, however, that no participant shall be
entitled to deduct more than $10,000 on any Purchase Period (or such other
maximum amount as determined by the Committee prior to or during any Purchase
Period). Compensation shall mean all W-2 cash compensation, including, but not
limited to, base salary, wages, commissions, overtime, shift premiums and
bonuses, plus draws against commissions, provided, however, that for purposes of
determining a participant's compensation, any election by such participant to
reduce his or her regular cash remuneration under Sections 125 or 401(k) of the
Code shall be treated as if the participant did not make such election. Payroll
deductions shall commence on the first payday of the Offering Period and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing after the Company's receipt of
the authorization and shall continue for the remainder of the Offering Period
unless changed as described below. Such change in the rate of payroll deductions
may be made at any time during an Offering Period, but not more than one (1)
change may be made effective during any Purchase Period. A participant may
increase or decrease the rate of payroll deductions for any subsequent Offering
Period by filing with the Company a new authorization for payroll deductions
prior to the beginning of such Offering Period, or such other time period as
specified by the Committee.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Company a request for
cessation of payroll deductions. Such reduction shall be effective beginning
with the next payroll period after the Company's receipt of the request and no
further payroll deductions will be made for the duration of the Offering Period.
Payroll deductions credited to the participant's account prior to the effective
date of the request shall be used to purchase shares of Common Stock of the
Company in accordance with Section (e) below. A participant may not resume
making payroll deductions during the Offering Period in which he or she reduced
his or her payroll deductions to zero.
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NIKU Corporation
2000 Employee Stock Purchase Plan
(d) All payroll deductions made for a participant are credited to
his or her account under this Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(e) On each Purchase Date, so long as this Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. All
participants shall not be entitled to purchase more than 500,000 shares (or such
other maximum number of shares as determined by the Committee) of the Company's
Common Stock in the aggregate on any single Purchase Date. Prior to the
commencement of any Offering Period, or prior to such time period as specified
by the Committee, the Committee may, in its sole discretion, set a maximum
number of shares which may be purchased by any employee at any single Purchase
Date (hereinafter the "MAXIMUM SHARE AMOUNT"). The Maximum Share Amount shall be
2,000 shares of the Company's Common Stock (or such other Maximum Share Amount
as determined by the Committee). In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The
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NIKU Corporation
2000 Employee Stock Purchase Plan
Maximum Share Amount shall continue to apply with respect to all succeeding
Purchase Dates and Offering Periods unless revised by the Committee as set forth
above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Company a written notice to that effect on
a form provided for such purpose. Such withdrawal may be elected at any time
prior to the end of an Offering Period, or such other time period as specified
by the Committee.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current
Offering Period in which a participant is enrolled is higher than the Fair
Market Value on the first day of any subsequent Offering Period, the Company
will automatically enroll such participant in the subsequent Offering Period.
Any funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock
5
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NIKU Corporation
2000 Employee Stock Purchase Plan
split or the payment of a stock dividend (but only on the Common Stock) or any
other increase or decrease in the number of issued and outstanding shares of
Common Stock effected without receipt of any consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration".
Such adjustment shall be made by the Committee, whose determination shall be
final, binding and conclusive. Except as expressly provided herein, no issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the
Committee and give each participant the right to purchase shares under this Plan
prior to such termination. In the event of (i) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the options under this Plan are assumed, converted or replaced by
the successor corporation, which assumption will be binding on all
participants), (ii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (iii) the sale of all or
substantially all of the assets of the Company or (iv) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, the Plan will continue with regard to Offering
Periods that commenced prior to the closing of the proposed transaction and
shares will be purchased based on the Fair Market Value of the surviving
corporation's stock on each Purchase Date, unless otherwise provided by the
Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
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NIKU Corporation
2000 Employee Stock Purchase Plan
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the end
of an Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company
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NIKU Corporation
2000 Employee Stock Purchase Plan
obtained in accordance with Section 21 above within twelve (12) months of the
adoption of such amendment (or earlier if required by Section 21) if such
amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial accounting treatment for
the Plan that is different from the financial accounting treatment in effect on
the date this Plan is adopted by the Board.
8
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EXHIBIT 23.01
Consent of KPMG LLP, independent auditors
The Board of Directors
Niku Corporation:
We consent to incorporation by reference in the registration statement (No.
333-31318) on Form S-8 of Niku Corporation of our report dated February 25,
2000, except as to Note 9, which is as of February 28, 2000, relating to the
consolidated balance sheets of Niku Corporation and subsidiaries as of January
31, 2000 and 1999, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for each of the years then ended, which
report appears in the January 29, 2000, annual report on Form 10-K of Niku
Corporation.
/s/ KPMG LLP
Mountain View, California
April 28, 2000
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<NAME> NIKU CORPORATION
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