<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000
REGISTRATION NO. 333-93439
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NIKU CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7371 77-0473454
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
NIKU CORPORATION
305 MAIN STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 298-4600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FARZAD DIBACHI
CHIEF EXECUTIVE OFFICER
NIKU CORPORATION
305 MAIN STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 298-4600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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DENNIS R. DEBROECK, ESQ. ALAN F. DENENBERG, ESQ.
JEFFREY R. VETTER, ESQ. SHEARMAN & STERLING
FENWICK & WEST LLP 1550 EL CAMINO REAL
TWO PALO ALTO SQUARE MENLO PARK, CALIFORNIA 94025
PALO ALTO, CALIFORNIA 94306 (650) 330-2200
(650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(2) FEE
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Common Stock, $0.0001 par
value....................... 9,200,000(1) $12.00 $110,400,000 $29,145.60(3)
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</TABLE>
(1) Includes 1,200,000 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
(3) $30,360 was paid in connection with the original filing on December 22,
1999.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 22, 2000.
8,000,000 Shares
NIKU CORPORATION LOGO
Niku Corporation
Common Stock
----------------------
This is an initial public offering of shares of common stock of Niku
Corporation. All of the 8,000,000 shares of common stock are being sold by us.
Prior to this offering, there has been no public market for our common
stock. Niku anticipates that the initial public offering price per share will be
between $10.00 and $12.00. Niku has applied for approval for quotation of its
common stock on the Nasdaq National Market under the symbol "NIKU."
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of our common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
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Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Niku.......................... $ $
</TABLE>
To the extent that the underwriters sell more than 8,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
1,200,000 shares from Niku at the initial public offering price, less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares on , 2000.
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
----------------------
Prospectus dated , 2000.
<PAGE> 3
[Description of graphics for inside front cover]
The graphic consists of three sets of screen shots for eNiku, xNiku and
iNiku. Each set consists of three individual screen shots overlapping one
another in different arrangements.
(a) eNiku Screen Shot - consists of a parent frame and two child frames,
one behind the parent on the left side and one in front of the
parent on the right side. Below the screen shots is the sentence
"Our ENIKU Internet software enables organizations to automate core
business processes such as management of resources, knowledge and
information on their corporater intranets, internal Internet-based
networks." At the top of each of the screen shots are navigational
buttons for Home, Engagements, Knowledge Store, Practice Management,
Resource Management, Sales & Marketing and Service Lines. On the
left side of each side of these screens is the Niku logo with
hyperlinks listed vertically below it.
(b) xNiku Screen Shot - consists of a parent frame and two child frames,
with the child frames in front of the left hand and right hand
corners of the parent frame. To the right of the screen shots is the
sentence "Our XNIKU Internet software allows organizations to
collaborate with customers, partners and suppliers using extranets,
private Internet-based networks reaching beyond the enterprise." At
the top of each of the screen shots are navigational buttons for
Home, Engagements, Knowledge Store, Practice Management, Resource
Management, Sales & Marketing and Service Lines. On the left side of
each screen is a vertical list of hyperlinks.
(c) iNiku Screen Shot - consists of a parent frame and two child frames,
with one child frame in the back of the parent on the left side and
the other child frame in front of the left hand corner of the parent
frame. To the left and above the screen shots is the sentence "Our
iNiku website enables small businesses and individual professionals
to access relevant content and services and to operate their
businesses online." At the top of each of the screen shots are two
sets of navigational buttons. The top set of navigational buttons
are for Help, Email, Account Info, Support, Feedback, Site Map and
Logout. The bottom set of navigational buttons are for Home, Do
Work, Find Work, Network, Services and Magazine. On the left side of
each screen is a vertical list of hyperlinks.
[Description of graphics on inside front cover gatefold]
The inside front cover gatefold contains two pages of graphics. The
graphic on the first page is entitled "A Common Platform for the Sourcing,
Management and Delivery of Professional Services." Directly below the title is
the sentence "Our eNiku, xNiku, and iNiku products are designed to be used in an
integrated fashion, with users in large enterprises collaborating with smaller
businesses and individual professionals." In the center of the page a circle
with the phrase "Niku Services Marketplace" inside of it. On the upper left side
of the circle, a cylindrical line connects the circle a depiction of a seven
story office building, which is labeled "Large Enterprises." To the left of the
office building depiction is the phrase "eNiku- Enterprises using corporate
intranets, internal Internet-based networks." On the lower left side of the
circle in the center of the page is a set of four cylindrical lines. The
uppermost cylindrical line connects the circle to a three story office building
labeled "Partners." The next cylindrical line is shorter in length than the top
cylindrical line and it connects the circle to a three story office building
labeled "Customers." The next cylindrical line is the same length as the first
one and it connects the circle to a depiction of a lap-top computer which is
labeled "Remote Users." The last cylindrical line is shorter in length than the
cylindrical line above it and connects the circle to a three story office
building labeled "Suppliers." This set of graphical depictions sit on top of a
map of the world. Below this set of four cylindrical lines is the phrase "xNiku
- - Partners, customers and suppliers connecting via extranets, private
Internet-based networks reaching beyond the enterprise." On the upper right side
of the circle in the center of the page is a set of three cylindrical lines. The
top and bottom cylindrical lines connect the circle to depictions of a lap-top
computer which is labeled "Individual Professionals." The cylindrical line in
the middle of the set is longer in length than the other two cylindrical lines
and it connects the circle to a depiction of a desktop computer labeled "Small
Businesses." Below this set of three cylindrical lines is the phrase "iNiku -
Individuals accessing an Internet website." The eNiku, xNiku and iNiku
depictions that surround the center circle are connected to each other by
double-sided arrows that arc around the center circle to form a larger circle.
The arrow connecting the eNiku set and xNiku set is labeled "Communication." The
arrow connecting the xNiku set and iNiku set is labeled "Community." The arrow
connecting the iNiku set and eNiku set is labeled "Collaboration." The Niku logo
is in the bottom left hand corner of the page. At the bottom right hand corner
are the sentences "The Niku Services Marketplace is designed to be a marketplace
for buyers and sellers of professional services. Individuals seeking work can
post profiles showing skills, certifications and experience. Organizations
seeking resources can post project specifications, requirements and terms.
Because users of eNiku, xNiku and iNiku are all working with Niku products, they
can easily participate in the Niku Services Marketplace."
[Insert Picture]
[Description of graphic on page 49]
This graphic is entitled "Niku Application Framework." Under the title is
a cloud-shaped object with the word "Browser" written in the middle of it. Below
the cloud shape is a large rectangle with several smaller horizontal rectangles
arranged top to bottom and two vertical rectangles towards the sides inside of
it. A small arrow points upwards from the outside of the top of the rectangle to
the cloud shape. Another small arrow points downwards from the inside of the box
to a smaller rectangle within the box which is labeled "FrontWorks." Directly
below and connected to this rectangle is a smaller rectangle labeled
"Application Modules." Directly below this rectangle is another rectangle of the
same size labeled "Niku Adaptable KnowledgeStore." Directly below this rectangle
are three small rectangles lined up from left to right. The rectangle on the
left is labeled "Relational Database Management System." The middle rectangle is
labeled "File System." The rectangle on the right is labeled "Search Engine."
From the left hand side of the inside of the large rectangle is a small arrow
pointing to the right that is directed towards a vertical rectangle labeled
"ImportWorks." From the right hand side of the inside of the large rectangle is
a small arrow pointing to the left that is directed towards a vertical rectangle
labeled "Datalink Adapters." On the left hand side of the graphic, on the
outside of the large rectangle, is a rectangle with arced edges. Inside this
rectangle are the words, in order from top to bottom, "Web," "E-mail," "Fax" and
"Other." On the right hand side of the graphic, on the outside of the large
rectangle, a small arrow points towards a rectangle with arced edges. Inside
this rectangle are the words, in order from top to bottom, "Enterprise Resource
Planning," "Document Management," "Groupware" and "Other."
<PAGE> 4
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our consolidated financial statements and
accompanying notes appearing elsewhere in this prospectus. Unless otherwise
indicated, all information contained in this prospectus assumes (1) no exercise
of the underwriters' over-allotment option, (2) the conversion of each
outstanding share of preferred stock into one share of common stock and (3) no
exercise of outstanding stock options or warrants.
NIKU
We provide Internet software products and an online marketplace for the
sourcing, management and delivery of professional services. Professional
services include consulting, financial services, medicine, law, engineering,
advertising and other industries in which knowledge and information, or
intellectual capital, are an important element of the services.
According to the U.S. Department of Commerce, the gross domestic product of
the professional services industry, including business, health, legal and
educational services, exceeded $900 billion in 1997. Unlike product-oriented
businesses, which produce finished goods from raw materials and component parts
and sell these goods on a per-item basis, professional services businesses
create information-based deliverables using human resources that are often
billed at time-based rates. As a result of these characteristics, professional
services businesses require sophisticated applications to manage knowledge and
information, including unstructured data and human resources. The market for
business-to-business electronic commerce for services is large and growing, with
Forrester Research estimating that it will increase from approximately $22
billion in 1999 to approximately $220 billion by 2003, representing a compound
annual growth rate of approximately 78%.
We offer a set of Internet software products, eNiku, xNiku and iNiku, which
are designed to automate the core business processes of professional services
organizations, professional services providers within enterprises, and small
businesses and individual professionals. eNiku enables organizations to manage
knowledge, human resources and projects, track time and expenses and analyze
business performance on their corporate "intranets," internal Internet-based
networks. xNiku enables organizations to extend the functions and features of
eNiku to business partners, customers and suppliers using corporate "extranets,"
private Internet-based networks reaching beyond the enterprise. iNiku, our
website for individual professionals and small businesses, allows users to gain
access to relevant content and services and operate their businesses over the
Internet. We have designed our products to be used in an integrated fashion. For
example, an organization using eNiku on its intranet could work with business
partners through its extranet with xNiku and supplement its resources with
contractors who are part of the iNiku community. The common technology linking
eNiku, xNiku and iNiku also allows users to easily participate in our Niku
Services Marketplace, a marketplace for buyers and sellers of professional
services.
We believe key benefits to users of our products and services include:
- significantly enhanced client service;
- substantially expanded revenue opportunities;
- increased profitability; and
- improved recruitment and retention of employees and contractors.
Our goal is to be the leading provider of Internet software products and
online marketplaces for the sourcing, management and delivery of professional
services in a number of professional services industries. Key elements of our
strategy to achieve this goal are as follows:
- target leading enterprise customers;
- enhance our iNiku website;
3
<PAGE> 5
- expand the Niku Services Marketplace;
- target additional professional services industries, including financial
services, medicine, law and advertising;
- pursue acquisitions of complementary businesses, products and
technologies; and
- expand our global operations in Europe and the Asia-Pacific region,
where we currently have approximately 25 employees.
An investment in our common stock involves risks which are described in the
section entitled "Risk Factors" on page 7 as well as elsewhere in this
prospectus. We have incurred net losses of $3.0 million for our fiscal year
ended January 31, 1999 and $13.5 million for the nine months ended October 31,
1999. As of October 31, 1999, we had an accumulated deficit of $16.6 million. We
expect to incur net losses for the foreseeable future. We have only recently
introduced the latest versions of our Internet software products. For the
foreseeable future, we expect that our revenues and operating results will
depend upon sales of licenses of our primary Internet software product, eNiku.
For the nine months ended October 31, 1999, we derived approximately 50% of our
revenues from three customers and we expect that for the foreseeable future our
revenues will continue to be concentrated in a relatively small number of
customers. Therefore, our operating results could suffer if we cannot market
eNiku successfully and obtain additional customers. We operate in a competitive
industry in which a number of companies offer products that provide some of the
functionality of our products. Upon completion of this offering, our officers
and directors will beneficially own approximately 39% of our outstanding common
stock. Other risks of an investment in our common stock include our limited
operating history, the potential for fluctuations in our operating results, the
long sales cycle for our products, our need to expand our sales channels, the
fact that our products have not been deployed on a large scale, the complexity
of implementation of our products for large customers and our ability to
effectively integrate recent acquisitions. Other risks also include risks
related to the Internet industry in which we operate and risks related to this
offering.
We were incorporated in Delaware in January 1998. In December 1999, we
acquired Proamics Corporation, a provider of project accounting,
time-and-expense and billing solutions for the professional services industry.
In January 2000, we acquired Legal Anywhere, Inc., a provider of Internet
collaboration software for the legal profession. Our principal executive offices
are located at 305 Main Street, Redwood City, California 94063. Our telephone
number at this location is (650) 298-4600. The information on our website does
not constitute a part of this prospectus. The Niku logo, Niku, eNiku, iNiku,
xNiku, Niku Adaptable KnowledgeStore, NAKS and Niku Services Marketplace are our
trademarks. All other brand names and trademarks appearing in this prospectus
are the property of their respective owners.
4
<PAGE> 6
THE OFFERING
Common stock offered....... 8,000,000 shares
Common stock to be
outstanding after the
offering................. 69,044,235
Use of proceeds............ For general corporate purposes, capital
expenditures and working capital. See "Use of
Proceeds."
Proposed Nasdaq National
Market symbol............ "NIKU"
The number of shares of our common stock to be outstanding after the
offering is based on the number of shares outstanding as of January 29, 2000.
The number of shares to be outstanding excludes as of January 29, 2000:
- 5,409,954 shares of our common stock subject to outstanding options and
warrants;
- 647,148 shares of our common stock to be available for future grant under
our stock plans; and
- 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.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
PRO FORMA
-------------------------
NINE
NINE MONTHS MONTHS
YEAR ENDED ENDED OCTOBER 31, YEAR ENDED ENDED
JANUARY 31, ------------------ JANUARY 31, OCTOBER 31,
1999 1998 1999 1999 1999
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ $ 15 $ -- $ 2,976 $ 10,933 $ 12,332
------- ------- -------- -------- --------
Gross profit............................ 11 -- 2,373 5,772 6,287
------- ------- -------- -------- --------
Operating expenses...................... 3,161 1,721 16,084 25,439 36,158
------- ------- -------- -------- --------
Operating loss.......................... (3,150) (1,721) (13,711) (19,667) (29,871)
------- ------- -------- -------- --------
Net loss................................ $(3,020) $(1,665) $(13,533) $(20,028) $(29,889)
Basic and diluted net loss per share.... $ (0.62) $ (0.35) $ (2.31) $ (1.27) $ (1.79)
Shares used in computing basic and
diluted net loss per share............ 4,882 4,800 5,871 15,729 16,718
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 19,329 $ 63,323 $144,163
Working capital............................................. 10,323 53,619 134,459
Total assets................................................ 28,738 136,364 217,204
Long-term obligations, less current portion................. 968 3,341 3,341
Redeemable convertible preferred stock...................... 28,580 100,966 --
Total stockholders' equity (deficit)........................ (13,828) 14,273 196,079
</TABLE>
See note 1 of notes to our financial statements for a description of the
method that we used to compute the net loss per share amounts. Niku's operations
for the period from January 8, 1998 (inception) through January 31, 1998, were
not significant and are included in Niku's results of operations for the year
ended January 31, 1999.
The unaudited pro forma combined statement of operations data give effect
to our acquisition of Proamics Corporation in December 1999 and Legal Anywhere
in January 2000 as if the acquisitions had occurred on February 1, 1998 and do
not assume the conversion of the shares of our outstanding preferred stock into
common stock upon the closing of this offering. The unaudited pro forma combined
balance sheet data give effect to (1) our acquisition of Proamics, (2) our
acquisition of Legal Anywhere and (3) the sale of 7,998,012 shares of our Series
D preferred stock in November 1999 for proceeds of approximately $39.9 million
as if the acquisitions and sale each occurred on October 31, 1999. The pro forma
as adjusted balance sheet data give effect to the conversion of all outstanding
shares of our preferred stock into common stock upon the closing of this
offering and the sale of the 8,000,000 shares of common stock that we are
offering under this prospectus, at an assumed initial public offering price of
$11.00 per share, and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses. See "Capitalization."
Pro forma net loss for the nine months ended October 31, 1999 excludes an
extraordinary gain on early extinguishment of long-term debt of $2.4 million
recorded by Proamics.
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock.
The occurrence of any of the following risks could materially and adversely
affect our business, financial condition and operating results. In this case,
the trading price of our common stock could decline and you might lose all or
part of your investment.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY STAGE COMPANY WHICH MAKES IT DIFFICULT TO EVALUATE OUR CURRENT
BUSINESS
We were incorporated in January 1998 and have a limited operating history.
We began licensing our Internet software in December 1998 and introduced the
latest version of this software and our iNiku website in November 1999.
Therefore, we have only a limited operating history upon which to base an
evaluation of our current business and prospects.
DUE TO OUR LIMITED OPERATING HISTORY, IT IS DIFFICULT TO PREDICT OUR FUTURE
OPERATING RESULTS
Due to our limited operating history, it is difficult or impossible for us
to predict future results of operations. For example, we cannot forecast
operating expenses based on our historical results because we have recently
introduced the latest version of iNiku, acquired Proamics Corporation, or
Proamics, and Legal Anywhere, Inc., or Legal Anywhere, and begun to pursue
additional markets, and we are required to forecast expenses in part based on
future revenue projections.
WE HAVE INCURRED LOSSES DURING OUR OPERATING HISTORY AND WE EXPECT TO INCUR
FUTURE LOSSES FOR THE FORESEEABLE FUTURE
We have experienced operating losses in each quarterly and annual period
since we were formed and we expect to incur significant losses in the future. We
incurred net losses of $3.0 million for the year ended January 31, 1999 and
$13.5 million for the nine months ended October 31, 1999. As of October 31,
1999, we had an accumulated deficit of $16.6 million. Proamics has never been
profitable, and as of September 30, 1999, it had an accumulated deficit of $13.4
million. Legal Anywhere has never been profitable and as of December 31, 1999,
it had an accumulated deficit of $1.7 million. We expect to significantly
increase our research and development, sales and marketing, and general and
administrative expenses, in part as a result of our recent acquisitions. In
addition, as a result of our acquisitions of Proamics and Legal Anywhere, we
will record approximately $57.9 million of goodwill and other intangible assets,
which will result in non-cash charges as these assets are amortized over the
next three to five years. Further, we will incur substantial stock-based
compensation expense in future periods, which represents non-cash charges
incurred as a result of the issuance of stock and stock options prior to this
offering. As a result of these factors, we will need to significantly increase
our revenues to achieve and maintain profitability. We may not be able to
sustain our recent revenue growth rates. In fact, we may not have any revenue
growth, and our revenues could decline. Our failure to significantly increase
our revenues would seriously harm our business and operating results.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND IF
OUR FUTURE RESULTS ARE BELOW THE EXPECTATIONS OF INVESTORS, THE PRICE OF OUR
COMMON STOCK WILL DECLINE
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sales and marketing expenses to promote our
products and services. Our quarterly operating results are likely to be
particularly affected by the number of customers licensing our products during
any quarter as well as sales and marketing and other expenses for a particular
quarterly period.
7
<PAGE> 9
Other factors that could affect our quarterly operating results include:
- our ability to attract new customers, including Proamics' customers, and
retain current customers;
- the announcement or introduction of new products or services by us or our
competitors;
- changes in the pricing of our products and services or those of our
competitors;
- variability in the mix of our products and services revenues in any
quarter; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business.
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in some
future periods, our results of operations may be below the expectations of
investors. If this occurs, the price of our common stock will decline.
For a discussion of our quarterly operating results, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations."
WE EXPECT TO FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO FLUCTUATE
We expect to experience seasonality in the sales of our products and
services. For example, we anticipate that sales may be lower in our first fiscal
quarter due to patterns in the capital budgeting and purchasing cycles of our
current and prospective customers as well as due to our sales commission
structure. We also expect that sales may decline during summer months,
particularly in European markets. These seasonal variations in our sales may
lead to fluctuations in our quarterly operating results.
OUR PRODUCTS HAVE A LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO PREDICT OUR
QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY SIGNIFICANTLY
The sales cycle for our products is long, typically from three to six
months, making it difficult to predict the quarter in which we may recognize
revenue from a sale, if at all. Our products often are part of a significant
strategic decision by our customers regarding their information systems.
Accordingly, the decision to license our products typically requires significant
pre-purchase evaluation. We spend substantial time educating and providing
information to prospective customers regarding the use and benefits of our
products. During this evaluation period, we may expend significant funds in
sales and marketing efforts.
Our lengthy sales cycle may cause license revenues and operating results to
vary significantly from period to period. If anticipated sales from a specific
customer for a particular quarter are not realized in that quarter, our
operating results may vary significantly.
IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, OUR ABILITY TO
INCREASE REVENUES WILL BE LIMITED
In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
both our direct and indirect sales channels. Our failure to do so could harm our
ability to increase revenues. We currently receive substantially all of our
revenues from direct sales, but intend to increase sales through indirect sales
channels in the future. We need to expand our direct sales force by hiring
additional salespersons and sales management. We are seeking to hire at least 40
more of these types of personnel in the current fiscal year. There is strong
competition for qualified sales personnel in our business, and we may not be
able to attract and retain sufficient new sales personnel to expand our
operations.
We intend to derive some of our revenues from our indirect sales channels,
which involves selling our software through value added resellers and other
third parties. Currently, five of these
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other companies market our products. These resellers offer our software products
to their customers together with consulting and implementation services or
integrate our software solutions with other software. We also intend to offer
our Internet software through application service providers, who install our
software on their own computer servers and charge their customers for access to
our software. We are seeking to expand our indirect sales channel to involve at
least 20 relationships with third parties in the current fiscal year and we may
not be able to do so successfully.
TO DATE, CUSTOMERS HAVE NOT DEPLOYED OUR PRODUCTS ON A LARGE-SCALE AND WE MAY
EXPERIENCE CUSTOMER DISSATISFACTION AND LOST SALES IF OUR PRODUCTS DO NOT
ACCOMMODATE LARGE SCALE DEPLOYMENTS
Our software must be able to accommodate substantial increases in the
number of people using our products. To date, however, only eight of our
customers have deployed our Internet software. Thus, our products have not been
tested in the context of large-scale customer implementations. If our customers
cannot successfully implement large-scale deployments, or if they determine that
our products cannot accommodate large-scale deployments, we could lose some or
all of our existing customers and be unable to obtain new customers.
IMPLEMENTATION OF OUR PRODUCTS BY LARGE CUSTOMERS MAY BE COMPLEX AND CUSTOMERS
COULD BECOME DISSATISFIED IF IMPLEMENTATION OF OUR PRODUCTS PROVES DIFFICULT,
COSTLY OR TIME-CONSUMING
Our products must integrate with many existing computer systems and
software programs used by our customers. Integrating with many other computer
systems and software programs can be complex, time-consuming and expensive and
cause delays in the deployment of our products. Because we are one of the first
companies to offer products designed for professional services automation, many
customers will be facing these integration issues for the first time in the
context of professional services automation software. Customers could become
dissatisfied with our products if implementations prove to be difficult, costly
or time-consuming.
WE EXPECT TO DEPEND ON LICENSES OF OUR ENIKU INTERNET SOFTWARE PRODUCT FOR
SUBSTANTIALLY ALL OF OUR REVENUES FOR THE FORESEEABLE FUTURE
Revenues from licenses of our Internet software products, particularly
eNiku products, and related services revenues accounted for all of our revenues
for our fiscal year ended January 31, 1999, and for the nine months ended
October 31, 1999. We anticipate that revenues from the license of these products
and related services revenues, as opposed to transactional and other revenues
from iNiku and the Niku Services Marketplace, will continue to constitute the
vast majority of our revenues for the foreseeable future. Consequently, a
decline in the price of or demand for these products and related services, or
their failure to achieve broader market acceptance, would seriously harm our
business.
WE MAY NOT BE ABLE TO SELL OUR NIKU PRODUCTS TO PROAMICS' CUSTOMERS OR
EFFECTIVELY UTILIZE THE PROAMICS PROFESSIONAL SERVICES PERSONNEL
We acquired Proamics in December 1999. For the nine months ended October
31, 1999, Proamics' revenues of $9.2 million accounted for 75% of our total pro
forma revenues of $12.3 million. Proamics revenue primarily consisted of $2.5
million of software licenses and approximately $6.7 million of services.
However, we do not intend to separately market the Proamics product line.
Although we plan to market Niku products incorporating functionality contained
in Proamics' products to Proamics' customers, we do not know whether any
Proamics' customer will purchase any Niku products. In addition, a large portion
of Proamics' business consisted of software implementation services. If we are
unable to successfully market our products to Proamics' customers or effectively
utilize the Proamics professional services personnel, our business will be
harmed and we may not meet investors' expectations, either of
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which could adversely affect our operating results and cause a drop in the
market price of our common stock.
WE HAVE SOLD OUR PRODUCTS TO COMPANIES AS PART OF BROADER BUSINESS RELATIONSHIPS
AND REVENUES FROM THESE CONTRACTS MAY NOT BE INDICATIVE OF FUTURE REVENUES
We have licensed our products to companies from whom we have purchased
products and services under separate arrangements. These companies generally
consist of (1) companies to whom we license our Internet software and from whom
we receive software to use in our business and (2) members of our Niku Partners
Network.
During the nine months ended October 31, 1999, we derived approximately
$1.2 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 $574,000 of our
total revenues for the nine months ended October 31, 1999. 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 nine months ended October 31, 1999, three Niku customers,
USinternetworking or USi, Sybase and SalesLogix, accounted for 18%, 22% and 10%
of Niku's total revenues. In addition, each of USi and Sybase, had an officer
and/or director serving on our board of directors. We expect to derive a
significant portion of our revenues from a relatively small number of customers
for the foreseeable future. As a result, if we lose a major customer, our
quarterly and annual results of operations could be harmed. We cannot be certain
that customers that have accounted for significant revenues in past periods,
individually or as a group, will continue to purchase products or renew our
services in any future period.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS NEWLY EMERGING AND CUSTOMERS MAY NOT
ACCEPT OUR PRODUCTS AND SERVICES
The market for professional services automation software products and
services is newly emerging. Services businesses have not traditionally automated
the management of their business processes. We cannot be certain that this
market will continue to develop and grow or that companies will elect to utilize
our products and services rather than attempt to develop applications internally
or through other sources. In addition, the use of the Internet, as well as
corporate intranets and extranets, 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
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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.
Defects or errors could also result in tort or warranty claims. Although we
attempt to reduce the risk of losses resulting from any claims through warranty
disclaimers and liability limitation clauses in our customer agreements, these
contractual provisions may not be enforceable in every instance. Furthermore,
although we maintain errors and omissions insurance, this insurance coverage may
not adequately cover us for claims. If a court refused to enforce the
liability-limiting provisions of our contracts for any reason, or if liabilities
arose that were not contractually limited or adequately covered by insurance,
our business could be harmed.
THE LATEST VERSION OF OUR INIKU WEBSITE WAS ONLY RECENTLY INTRODUCED, IS AT AN
EARLY STAGE OF DEVELOPMENT AND MAY NOT ACHIEVE MARKET ACCEPTANCE
We introduced the latest version of our iNiku website in November 1999.
Broad and timely acceptance of iNiku is an important part of our success. We may
not be able to attract a sufficient number of users to iNiku and therefore we
may never derive significant revenues from iNiku.
IF WE CANNOT BUILD A CRITICAL MASS OF BUYERS AND SELLERS FOR OUR NIKU SERVICES
MARKETPLACE, THE MARKETPLACE WILL NOT BE SUCCESSFUL
The success of the Niku Services Marketplace depends in large part on our
ability to build a critical mass of buyers and sellers of services for our Niku
Services Marketplace. To attract sellers of services, we must build a critical
mass of buyers interested in obtaining services. However, buyers must perceive
value in the Niku Services Marketplace, which, in part, depends upon the breadth
of the offerings from sellers of services. If we are unable to increase the
number of buyers and sellers of services, the Niku Services Marketplace will not
be successful.
WE HAVE FOCUSED ON THE IT CONSULTING INDUSTRY AND OUR EFFORTS TO EXPAND SALES OF
OUR PRODUCTS AND SERVICES TO OTHER SERVICE INDUSTRIES MAY NOT SUCCEED
To date, our products and services have been targeted for the information
technology, or IT, consulting industry and our primary product has been eNiku
for IT Consulting. However, we intend to develop and market our products and
services in other professional services industries. For example, with our
acquisition of Legal Anywhere in January 2000, we began to offer products to the
legal profession. Businesses may be less likely to use our products and services
outside of the IT consulting industry. Even if they do, we may need to develop
additional expertise or industry-specific knowledge which we may not be able to
do in a timely manner. Therefore, we may not succeed in marketing our products
and services for use outside of the IT consulting industry. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new or enhanced products and services for new
professional services industries in the future. In addition, those products and
services may not meet the requirements of the marketplace in these new markets
and may not achieve market acceptance.
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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. We believe that the
longest period of time our iNiku website has been unavailable due to outages was
approximately five hours in a month. The latest outage occurred in December
1999. Any system failure that causes an interruption in service or a decrease in
responsiveness of our Internet-based services, if sustained or repeated, could
harm our reputation and the attractiveness of our brand name.
WE DEPEND ON DISTRIBUTION, MARKETING AND TECHNOLOGY RELATIONSHIPS AND IF OUR
CURRENT AND FUTURE RELATIONSHIPS ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE HARMED
We rely on distribution, marketing and technology relationships with a
variety of companies. These distribution, marketing and technology relationships
include relationships with:
- the Niku Partners Network of consulting firms;
- operators of high traffic 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.
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MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES MAY SUFFER IF WE ARE UNABLE TO
INCORPORATE THE RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY INTO OUR PRODUCTS
Rapidly changing technology and standards may impede market acceptance of
our products and services. Our current products and services have been designed
based upon currently prevailing technology. If new technologies emerge that are
incompatible with our products, our key products and services may become
obsolete and our existing and potential customers may seek alternatives to our
products and services. We may not be able to quickly adapt to any new Internet
technology.
Additionally, we have designed our products to work with databases such as
Oracle Enterprise Server and Microsoft SQL Server and operating systems such as
Windows NT and Sun Solaris. Any changes to those databases or systems, or
increasing popularity of other databases or systems, could require us to modify
our products or services and could cause us to delay releasing future products
and enhancements. As a result, uncertainties related to the timing and nature of
new product announcements, introductions or modifications by vendors or
operating systems, databases, web servers and other enterprise and
Internet-based applications could delay our product development, increase our
product development expenses or cause customers to delay evaluation, purchase
and deployment of our products.
BECAUSE WE HAVE EXPANDED OUR OPERATIONS, OUR SUCCESS WILL DEPEND ON OUR ABILITY
TO MANAGE OUR EXPECTED GROWTH, IMPROVE OUR EXISTING SYSTEMS AND IMPLEMENT NEW
SYSTEMS, PROCEDURES AND CONTROLS
We have rapidly and significantly expanded our operations and expect to
continue to expand our operations. This growth has placed, and is expected to
continue to place, a significant strain on our managerial, operational,
financial and other resources. For example, we have grown to approximately 400
employees as of January 29, 2000 from less than 50 employees as of January 31,
1999. We are seeking to hire at least an additional 200 employees in the current
fiscal year. Our ability to compete effectively and to manage future expansion
of our operations, if any, will require us to continue to improve our financial
and management controls, reporting systems and procedures on a timely basis. We
expect to hire additional new employees to support our business and to implement
and integrate new accounting and control systems. We may not be able to manage
our growth efficiently.
THE PROAMICS AND LEGAL ANYWHERE ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS
We acquired Proamics in December 1999 and Legal Anywhere in January 2000.
The acquisitions of Proamics and Legal Anywhere as well as future acquisitions
could create risks for us, including:
- amortization of expenses related to goodwill and other intangible assets,
such as the approximately $47.8 million relating to our acquisition of
Proamics and the approximately $10.1 million relating to our acquisition
of Legal Anywhere;
- difficulties in assimilating the acquired personnel, operations,
technologies or products of Proamics or Legal Anywhere;
- our ability to effectively market and sell our products to Proamics'
customers;
- unanticipated costs associated with the acquisitions;
- the need to manage geographically-dispersed operations, such as Proamics'
operations in Illinois and Legal Anywhere's operations in Oregon;
- diversion of management's attention from other business concerns;
- the inability to retain the acquired employees of Proamics or Legal
Anywhere; and
- adverse effects on our, Proamics' or Legal Anywhere's existing business
relationships.
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If we fail to effectively integrate Proamics or Legal Anywhere, we may face
disruptions to our business activities and our business may be seriously harmed.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT MAY BE DIFFICULT FOR US TO INTEGRATE
OR OTHERWISE HARM OUR OPERATING RESULTS
As part of our business strategy, we may make acquisitions of complementary
businesses, products or technologies. If we acquire a company, we may face
issues which similar to those we are facing with respect to our acquisitions of
Proamics and Legal Anywhere. If we experience difficulties in assimilating
acquired businesses, products or technologies, our ongoing business could be
disrupted, our management and employees could be distracted and we could incur
increased expenses. Furthermore, we may issue equity securities to pay for any
future acquisitions, which could be dilutive to our existing stockholders. We
may also incur debt or assume unknown liabilities in connection with
acquisitions.
THERE IS COMPETITION IN OUR MARKET, WHICH COULD MAKE IT DIFFICULT TO ATTRACT
CUSTOMERS, CAUSE US TO REDUCE PRICES AND RESULT IN REDUCED GROSS MARGINS OR LOSS
OF MARKET SHARE
The market for our products and services is competitive, dynamic and
subject to frequent technological changes. The intensity of competition and the
pace of change are expected to increase in the future. Our products and services
primarily compete with solutions that have been developed by potential
customers' in-house developers and IT departments. In addition, we face
competition from a number of competitors offering products and services that
vary in functionality. These include:
- developers of professional services automation software and related
Internet-based applications;
- providers of hosted software for IT consultants;
- operators of Internet-based job boards;
- developers of project management software; and
- enterprise resource planning software companies that may decide to
develop software or applications for the professional services industry.
We believe that there are a number of companies that offer products that
provide some of the functionality of our products. However we do not believe any
one company has a dominant position in our market as a whole.
We expect additional competition from other established and emerging
companies as the professional services automation market continues to develop.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business. We may not be able to compete successfully against current and future
competitors.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS
Our future success depends upon the continued service of our executive
officers, who are listed in the section entitled "Management," particularly
Farzad Dibachi, our chief executive officer. None of our executive officers is
bound by an employment agreement for any specific term or which prevents them
from terminating their employment at any time. Our business would be seriously
harmed if we lost the services of one or more of our executive officers or if
one or more of them decide to join a competitor or otherwise compete directly or
indirectly with us.
IN ORDER TO GROW OUR BUSINESS, WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL AT
A TIME WHEN COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE
We are seeking to hire at least an additional 200 employees in the current
fiscal year. We may be unable to attract, assimilate or retain highly qualified
employees. In particular, we believe
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that we will need to hire additional engineering personnel. We have from time to
time in the past experienced, and we expect in the future to continue to
experience, difficulty in hiring highly skilled employees with appropriate
qualifications as a result of our rapid growth and expansion. Attracting and
retaining qualified personnel with experience in the software and Internet
industries is an additional challenge for us. There is a shortage of qualified
technical personnel and competition for this personnel is intense in our
industry, particularly in the San Francisco Bay Area, where our headquarters is
located. We may not be able to attract, assimilate or retain and motivate new
personnel.
OUR INCREASED INTERNATIONAL ACTIVITIES MAY NOT RESULT IN INCREASED REVENUES
We only recently expanded our operations into Canada, the United Kingdom,
The Netherlands, Germany and Australia. In the future, we intend to expand our
operations into other areas, particularly in the Asia-Pacific region. We believe
we must expand the sales of our products and services outside the United States
and hire additional international personnel. In connection with this expansion,
we also will need to develop internationalized versions of our products.
Therefore, we expect to commit significant resources to expand our international
sales, marketing and development. We may not be successful in marketing our
products and services to customers in markets outside the United States, where
adoption of the Internet and electronic commerce may evolve slowly or may not
evolve at all.
INCREASED INTERNATIONAL ACTIVITIES WILL EXPOSE US TO ADDITIONAL OPERATIONAL
CHALLENGES THAT WE MIGHT NOT OTHERWISE FACE
If we succeed in increasing our international activities, we will be
exposed to additional operational challenges that we would not otherwise face if
we conducted our operations only in the United States. These include:
- currency exchange rate fluctuations, particularly if we sell our products
in denominations other than U.S. dollars;
- seasonal fluctuations in purchasing patterns in other countries,
particularly declining sales during summer months in European markets;
- tariffs, export controls and other trade barriers;
- difficulties in collecting accounts receivable in foreign countries;
- the burdens of complying with a wide variety of foreign laws;
- reduced protection for intellectual property rights in some countries,
particularly in Asia; and
- the need to develop internationalized versions of our products.
WE MIGHT NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
We regard substantial elements of our products and services as proprietary
and attempt to protect them by relying on patent, trademark, service mark,
copyright and trade secret laws and restrictions, as well as confidentiality
procedures and contractual provisions. Any steps we take to protect our
intellectual property may be inadequate, time consuming and expensive.
Furthermore, despite our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property, which could harm
our business.
We have applied for four U.S. patents. It is possible that no patents will
issue from our currently pending patent applications. Moreover, new patent
applications may not result in issued patents and may not provide us with any
competitive advantages over, or may be challenged by, third parties.
We have applied for registration of our Niku, iNiku and NAKS trademarks
with the U.S. Patent and Trademark Office. We have not applied for registration
of our logo or our eNiku, xNiku or Niku Services Marketplace trademarks.
Although we rely on copyright laws with respect
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to our software, we have not made any copyright registration with any government
entity with respect to our software.
Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in software or Internet-related
industries are uncertain and still evolving, and the future viability or value
of any of our intellectual property rights is uncertain. Effective trademark,
copyright and trade secret protection may not be available in every country in
which our products are distributed or made available. Furthermore, our
competitors may independently develop similar technologies that substantially
limit the value of our intellectual property or design around patents issued to
us.
Substantially all of our iNiku users' usage of our services is governed by
Internet-based license agreements, rather than by means of a formal, written
contract. Users "click" on a dialog box and are deemed to agree to the terms and
conditions that are posted on iNiku, and our relationship with these customers
is then governed by these terms and conditions. There is a possibility that a
court, arbitrator or regulatory body could deem this type of agreement to be
invalid or determine that the terms and conditions governing the agreement do
not fully protect our intellectual property rights.
THIRD PARTIES MIGHT BRING INFRINGEMENT CLAIMS AGAINST US OR OUR THIRD-PARTY
SUPPLIERS THAT COULD HARM OUR BUSINESS
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in our
software and Internet industries. We could become subject to intellectual
property infringement claims as the number of our competitors grows and our
products and services overlap with competitive offerings. These claims, even if
not meritorious, could be expensive and divert management's attention from
operating our company. If we become liable to third parties for infringing their
intellectual property rights, we could be required to pay a substantial damage
award and to develop noninfringing technology, obtain a license or cease selling
the products that contain the infringing intellectual property. We may be unable
to develop noninfringing technology or obtain a license on commercially
reasonable terms, if at all.
In addition, as part of our product licenses, we agree to indemnify our
customers against claims that our products infringe upon the intellectual
property rights of others. We could incur substantial costs in defending
ourselves and our customers against infringement claims. In the event of a claim
of infringement, we and our customers may be required to obtain one or more
licenses from third parties. We cannot assure you that we or our customers could
obtain necessary licenses from third parties at a reasonable cost, or at all.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS
We may need to raise additional funds in order to fund more rapid
expansion, expand our marketing activities, develop new or enhance existing
services or products, respond to competitive pressures or acquire complementary
businesses, products or technologies. We may also need to raise funds in the
future to meet our working capital needs. Additional financing may not be
available on terms favorable to us, or at all. If we issue additional equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of the
then existing holders of our common stock.
OUR BUSINESS MIGHT BE HARMED IF THE SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT
OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING PATTERNS AS A
RESULT OF THE YEAR 2000 PROBLEM
Although January 1, 2000 has occurred, our information technology systems
could be impaired or cease to operate due to the year 2000 problem.
Additionally, we rely on technology supplied by third parties. These third
parties may experience year 2000 related problems. Any
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year 2000 problems experienced by us or any of these third parties could harm
our business. Additionally, the Internet could face serious disruption arising
from the year 2000 problem.
Further, any year 2000 problems with respect to our products could lead to
claims from our customers asserting liability, including liability for breach of
warranties related to our products, which could result in large settlements or
judgments against us.
RISKS RELATED TO THE INTERNET INDUSTRY
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE ADOPTION OF THE INTERNET FOR
ELECTRONIC COMMERCE AND COMMUNICATIONS
Our business is based on providing software for the sourcing, management
and delivery of professional services using the Internet. Therefore, in order
for our business to be successful, the Internet must be widely adopted, in a
timely manner, as a means of electronic commerce and communication relating to
professional services. Because electronic commerce and 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
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misappropriate proprietary, confidential customer information or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information.
NEW TAX TREATMENT OF COMPANIES ENGAGED IN INTERNET COMMERCE MAY ADVERSELY AFFECT
THE INTERNET INDUSTRY
Tax authorities on the international, federal, state and local levels are
currently reviewing the appropriate tax treatment of companies engaged in
Internet commerce. New state tax regulations may subject companies engaged in
electronic commerce to additional state sales, income and other taxes. A
recently passed federal law places a temporary moratorium on certain types of
taxation on electronic commerce. We cannot predict the effect of current
attempts to impose sales, income or other taxes on commerce over the Internet;
although, if imposed, these taxes would likely increase our cost of doing
business.
RISK RELATED TO THIS OFFERING
OUR OFFICERS, DIRECTORS AND OTHER EXISTING STOCKHOLDERS WILL OWN APPROXIMATELY
59% OF OUR VOTING STOCK AFTER THIS OFFERING AND WILL BE ABLE TO CONTROL US
As of January 29, 2000, our officers, directors and 5% or greater
stockholders beneficially owned or controlled, directly or indirectly,
40,998,318 shares of our capital stock, which in the aggregate represented
approximately 67.2% of the outstanding shares of our common stock on an as
converted to common stock basis. After this offering and assuming no additional
issuances of common stock, our officers, directors and 5% or greater
stockholders will beneficially own or control, directly or indirectly,
approximately 59.4% of the outstanding shares of our common stock. As a result,
if these persons act together, they will have the ability to influence all
matters submitted to our stockholders for approval, including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our assets. This ability to exercise influence over all
matters requiring stockholder approval could prevent or significantly delay
another company or person from acquiring or merging with us.
THE MARKET PRICE FOR OUR COMMON STOCK, LIKE OTHER TECHNOLOGY STOCKS, MIGHT BE
VOLATILE AND COULD RESULT IN A DECLINE IN THE VALUE OF YOUR INVESTMENT
We believe that the market price of our common stock, like other
early-stage Internet-related companies, could be volatile. The value of your
investment in our common stock could decline due to the impact of any of the
following factors upon the market price of our common stock:
- variations in our quarterly operating results;
- announcements of new product or service offerings by us or our
competitors;
- announcement of new customer relationships by us or our competitors;
- changes in market valuations of Internet-related companies;
- additions to, or departures of, our executive officers; and
- conditions and trends in the Internet and electronic commerce industries.
Further, the stock markets, particularly the Nasdaq National Market on
which we have applied to have our common stock listed, have experienced
substantial price and volume fluctuations. These fluctuations have particularly
affected the market prices of equity securities of many technology and
Internet-related companies and have often been unrelated or disproportionate to
the operating performance of those companies. The trading prices of many
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<PAGE> 20
technology companies' stocks are at or near historical highs. These high trading
prices may not be sustained.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
Sales of a large number of shares of our common stock in the market after
this offering, or the belief that these sales could occur, could cause a drop in
the market price of our common stock. Upon completion of this offering, we will
have outstanding 69,044,235 shares of common stock. All of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless the shares are purchased
by our "affiliates," as that term is defined under the Securities Act. The
remaining 61,044,235 shares of common stock outstanding upon completion of this
offering will be "restricted securities," as that term is defined under Rule 144
of the Securities Act. Of these shares:
- 40,722,293 shares will become eligible for resale beginning 180 days
after the date of this prospectus, as a result of the expiration of
lock-up agreements with the underwriters 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 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. See "Shares Eligible For Future Sale."
PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DELAY OR PREVENT A TAKEOVER OF US, EVEN IF DOING SO WOULD BENEFIT OUR
STOCKHOLDERS
Provisions of Delaware law, our certificate of incorporation and bylaws
could have the effect of delaying or preventing a third party from acquiring us,
even if a change in control would be beneficial to our stockholders. These
provisions include:
- authorizing the issuance of preferred stock without stockholder approval;
- providing for a classified board of directors with staggered, three year
terms;
- prohibiting cumulative voting in the election of directors;
- requiring two-thirds of the outstanding shares to approve amendments to
some provisions of our certificate of incorporation and bylaws;
- requiring a majority of the stockholders to call stockholders meetings;
and
- prohibiting stockholder actions by written consent.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION FROM THIS
OFFERING
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing stock in this offering will experience
an immediate dilution in the net tangible book value of the common stock of
$9.04 per share, based on the number of outstanding shares as of October 31,
1999, assuming conversion of all outstanding shares of our preferred stock into
our common stock, and an assumed initial public offering price of $11.00 per
share. On a pro forma basis, after taking into account our acquisitions of
Proamics and Legal Anywhere, investors
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<PAGE> 21
purchasing stock in this offering will experience an immediate dilution in the
net tangible book value of the common stock of $9.33 per share. In the past, we
issued options to acquire our common stock at prices significantly below the
initial offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering.
MANAGEMENT DOES NOT HAVE A SPECIFIC PLAN FOR USING THE PROCEEDS OF THIS OFFERING
AND MIGHT APPLY THE NET PROCEEDS FROM THIS OFFERING TO USES THAT DO NOT INCREASE
OUR OPERATING RESULTS OR MARKET VALUE
The net proceeds from the sale of our common stock in this offering will be
added to our general working capital. We intend to spend at least $70.0 million
in the current fiscal year for general and administrative expenses, sales and
marketing expenses and research and development activities. We anticipate that
we will fund these activities from our existing cash, which was approximately
$19.3 million at October 31, 1999, the approximately $39.9 million of proceeds
from our November 1999 preferred stock financing and proceeds from this
offering. Assuming an initial public offering price of $11.00 per share, we
expect that we will have net proceeds of approximately $80.8 million from this
offering. Despite our current estimates, the actual allocations of our proceeds
could change significantly in the future. Therefore, we cannot specify with
certainty how we will use these proceeds. Consequently, our management will have
broad discretion with respect to the application of the proceeds from this
offering, and you will not have the opportunity, as part of your investment in
our common stock, to assess whether the proceeds are being used appropriately.
The net proceeds may be used for corporate purposes that do not increase our
operating results or market value. Pending application of the proceeds, they
might be placed in investments that do not produce income or that lose value.
INVESTORS SHOULD NOT EXPECT TO RECEIVE DIVIDENDS
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. In
addition, our loan agreements prohibit us from paying cash dividends without the
consent of our lenders. Therefore, investors should not expect us to declare
dividends on our common stock.
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<PAGE> 22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks" and "estimates," and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this prospectus. Except as required by law, we undertake no obligation
to update any forward-looking statement, whether as a result of new information,
future events or otherwise.
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<PAGE> 23
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 8,000,000 shares of
common stock that we are offering will be approximately $80.8 million, at an
assumed initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $93.1 million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to enhance our ability to
acquire other businesses, products or technologies and to facilitate future
access to public equity markets. We intend to use the net proceeds of this
offering, together with our cash on hand and the approximately $39.9 million of
proceeds from our November 1999 preferred stock financing, to fund our
operations, including at least $10.0 million for general and administrative
expenses, primarily to support increased personnel, $40.0 million for sales and
marketing, primarily to support increased personnel and promotional activities,
and $20.0 million for research and development activities, primarily to support
increased personnel. We anticipate that the remainder of the proceeds will be
used for working capital purposes. We may also use a portion of the net proceeds
from this offering to acquire or invest in businesses, products or technologies
that are complementary to our business. We currently have no commitments or
agreements with respect to any future acquisitions or investments. We have not
determined the amounts we plan to spend on any of the uses described above or
the timing of these expenditures. Pending our use of the net proceeds, we intend
to invest them in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. In
addition, our loan agreements prohibit us from paying cash dividends without the
consent of the lenders.
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<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (1) the issuance of 3,501,938 shares of
our common stock and 6,491,203 shares of our Series D preferred stock in
connection with our acquisition of Proamics in December 1999, (2) the
sale of 7,998,012 shares of our Series D preferred stock in November 1999
for aggregate proceeds of approximately $39.9 million and (3) the
issuance of 853,689 shares of our common stock in connection with our
acquisition of Legal Anywhere; and
- on a pro forma as adjusted basis to reflect the conversion of all
outstanding shares of our preferred stock into our common stock upon the
closing of this offering and the sale of our common stock in this
offering, at an assumed initial public offering price of $11.00 per
share, after deducting estimated underwriting discounts and commissions
and our estimated offering expenses.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations.................... $ 5,502 $ 6,388 $ 6,388
======== ======== ========
Long-term obligations, less current portion................. $ 968 $ 3,341 $ 3,341
-------- -------- --------
Redeemable convertible preferred stock and warrants, $0.0001
par value, 34,272,843 shares authorized, 33,130,282 shares
issued and outstanding, actual; 51,910,282 shares
authorized, 47,619,497 shares issued and outstanding, pro
forma; no shares authorized, issued or outstanding, pro
forma as adjusted......................................... 28,580 100,966 --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; no shares authorized,
issued or outstanding, actual and pro forma; 10,000,000
shares authorized no shares issued or outstanding, pro
forma as adjusted....................................... -- -- --
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 7,106,118 shares issued and outstanding,
actual; 100,000,000 shares authorized, 11,461,745 shares
issued and outstanding, pro forma; 250,000,000 shares
authorized, 67,081,242 shares issued and outstanding,
pro forma as adjusted................................... 1 1 7
Additional paid-in capital................................ 10,100 38,201 220,001
Treasury stock............................................ (30) (30) (30)
Deferred stock-based compensation......................... (7,238) (7,238) (7,238)
Notes receivable from stockholders........................ (108) (108) (108)
Accumulated deficit....................................... (16,553) (16,553) (16,553)
-------- -------- --------
Total stockholders' equity (deficit)............... (13,828) 14,273 196,079
-------- -------- --------
Total capitalization............................... $ 15,720 $118,580 $199,420
======== ======== ========
</TABLE>
The share numbers above exclude:
- 3,629,127 shares of our common stock subject to options outstanding under
our 1998 Stock Plan as of October 31, 1999, at a weighted average
exercise price of $0.26 per share;
- 2,302,250 shares of our common stock available for future grant under our
1998 Stock Plan as of October 31, 1999;
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<PAGE> 25
- 6,000,000 shares of our common stock to be available for future grant
under our 2000 Equity Incentive Plan and 1,000,000 shares of our common
stock to be available for future grant under our 2000 Employee Stock
Purchase Plan; and
- 630,000 shares of our Series B preferred stock issuable upon the exercise
of outstanding warrants as of October 31, 1999, at a weighted average
exercise price of $0.75 per share.
Subsequent to October 31, 1999 and through January 29, 2000, we granted
options to purchase 1,605,260 shares of our common stock under our 1998 Stock
Plan at a weighted average exercise price of $2.61 per share, issued 362,993
shares of our common stock pursuant to exercise of options and grants of
restricted shares under our 1998 Stock Plan, and cancelled options to purchase
91,440 shares of our common stock under the 1998 Stock Plan and issued 1,600,000
shares of our common stock to employees under stock purchase agreements at a
weighted average purchase price of $1.00 per share. In connection with our
acquisition of Legal Anywhere, we assumed options to purchase shares of Legal
Anywhere common stock which represent options to purchase 141,282 shares of our
common stock.
You should read this table together with "Management -- Director
Compensation," "-- Employee Benefit Plans," "Description of Capital Stock,"
"Certain Transactions" and notes 6 and 9 of the notes to our consolidated
financial statements.
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<PAGE> 26
DILUTION
Our pro forma net tangible book value as of October 31, 1999 was $13.9
million or approximately $0.35 per share, assuming the conversion of all
outstanding shares of our preferred stock into shares of our common stock. Pro
forma net tangible book value per share is determined by dividing the pro forma
number of outstanding shares of our common stock into our net tangible book
value, which is our total tangible assets less total liabilities. After giving
effect to the receipt of the estimated net proceeds from this offering, based
upon an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and our estimated
offering expenses, our pro forma net tangible book value as of October 31, 1999
would have been approximately $94.8 million, or $1.96 per share. This represents
an immediate increase in pro forma net tangible book value of $1.61 per share to
existing stockholders and an immediate dilution in net tangible book value of $
9.04 per share to new investors purchasing shares at the initial public offering
price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
------
Pro forma net tangible book value per share as of October
31, 1999.................................................. $0.35
-----
Increase per share attributable to new investors............ 1.61
-----
Pro forma net tangible book value per share after
offering.................................................. 1.96
------
Dilution per share to new investors......................... $ 9.04
======
</TABLE>
If the acquisitions of Proamics and Legal Anywhere had occurred as of
October 31, 1999, our pro forma net tangible book value at that date would have
been $17.6 million, or $0.34 per share. After giving effect to the receipt of
the estimated net proceeds of this offering, our pro forma net tangible book
value would be approximately $98.4 million, or $1.67 per share. This would
represent an immediate increase in pro forma net tangible book value per share
of $1.33 per share to existing stockholders and an immediate dilution in net
tangible book value of $9.33 per share to new investors.
The following table summarizes as of October 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of our common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and our estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -----------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------ -------
<S> <C> <C> <C> <C>
Existing stockholders...................... 40,236,400 83.4% $ 28,775,000 24.6%
New investors.............................. 8,000,000 16.6 88,000,000 75.4
---------- ----- ------------ -----
Total...................................... 48,236,400 100.0% $116,775,000 100.0%
========== ===== ============ =====
</TABLE>
In November 1999, we sold 7,998,012 shares of our Series D preferred stock
for aggregate proceeds of approximately $39.9 million, or a purchase price of
approximately $5.00 per share. In December 1999, in connection with our
acquisition of Proamics, we issued 3,501,938 shares of our common stock and
6,491,203 shares of our Series D preferred stock in exchange for all of the
outstanding capital stock of Proamics. In January 2000, in connection with our
acquisition of Legal Anywhere, we issued 853,689 shares of our common stock in
exchange for all of the outstanding capital stock of Legal Anywhere and assumed
options which are exercisable for 141,282 shares of our common stock.
As of October 31, 1999, there were options outstanding to purchase a total
of 3,629,127 shares of our common stock at a weighted average exercise price of
$0.26 per share, and warrants outstanding to purchase a total of 630,000 shares
of our Series B preferred stock
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<PAGE> 27
at a weighted average exercise price of $0.75 per share. Subsequent to October
31, 1999 and through January 29, 2000, we granted options to purchase 1,605,260
shares of our common stock under our 1998 Stock Plan at a weighted average
exercise price of $2.61 per share and issued 1,600,000 shares of our common
stock to employees under stock purchase agreements at a weighted average
purchase price of $1.00 per share. To the extent that any options or warrants
are exercised, there will be further dilution to new public investors. See
"Capitalization," "Management -- Employee Benefit Plans," "Description of
Capital Stock," "Certain Transactions" and notes 6 and 9 of the notes to our
financial statements.
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<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes to our financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
consolidated statement of operations data for the year ended January 31, 1999,
and the nine months ended October 31, 1999, and the balance sheet data as of
January 31, 1999 and October 31, 1999, are derived from, and are qualified by
reference to, our audited financial statements included elsewhere in this
prospectus, which have been audited by KPMG LLP, independent auditors. The
unaudited statement of operations data for the nine months ended October 31,
1998, is derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared the unaudited information on the same basis as the
audited consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for these
periods. Niku's operations for the period from January 8, 1998 (inception)
through January 31, 1998, were not significant and are included in Niku's
results of operations for the year ended January 31, 1999, and nine months ended
October 31, 1998.
The historical results are not necessarily indicative of results to be
expected in any future period and results for the nine months ended October 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year.
The unaudited pro forma combined condensed statement of operations data
presents our consolidated statement of operations for the fiscal year ended
January 31, 1999, combined with the consolidated statement of operations of
Proamics and the statement of operations of Legal Anywhere for the year ended
December 31, 1998, and our consolidated statement of operations for the nine
months ended October 31, 1999, combined with the consolidated statement of
operations for Proamics and the statement of operations for Legal Anywhere for
the nine months ended September 30, 1999, giving effect to our acquisitions of
Proamics and Legal Anywhere as if they had occurred on February 1, 1998. The
unaudited pro forma combined condensed balance sheet data gives effect to the
acquisitions as if the transactions occurred on October 31, 1999, and combines
our consolidated balance sheet as of October 31, 1999, with the consolidated
balance sheet of Proamics and the balance sheet of Legal Anywhere as of
September 30, 1999, and gives effect to the sale of our Series D preferred stock
as if the sale had occurred on October 31, 1999.
The unaudited pro forma combined condensed information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or financial position of the combined companies.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements.
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<PAGE> 29
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
YEAR NINE MONTHS ENDED NINE MONTHS
ENDED OCTOBER 31, YEAR ENDED ENDED
JANUARY 31, ------------------- JANUARY 31, OCTOBER 31,
1999 1998 1999 1999 1999
----------- ------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................................... $ -- $ -- $ 1,962 $ 3,198 $ 4,576
Services.......................................... 15 -- 1,014 7,735 7,756
------- ------- -------- -------- --------
Total revenues.............................. 15 -- 2,976 10,933 12,332
------- ------- -------- -------- --------
Cost of revenues.................................... 4 -- 603 5,161 6,045
------- ------- -------- -------- --------
Gross profit........................................ 11 -- 2,373 5,772 6,287
Operating expenses:
Research and development.......................... 1,610 849 6,062 3,050 8,367
Sales and marketing............................... 290 75 5,983 2,978 9,417
General and administrative........................ 996 720 1,837 3,409 4,313
Stock-based compensation.......................... 245 77 2,018 245 2,074
Amortization of goodwill and other intangible
assets.......................................... 20 -- 184 15,757 11,987
------- ------- -------- -------- --------
Total operating expenses.................... 3,161 1,721 16,084 25,439 36,158
------- ------- -------- -------- --------
Operating loss.................................. (3,150) (1,721) (13,711) (19,667) (29,871)
Interest and other.................................. 130 56 178 (361) (18)
------- ------- -------- -------- --------
Loss before extraordinary gain...................... $(3,020) $(1,665) $(13,533) (20,028) (29,889)
======= ======= ======== ======== ========
Basic and diluted net loss before extraordinary gain
per share......................................... $ (0.62) $ (0.35) $ (2.31) $ (1.27) $ (1.79)
======= ======= ======== ======== ========
Shares used in computing basic and diluted net loss
before extraordinary gain per share............... 4,882 4,800 5,871 15,729 16,718
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF
JANUARY 31, OCTOBER 31, OCTOBER 31,
1999 1999 1999
----------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 5,147 $ 19,329 $ 63,323
Working capital............................................. 4,786 10,323 53,619
Total assets................................................ 6,555 28,738 136,364
Long-term obligations, less current portion................. -- 968 3,341
Redeemable convertible preferred stock...................... 8,259 28,580 100,966
Accumulated deficit......................................... (3,020) (16,553) (16,553)
Total stockholders' equity (deficit)........................ (2,363) (13,828) 14,273
</TABLE>
Pro forma net loss for the nine months ended October 31, 1999 excludes an
extraordinary gain on early extinguishment of long-term debt of $2.4 million
recorded by Proamics.
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<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following Management's Discussion and Analysis of
Financial Condition and Results of Operations together with the consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We provide Internet software products and 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 November 1999, we
introduced the most recent version of our iNiku website. In December 1999, we
acquired Proamics, a provider of project accounting, time-and-expense and
billing software for the professional services industry. In January 2000, we
acquired Legal Anywhere, a provider of Internet collaboration software for the
legal profession.
OUR HISTORY OF LOSSES
Although our revenues have increased from quarter to quarter, we incurred
significant costs to develop our technology and products and to recruit and
train personnel for our engineering, sales, marketing, professional services and
administrative organizations. As a result, we incurred net losses for the nine
months ended October 31, 1999 and for the year ended January 31, 1999 of $13.5
million and $3.0 million. We expect to incur net losses in the foreseeable
future. As of October 31, 1999, we had an accumulated deficit of $16.6 million.
We believe our success is contingent on increasing our customer base, on
continuing to develop our eNiku, xNiku and iNiku products, related services and
the Niku Services Marketplace and on expanding our market presence into new
professional services industries. We intend to continue to invest heavily in
sales, marketing and research and development. We also expect to incur
substantial non-cash charges relating to the amortization of goodwill and other
intangible assets and stock-based compensation.
Pro forma amortization of the October 31, 1999 balance of goodwill, other
intangible assets and stock-based compensation will result in pro forma expense
totaling approximately $2.4 million for the three months ending January 29,
2000, $19.7 million for the 2001 fiscal year, $17.5 million for the 2002 fiscal
year, $15.8 million for the 2003 fiscal year, $5.7 million for the 2004 fiscal
year and $4.6 million for the 2005 fiscal year. We also expect to record
approximately $16.7 million of additional deferred stock-based compensation
related to stock options granted during the three months ending January 29, 2000
that will result in additional amortization of deferred stock compensation of
approximately $5.0 million for the three months ending January 29, 2000, $7.6
million for the 2001 fiscal year, $3.0 million for the 2002 fiscal year, $1.0
million for the 2003 fiscal year, and $0.1 million for the 2004 fiscal year. Due
to these and other factors, we expect to continue to incur substantial operating
losses for the foreseeable future.
SOURCES OF REVENUES AND REVENUE RECOGNITION POLICY
Through October 31, 1999, our revenues were principally derived from the
sale of licenses of our Internet software products, the provision of maintenance
and support and the delivery of
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<PAGE> 31
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
organizations. In the future, we expect to rely in significant part on
third-party consulting organizations to deliver these services. We also offer
fee-based training to our customers. Currently, our standard iNiku website
offering is available to users free of charge.
We have adopted the provisions of Statement of Position, or SOP No. 97-2
Software Revenue Recognition, as amended by SOP No. 98-9, modification of SOP
97-2, Software Revenue Recognition with Respect to Certain Transactions. Revenue
recognized from multiple-element software arrangements are allocated to each
element of the arrangement based on fair values of the elements, such as
software products, maintenance and support and consulting services. The
determination of fair value is based on objective evidence which is specific to
us.
We recognize license revenues when persuasive evidence of an arrangement
exists, delivery of the product has occurred, no significant company obligations
with regard to installation or implementation of the software remain, the fee is
fixed or determinable and collectibility is probable. We consider all
arrangements with payment terms extending beyond three months and other
arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. As payments become due from the customer,
the initial amounts are first allocated to deferred revenue elements such as
maintenance and support and consulting services. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Arrangements that include consulting services are evaluated to determine whether
those services are essential to the functionality of other elements of the
arrangement. When services are considered essential, revenue under the agreement
is recognized using contract accounting. When services are not considered
essential, the revenue allocable to the software services is recognized as the
services are performed. Maintenance and support revenue is deferred and
recognized on a straight-line basis over the life of the related agreement,
which is typically one year.
REVENUE RECOGNITION FOR NONMONETARY EXCHANGES AND TRANSACTIONS WITH NIKU
PARTNERS
We have entered into a number of customer agreements involving the
licensing of our products and services to companies from whom we have purchased
products under separate agreements. Although these transactions are governed by
individual and distinct contracts, some are viewed as "nonmonetary" for
accounting purposes. For the nine months ended October 31, 1999, approximately
$1.2 million of our total revenues 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.
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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 nine months
ended October 31, 1999, were $436,000 and revenues attributable to nonmonetary
transactions with Niku Partners were $138,000.
We believe that these arrangements have expanded our presence in key
markets and have helped us to ensure that consulting organizations are trained,
experienced and available to perform implementation work at our customers' sites
and offer our products for resale. We intend to enter into these types of
relationships in the future, although we anticipate that revenues related to
these relationships will decline as a percentage of our total revenues. Please
see note 1 of our notes to our consolidated financial statements for a
description of the nature of these contracts and our related revenue recognition
accounting policies.
DEFERRED REVENUES
Deferred revenues include amounts billed to customers for which revenues
have not been recognized which generally results from the following: (1)
deferred maintenance and support; (2) consulting services not yet rendered; (3)
amounts billed to third parties for products not yet sold through to end-user
customers; (4) amounts billed to customers with extended payments terms which
are not yet due; and (5) amounts billed under monetary Niku Partner customer
arrangements in excess of Niku Partner professional services used by us. Of our
$1.9 million of deferred revenues as of October 31, 1999, $342,000, was
attributable to nonmonetary transactions with our customers within the
categories described above.
COST OF REVENUES
Our cost of revenues includes costs of our license revenues and costs of
our services revenues. Our cost of license revenues includes royalties due to
third parties for technology products integrated into our software products, the
cost of manuals and product documentation, production media and shipping costs.
Our cost of service revenues include salaries and related expenses for our
customer support, implementation and training organizations, as well as the
costs of third parties contracted to provide consulting services to our
customers. Because our cost of service revenues is greater than cost of license
revenues, cost of revenues may fluctuate based on the mix of products and
services sold.
OPERATING EXPENSES
Our operating expenses are classified into three general operational
categories: sales and marketing, research and development and general and
administrative. In addition, our operating expenses include two non-cash
categories: stock-based compensation and amortization of goodwill and other
intangible assets. We classify all charges to the sales and marketing, research
and development and general and administrative expense categories based on the
nature of the expenditures. Although each of these three categories includes
expenses that are unique to the category type, there are commonly recurring
expenditures that are typically included in these categories, such as salaries,
employee benefits, sales commissions, travel and entertainment costs, allocated
communication, rent and facilities costs, and third party professional service
fees. The sales and marketing category of operating expenses also includes
expenditures
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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 October 31, 1999, we recorded deferred
stock-based compensation totaling approximately $9.3 million. This amount
represents the difference between the exercise or purchase price, as applicable,
and the deemed fair value of our common stock for accounting purposes on the
date these stock options were granted or purchase agreements were signed. This
amount is included as a component of stockholders' equity and is being amortized
on an accelerated basis by charges to operations over the vesting period of the
options consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28. The stock options and restricted stock purchases
generally vest at a rate of 25% upon the first anniversary of the option grant
date or restricted stock purchase date and 2.083% each month thereafter for
three years. We expect to record additional substantial stock-based compensation
for stock options granted subsequent to October 31, 1999. Amortization of the
October 31, 1999 balance of deferred stock-based compensation will result in
charges to operations of $1.3 million, $3.7 million, $1.5 million, $613,000 and
$75,000 for the three months ending January 29, 2000 and for fiscal years 2001,
2002, 2003 and 2004, respectively.
ACQUISITION OF ALYANZA, PROAMICS AND LEGAL ANYWHERE
In December 1998, we completed the acquisition of Alyanza, a privately held
software company in San Diego, California. We issued 525,000 shares of common
stock and paid $135,000 in cash for all of Alyanza's outstanding capital stock.
The transaction was accounted for as a purchase. The purchase price of
approximately $735,000 is being amortized over a three year period as
amortization of goodwill and other intangible assets.
In connection with our acquisition of Proamics in December 1999, we
acquired all of the outstanding capital stock of Proamics in exchange for
3,501,938 shares of our common stock and 6,491,203 shares of our Series D
preferred stock. In addition, subsequent to the transaction, we issued options
to purchase 1,040,160 shares of our common stock to the former employees of
Proamics who became our employees. Our acquisition of Proamics will be accounted
for as a purchase. Of the approximately $50.5 million purchase price, we expect
to record goodwill and other intangible assets of approximately $47.8 million to
be amortized over the next three to five years. The acquisition of Proamics may
have an adverse effect on our future operating results if we are unable to
market our products to Proamics customers or effectively utilize the Proamics
professional services consultants.
In connection with our acquisition of Legal Anywhere in January 2000, we
acquired all of the outstanding capital stock of Legal Anywhere in exchange for
853,689 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. Of the approximately $11.1 million purchase price, we expect to
record goodwill and other intangible assets of approximately $10.1 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
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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.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1999
REVENUES
License. Our license revenues increased from no revenues for the period
ended October 31, 1998 to $2.0 million for the nine months ended October 31,
1999. This increase is attributable to an increase in sales to new customers
resulting from increased headcount in our sales force and, to a lesser extent,
the commencement of international operations. Sales to new customers accounted
for all of the license revenues, of which international operations accounted for
$20,000 for the nine months ended October 31, 1999. Pro forma license revenues
were $4.6 million for the nine months ended October 31, 1999, which primarily
consist of sales to the Proamics' customers. We do not intend to separately
market the Proamics product line in the future. Although we plan to market Niku
products to Proamics customers incorporating functionality contained in Proamics
products, we do not know whether any of these customers will purchase Niku
products. Therefore, prior levels of Proamics software license revenues are not
necessarily indicative of our future results.
Services. Our services revenues increased from no revenues for the period
ended October 31, 1998 to $1.0 million for the nine months ended October 31,
1999. This increase is attributable to the increased activity described above,
which resulted in increased revenues from customer implementations and
maintenance contracts. Pro forma services revenues were $7.8 million for the
nine months ended October 31, 1999, which included Proamics' services revenues
derived from installation, implementation and customization work for its license
customers. Although we plan to deploy Proamics services personnel on new Niku
installations, implementation and customization engagements, we do not know
whether we will be able to offset an expected decline in services revenues
derived from existing Proamics customers in the future.
During the nine months ended October 31, 1999, Sybase accounted for 22%,
USi accounted for 18% and SalesLogix accounted for 10% of total revenues. One of
our directors is a director of USi and a second director is an officer and
director of Sybase.
COST OF REVENUES
Cost of revenues increased from no cost of revenues for the period ended
October 31, 1998 to $603,000 for the nine months ended October 31, 1999. This
increase in the cost of revenues is primarily attributable to royalty agreements
for technology incorporated into our products and the cost of manuals, media,
product documentation and shipping costs related to product sales to new
customers as well as the shipment of product updates to existing customers. We
recorded cost of license revenues of $174,000 for the nine months ended October
31, 1999. Additionally, included in these costs are costs of services associated
with implementation, training and technical support personnel, which increased
from two people at January 31, 1999 to 13 people at October 31, 1999. We
recorded cost of service revenues of
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$429,000 for the nine months ended October 31, 1999. Pro forma cost of revenues
was $6.0 million for the nine months ended October 31, 1999 which includes
Proamics' costs of packaging, distribution and third-party royalties related to
product sales to customers. Additionally, included in the pro forma costs are
costs associated with Proamics' implementation, training and technical support
personnel, which included 50 people as of October 31, 1999. We anticipate that
the cost of revenues will increase in future periods, primarily as a result of
the addition of Proamics services personnel.
GROSS PROFIT
We had no revenues, cost of revenues or gross profit for the period ended
October 31, 1998. Our gross profit was $2.4 million for the nine months ended
October 31, 1999 primarily due to the incremental amounts of revenues that we
recognized in each quarter. Gross profit margin was 79.7% for the nine months
ended October 31, 1999. Pro forma gross profit was $6.3 million for the nine
months ended October 31, 1999 which includes Proamics' gross margins derived
from sales of Proamics software licenses and delivery of services. We expect
that our gross margins will decline at least in the near term as a result of the
addition of services personnel from Proamics. Pro forma gross profit margin was
51.0%, largely influenced by the relatively high mix of Proamics services.
OPERATING EXPENSES
Research and development. Research and development expenses increased from
$849,000 for the period ended October 31, 1998 to $6.1 million for the nine
months ended October 31, 1999. This increase is primarily attributable to an
increase in the number of research and development personnel. Headcount
increased from 23 as of January 31, 1999 to 71 as of October 31, 1999. To date,
all software development costs have been expensed in the period incurred. Pro
forma research and development expenses were $8.4 million for the nine months
ended October 31, 1999. We believe that continued investment in research and
development is critical to attaining our strategic objectives, and we anticipate
that research and development expenses will continue to increase in absolute
dollars due to our internal product development efforts and the addition of 29
Proamics research and development personnel. We do not anticipate developing
separate new or enhanced versions of Proamics products, and therefore, we expect
these personnel to be deployed in development activities for Niku products.
Sales and marketing. Sales and marketing expenses increased from $75,000
for the period ended October 31, 1998 to $6.0 million for the nine months ended
October 31, 1999. This increase primarily resulted from the addition of
personnel in our sales and marketing departments, and related costs, such as
increased sales commissions. Pro forma sales and marketing expenses were $9.4
million for the nine months ended October 31, 1999. We anticipate that these
sales and marketing expenses will increase in absolute dollar amounts in future
periods as we continue to expand our sales and marketing efforts. We added
approximately 30 Proamics sales and marketing personnel. Other than the costs
associated with this increase in personnel and costs associated with marketing
Niku products to Proamics customers, we do not expect to incur significant
additional sales and marketing expenses as a result of the Proamics acquisition,
as we do not intend to market Proamics' product line separately.
General and administrative. General and administrative expenses increased
from $720,000 for the period ended October 31, 1998 to $1.8 million for the nine
months ended October 31, 1999. This increase is attributable to an increase in
the number of administrative and professional services fees, and to a lesser
extent, communications costs, particularly to our remote offices and facility
costs. The number of employees engaged in general and administrative functions
increased from 7 as of January 31, 1999 to approximately 30 as of October 31,
1999. Pro forma general and administrative expenses were $4.3 million for the
nine months ended October 31, 1999. We expect general and administrative
expenses to increase in absolute dollars as we add personnel to support the
expansion of our operations,
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incur additional expenses related to the anticipated growth of our business, and
assume the responsibilities of a public company. We also added approximately 10
Proamics administrative personnel, which will contribute to our future general
and administrative expenses.
Stock-based compensation. During the nine months ended October 31, 1999, we
recorded approximately $2.0 million of stock-based compensation amortization
expense, representing $17,000 cost of revenues, $597,000 research and
development, $1.1 million sales and marketing and $264,000 general and
administrative expenses. During the nine month period ended October 31, 1998, we
recorded $77,000 of stock-based compensation amortization expense. Amortization
of the October 31, 1999 balance of deferred stock-based compensation for the
three months ending January 29, 2000, and for the fiscal years 2001, 2002, 2003
and 2004 will be approximately $1.3 million, $3.7 million, $1.5 million,
$613,000 and $75,000, respectively.
Amortization of goodwill and other intangible assets. Amortization of
goodwill and other intangible assets was zero for the period ended October 31,
1998 and $184,000 for the nine months ended October 31, 1999. Pro forma
amortization of goodwill and other intangible assets as of October 31, 1999,
including amounts from the Proamics and Legal Anywhere acquisitions, will result
in pro forma expense totaling approximately $1.1 million, $16.0 million, $16.0
million, $15.2 million, $5.6 million and $4.6 million, for the three months
ending January 29, 2000, and the fiscal years 2001, 2002, 2003, 2004 and 2005,
respectively.
INTEREST AND OTHER
Interest and other consists of interest income, interest expense and other
non-operating expenses. Interest and other increased from $56,000 for the period
ended October 31, 1998 to $178,000 for the nine months ended October 31, 1999.
This increase is attributable primarily to interest income from average invested
cash proceeds from financing activities, partially offset by interest expense
related to equipment loans and subordinated debt, the proceeds of which were
used to purchase computer equipment and office furniture and equipment.
NET LOSSES
Net losses were $1.7 million and $13.5 million for the nine months ended
October 31, 1998 and 1999, respectively. Our losses are a result of costs
incurred to develop our technology, our products and iNiku website and to
recruit and train personnel for our engineering, sales, marketing, professional
services and administrative organizations. We expect to incur net losses in the
foreseeable future.
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QUARTERLY RESULTS OF OPERATIONS
The following tables set forth consolidated statement of operations data
for each of the three quarters in the period ended October 31, 1999. This
information has been derived from our unaudited consolidated financial
statements that, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information. In addition, this information does not give
effect to our acquisitions of Proamics or Legal Anywhere, which are expected to
affect our future operating results. You should read this information in
conjunction with our annual audited consolidated financial statements and
related notes appearing elsewhere in this prospectus. We have experienced and
expect to continue to experience fluctuations in operating results from quarter
to quarter. We incurred net losses in each of the last three quarters and expect
to continue to incur losses in the foreseeable future. You should not draw any
conclusions about our future results from the results of operations for any
quarter, as quarterly results are not indicative of the results for a full
fiscal year or any other period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
APRIL 30, JULY 31, OCTOBER 31,
1999 1999 1999
--------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
License.............................................. $ 241 $ 355 $ 1,366
Services............................................. 132 232 650
------- ------- -------
Total revenues.................................... 373 587 2,016
Cost of revenues....................................... 89 187 327
------- ------- -------
Gross profit........................................... 284 400 1,689
------- ------- -------
Operating expense:
Research and development............................. 1,088 2,226 2,748
Sales and marketing.................................. 808 2,019 3,156
General and administrative........................... 325 464 1,048
Stock-based compensation............................. 313 596 1,109
Amortization of goodwill and other intangible
assets............................................ 61 61 62
------- ------- -------
Total operating expenses.......................... 2,595 5,366 8,123
------- ------- -------
Operating loss......................................... (2,311) (4,966) (6,434)
Interest and other..................................... (45) 127 96
------- ------- -------
Net loss............................................... $(2,356) $(4,839) $(6,338)
======= ======= =======
</TABLE>
THREE QUARTERS IN THE PERIOD ENDED OCTOBER 31, 1999
REVENUES
License. License revenues increased in each of the three quarters in the
period ended October 31, 1999. Our sales headcount increased from six at April
30, 1999 to 27 at July 31, 1999, and to 51 at October 31, 1999 which led to the
increase in the number of our customers.
Services. Services revenues increased in each of the three quarters in the
period ended October 31, 1999. During this time, we provided implementation
services at most of our customer locations. Our services revenues increased as
the number of active implementations increased during this three quarter period.
Revenues from nonmonetary exchanges of our products for customer products
or services were $282,000 for the three months ended April 30, 1999, $343,000
for the three months ended July 31, 1999 and $746,000 for the three months ended
October 31, 1999.
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COST OF REVENUES
Cost of revenues increased in each of the three quarters in the period
ended October 31, 1999. In the three months ended April 30, 1999, we began to
hire implementation and technical support personnel. In each subsequent quarter,
we hired additional implementation and technical support employees. In the three
months ended October 31, 1999, we began to hire training personnel to provide
training services to customers and third-party implementation partners. Our
implementation, technical support and training personnel increased from two at
April 30, 1999 to 15 at July 31, 1999, and to 21 at October 31, 1999.
OPERATING EXPENSES
Research and development. Research and development expenses increased in
each of the three quarters in the period ended October 31, 1999. Personnel
expenses, the largest single component of this expense category, increased from
$721,000 for the three months ended April 30, 1999 to $1.2 million for the three
months ended July 31, 1999, and to $1.5 million for the three months ended
October 31, 1999. During this time, we consistently increased our research and
development staff to develop subsequent releases of eNiku and to develop the
iNiku website. The market for qualified people in the San Francisco Bay Area is
competitive and costs associated with hiring and retaining key personnel are
high. The increased number of personnel and the increased cost per person have
contributed to the increase in research and development expenses.
Sales and marketing. Sales and marketing expenses increased in each of the
three quarters in the period ended October 31, 1999. This increase is primarily
attributable to increased sales compensation, increased marketing expenses, the
expansion of regional sales offices and the establishment of international
locations. Sales and marketing personnel costs increased from $383,000 for the
three months ended April 30, 1999 to $1.3 million for the three months ended
July 31, 1999, and to $1.6 million for the three months ended October 31, 1999.
Other sales and marketing costs increased primarily from advertising and
marketing facilities and travel and entertainment, from $425,000 for the three
months ended April 30, 1999 to $719,000 for the three months ended July 31,
1999, and to $1.6 million for the three months ended October 31, 1999.
General and administrative. General and administrative expenses increased
in each of the three quarters in the period ended October 31, 1999 as a result
of additional finance, human resource, legal, information technology and
administrative professionals required to create the business infrastructure.
During this time, general and administrative costs increased from $325,000 for
the three months ended April 30, 1999 to $464,000 for the three months ended
July 31, 1999, and to $1.0 million for the three months ended October 31, 1999.
Stock-based compensation. Stock-based compensation was $313,000 for the
three months ended April 30, 1999, $596,000 for the three months ended July 31,
1999 and $1.1 million for the three months ended October 31, 1999.
Amortization of goodwill and other intangible assets. Amortization of
goodwill and other intangible assets was $61,000 in each of the three months
ended April 30 and July 31, 1999 and $62,000 in the three months ended October
31, 1999.
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sales and marketing expenses to promote our brand
and our products and services. Therefore, our quarterly operating results are
likely to be particularly affected by the number of customers licensing our
products during any quarter as well as sales and marketing, research and
development and other expenses for a particular period. If revenues fall below
our expectations, we will not be able to reduce our spending rapidly in response
to the shortfall.
We expect to experience seasonality in the sales of our products and
services. Seasonal variations in our sales may lead to fluctuations in our
quarterly results. For example, we expect
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that sales may decline during summer months, particularly in European markets.
We also anticipate that sales may be lower in our first fiscal quarter due to
patterns in the capital budgeting and purchasing cycles of our current and
prospective customers as well as due to our sales commission structure. We also
anticipate that our sales will have long sales cycles. Therefore, the timing of
future customer contracts could be difficult to predict, making it very
difficult to predict revenue between quarters and, our operating results may
vary significantly.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- our ability to attract new customers, including Proamics customers, and
retain current customers which could lead to changes in our revenues;
- the announcement or introduction of new products or services by us or our
competitors which could also lead to changes in our revenues;
- changes in the pricing of our products and services or those of our
competitors;
- variability in the mix of our products and services revenues in any
quarter which could affect our margins; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business.
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in some
future periods, our results of operations may be below the expectations of
investors. If this occurs, the price of our common stock may decline.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
capital stock, with net proceeds of $28.8 million through October 31, 1999, bank
loans and equipment leases. As of October 31, 1999, we had $19.3 million in
cash, cash equivalents and short-term investments and $10.3 million in working
capital. In November 1999, we sold 7,998,012 shares of Series D preferred stock
for $5.00 per share for total cash proceeds of approximately $39.9 million.
Net cash used in operating activities was $2.8 million in the period ended
January 31, 1999 and $8.8 million in the nine months ended October 31, 1999. Net
cash flows from operating activities in each period reflect increasing net
losses and, to a lesser extent, accounts receivable offset in part by increases
in accrued compensation and liabilities. Net cash flows from operating
activities in the period ended October 31, 1999 reflects $1.4 million of
deferred revenue from customers that were not recognized as revenue.
Net cash used in investing activities was $366,000 in the period ended
January 31, 1999 and $5.6 million in the nine months ended October 31, 1999.
Cash used in investing activities reflects purchases of property and equipment
in each period and purchases of short-term investments in the nine months ended
October 31, 1999.
Capital expenditures were $193,000 in the period ended January 31, 1999 and
$2.9 million in the nine months ended October 31, 1999. Our capital expenditures
consisted of purchases of operating resources to manage our operations,
including computer hardware and software, office furniture and equipment and
leasehold improvements. We expect that our capital expenditures will continue to
increase in the future. Since inception, we have generally funded capital
expenditures either through the use of working capital or with capital leases.
Net cash from financing activities was $8.3 million in the period ended
January 31, 1999 and $26.4 million in the nine months ended October 31, 1999.
These cash flows reflect primarily proceeds from private sales of preferred
stock.
In September 1999, we entered into a loan and security agreement with a
bank providing a line of credit of up to $4.0 million. Any borrowings under the
line of credit bear interest at the
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bank's prime lending rate plus 1.0%. As of October 31, 1999, we had borrowed
$3.8 million under the line of credit with an interest rate of 8.25% as of
October 31, 1999, and $200,000 was available for borrowing. The agreements for
these loans contain covenants requiring that we satisfy certain financial ratios
and maintain a minimum tangible net worth. As of October 31, 1999, we were in
material compliance with these covenants. This loan is secured by our assets.
In February 1999, we entered into a term loan with another lender,
providing us with a bridge loan of up to $3.0 million. Any borrowings under this
term loan bear interest at 12.0%. As of October 31, 1999, we had borrowed $2.8
million under this term loan, and $200,000 was available for borrowing. Also in
February 1999, we entered into a lease line with the same institution, providing
us with an equipment lease line of credit of up to $500,000. Any drawings under
this lease line bear interest at 8.0%. As of October 31, 1999, we had leased
$345,000 of equipment under this lease line, and $155,000 was available. We
issued warrants to purchase shares of our preferred stock to this institution.
Using the Black-Scholes methodology, the warrants were valued at $510,000,
increasing our effective interest rate by approximately 5%. These loans are
secured by our assets.
As of September 30, 1999 Proamics had debt obligations of approximately
$3.2 million. In connection with the acquisition of Proamics, $2.5 million was
repaid using Proamics' cash on hand. In addition, as of September 30, 1999,
Proamics had $349,000 of reserves for doubtful accounts receivable and as of
October 31, 1999, Niku had $100,000 of reserves for doubtful accounts
receivable.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses, as well as planned capital expenditures,
will constitute a material use of our cash resources. In addition, we may
utilize cash resources to fund acquisitions or investments in complementary
businesses, technologies or product lines. We believe that cash from operations
and existing cash will be sufficient to meet our working capital and expense
requirements for at least the next 12 months. After that time, we may find it
necessary to obtain additional equity or debt financing 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
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we may be affected by it.
We designed all of our products to be Year 2000 compliant when configured
and used in accordance with related documentation, and provided that the
underlying operating system of the host machine and any other software and
hardware used with or in the host machine or our products are Year 2000
compliant. Additionally, we have tested Niku products for Year 2000 compliance
and determined they are Year 2000 compliant.
Prior to the acquisitions of Proamics and Legal Anywhere, we determined
that Proamics and Legal Anywhere had tested their currently deployed products
for Year 2000 compliance. We also
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obtained representations and warranties from Proamics and Legal Anywhere in the
respective merger agreement relating to the Proamics and Legal Anywhere
acquisitions.
We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- Respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
- Store and provide output of date information in ways that are unambiguous
as to century if that date elements in interfaces and data storage
specify the century; and
- Recognize year 2000 as a leap year;
provided that all other products such as hardware, software and firmware, used
with our products properly exchange and recognize date data.
We have tested software obtained from third parties that is incorporated
into our products as to their Year 2000 compliance and to date, we have not
experienced any material Year 2000 issues with respect to this software. Despite
testing by us and current and potential customers, and assurances from
developers of products incorporated into our products, our products may contain
undetected errors or defects associated with Year 2000 date functions. Known or
unknown errors of defects in our products could result in delay of loss of
revenues, diversion of development resources, damage to our reputation,
increased service and warranty costs, or liability from our customers, any of
which could seriously harm our business. Furthermore, our software products
either interact with or are integrated into customers' computer systems, which
often involve sophisticated hardware and complex software that we cannot
guarantee for Year 2000 compliance. Although we have not received any Year
2000-related claims to date, we could face claims based on Year 2000 problems in
other companies' products, or issues arising from integration of multiple
products within an overall system, even if our products are otherwise Year 2000
compliant.
We have completed an assessment of our material internal information
systems and believe them to be Year 2000 compliant. We have not initiated an
assessment of our non-information and technology systems, although we have
received a favorable assessment of the Year 2000 compliance of our new
headquarters in Redwood City, California. We have completed testing of our
information technology systems. To the extent that we have not been able to test
the technology provided by third-party vendors, we are seeking assurances from
these vendors that their systems are Year 2000 compliant. To date, we have not
experienced any material Year 2000 issues with respect to these systems. In
addition, we have not experienced any, and we are not currently aware of any
material operational issues or costs associated with preparing our internal
information technology and non-informational technology systems for the Year
2000. However, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000
compliance status of our customers, however, to date we have not been informed
of any material Year 2000 issues of our customers. Our current or future
customers may incur significant expenses to achieve Year 2000 compliance. If our
customers are not Year 2000 compliant, they may experience material costs to
remedy problems, or they may face litigation costs. In either case, Year 2000
issues could reduce or eliminate the budgets that current or potential customers
could have for, or delay purchases of, our products and services. As a result,
our business could be seriously harmed.
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We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We may incur additional costs related to the Year 2000 plan for
administrative personnel, outside contractor assistance, technical support for
our products, product engineering and customer satisfaction if we experience
material Year 2000 issues. Although we have not experienced any material Year
2000 problems to date, we may experience material problems and costs in
connection with the Year 2000 compliance that could seriously harm our business.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not anticipate the need to do so. The cost of developing
and implementing such a plan may itself be material. Finally, we are also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failure
interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
- the inability of our customers to use our products and services to
procure and manage their operating resources;
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and
- our inability to manage our own business.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative securities
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. We do not believe this will have a material
effect on our operations as we do not engage in hedging activities.
Implementation of this standard has recently been delayed by the FASB for a
12-month period. We will now adopt SFAS No. 133 as required for its first
quarterly filing of fiscal year 2002.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent, Europe and the Asia-Pacific region. As a
result, our financial results could be affected by factor such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As all sales are currently made in U.S. dollars, a strengthening of the dollar
could make our products less competitive in foreign markets. We do not expect
any material adverse effect on our consolidated financial position, results of
operations or cash flows due to movements in any specific foreign currency. We
currently do not use financial instruments to hedge operating expenses by our
European and Asia-Pacific subsidiaries. We intend to assess the need to utilize
financial instruments to hedge currency exposures on an ongoing basis. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we believe that
there is no material risk exposure. Therefore no quantitative tabular
disclosures are required.
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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, Comdisco, 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.
INDUSTRY BACKGROUND
THE GLOBAL SERVICES ECONOMY
Service businesses generated more than $2 trillion in revenues and employed
more workers than any other sector in the United States in 1997, according to
the Encyclopedia of American Industries. The professional services industry
represents a large part of the service economy. According to the U.S. Department
of Commerce, the gross domestic product of the professional services industry,
including business, legal, health and educational services, exceeded $900
billion in 1997. We believe the professional services industry will grow
rapidly, both in the United States and internationally, due to a number of
factors, including:
- the increasing importance of knowledge and information to business
success;
- the growing complexity and pace of business projects;
- the increasing need for specialization; and
- the growing acceptance of outsourcing, both in the United States and
internationally.
The professional services industry is undergoing significant change. To
succeed, service businesses must increasingly manage their knowledge,
information and human resources effectively. We believe the need for effective
business management in the professional services industry is becoming more
intense as a result of a number of key factors, including:
- increasing competition;
- growing project complexity;
- shorter project time frames;
- increasing collaboration requirements, particularly for small businesses
and individual professionals;
- growing use of non-employee consultants; and
- globalization of business.
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NEED FOR INTERNET-BASED SOFTWARE IN THE PROFESSIONAL SERVICES INDUSTRY
Unlike product-oriented businesses, which produce finished goods from raw
materials and component parts and sell these goods on a per-item basis,
professional services businesses create information-based deliverables using
human resources that are often billed at time-based rates. As a result,
professional services businesses require sophisticated applications that can
manage knowledge and information, including unstructured data, and their human
resources. However, service businesses often lack standardized and
cost-effective applications for core business processes such as:
- INTELLECTUAL CAPITAL MANAGEMENT -- Creation, storage and reuse of
knowledge, information and work product such as implementation plans,
case histories, proposals and contracts;
- RESOURCE MANAGEMENT -- Sourcing, hiring and training personnel and
allocating them across clients, projects and locations;
- PROJECT MANAGEMENT -- Tracking client communications, project status and
deliverables;
- FINANCE AND OPERATIONS MANAGEMENT -- Management of time and expenses and
billing and collections, and integration of these functions with other
financial systems;
- PRACTICE MANAGEMENT -- Review and analysis of business performance,
including resource utilization and individual and group productivity, and
- BUSINESS DEVELOPMENT -- Identifying potential customers, making proposals
and finalizing contracts.
As a result of the need for these applications, the automation of the
business processes of professional services businesses represents a large market
opportunity. International Data Corporation estimates that the service
industries supply-chain-automation packaged application market will grow from
approximately $600 million in 1999 to approximately $12 billion by 2003,
representing a five-year compound annual growth rate of approximately 108%.
THE INTERNET AS A PLATFORM FOR THE PROFESSIONAL SERVICES INDUSTRY
The advent of the Internet has provided a technology platform for
automation of the professional services industry using Internet software and
online marketplaces. Traditionally, companies seeking to improve their
operations have implemented applications based on computer networks using a
client-server design, in which a significant portion of an application must be
loaded on each user's computer. With the emergence of the Internet, companies
are now able to make business applications available to internal and external
users without installing software on the many different computers throughout an
organization, allowing significantly broader deployments and constant updating
of content. The Internet also enables applications to be accessed by any device
with a web browser, making it possible for the many mobile professionals in
professional services organizations to benefit from these applications. As a
result of these factors, we believe that applications using the Internet offer
significant advantages over those based on a client-server design.
In addition to these architectural advantages, the Internet provides a
common platform through which organizations and individual professionals can
communicate and collaborate. This platform is particularly important in light of
the emergence of an economy characterized by a geographically dispersed, mobile
and fluid workforce. By enabling increased communication and collaboration, the
Internet creates new ways for businesses to source, manage and deliver services,
and facilitates an efficient marketplace for services. Forrester Research
expects the market for business-to-business electronic commerce for services to
increase from approximately $22 billion in 1999 to approximately $220 billion by
2003, representing a compound annual growth rate of approximately 78%.
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THE NIKU SOLUTION
We provide Internet software products and an online marketplace for the
professional services industry, enabling organizations and individual
professionals to efficiently source, manage and deliver professional services.
Our products are designed for deployment on corporate intranets, extranets and
the Internet. These platforms connect people inside and outside organizations,
enable professional services businesses to operate their businesses more
efficiently and facilitate the creation of a marketplace for buyers and sellers
of professional services. Our Internet software products are based on a
proprietary design that eliminates the need for businesses to install software
on multiple computers across an organization using client-server computer
networks. While we currently deliver our products and services primarily to the
IT consulting industry, we are extending and plan to extend them to other
professional services industries, including financial services, medicine, law
and advertising.
We believe our products and services offer the following key benefits to
our users:
SIGNIFICANTLY ENHANCED CLIENT SERVICE. Our Internet software products allow
users to manage their knowledge and information and human resources effectively.
With our products, service businesses can capture, share and reuse information
and provide higher-quality work product to customers. Our products also enable
service businesses to focus the most appropriate resources on projects, allowing
them to provide superior customer service.
SUBSTANTIALLY EXPANDED REVENUE OPPORTUNITIES. Our Internet software
products and online marketplace are designed to allow users to expand their
revenue opportunities. The Niku Services Marketplace is designed to allow
service providers to access a central source of projects and customers within
their area of expertise. Through our knowledge and information management
capabilities, service businesses can create standardized product offerings,
allowing them to provide services to additional customers and accommodate
additional projects. Using the resource and practice management functions of our
products, service businesses can optimize allocation of resources and increase
utilization rates, avoiding downtime and increasing revenues.
INCREASED PROFITABILITY. Our Internet software products are designed to
allow users in our target industries to increase their profitability. Service
businesses can work more efficiently by reducing the time spent on tasks that
cannot be billed to clients. Service providers can also enhance their efficiency
by building upon standardized product offerings. We also offer extensive
practice management capabilities that allow an organization to draw on its
experience, allowing it to present accurate cost estimates and timelines to
customers and to avoid potential problems.
IMPROVED RECRUITMENT AND RETENTION. The Niku Services Marketplace is
designed to allow organizations to reach potential new employees and contractors
with needed expertise and to allow employees and contractors to find new work
opportunities. Companies seeking professional services providers can post
detailed descriptions of projects for which they need assistance or can search
postings of profiles of professional service providers that detail their work
experience, expertise, geographic location and availability. As of January 29,
2000, iNiku had more than 21,000 registered users and, for the month of December
1999, delivered over 350,000 page views. Additionally, in organizations using
our Internet software products, employees can benefit from an environment in
which the amount of time spent on mundane and repetitive tasks is dramatically
reduced, work product can be saved and reused and skills are better matched with
projects.
THE NIKU GROWTH STRATEGY
Our goal is to be the leading provider of Internet software products and
related services for the sourcing, management and delivery of professional
services in a number of professional services industries. Key elements of our
strategy to achieve this goal are as follows:
TARGET LEADING ENTERPRISE CUSTOMERS. We will continue to target leading
enterprise customers. We believe that large enterprises will seek to take
advantage of the Internet to
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efficiently source, manage and deliver professional services and can provide us
with a large and growing source of demand. We also believe that large
enterprises can provide valuable sales references and drive product
enhancements. We intend to market our extranet software products to enterprises
as we believe these customers can drive usage of our products and services among
their business partners, customers and suppliers. We also believe that
enterprise customers, as large users of professional services, can be large
buyers within the Niku Services Marketplace.
ENHANCE iNIKU. We will continue to aggressively expand our iNiku website by
deploying additional content, services and industry-specific functionality. We
have entered into agreements with over 40 providers of content and services
useful to small businesses and individual professionals. In addition, we have
entered into agreements with other websites, such as CNET, to distribute and
promote iNiku. We intend to continue to aggressively enhance iNiku and pursue
additional distribution and promotion agreements.
EXPAND THE NIKU SERVICES MARKETPLACE. The Niku Services Marketplace is
designed to provide businesses and individual professionals with an online
marketplace for buying and selling professional services. We plan to populate
the Niku Services Marketplace with both enterprise customers and iNiku users. We
believe that the benefits of our Internet software and iNiku will create a
growth cycle that increases the value of the Niku Services Marketplace to both
buyers and sellers of professional services over time. As buyers benefit from
the efficiencies of our online marketplace, we believe sellers will be drawn to
the marketplace by the aggregated purchasing power of the buyers participating
in that marketplace. As more sellers offer services through the marketplace,
more buyers will be encouraged to join the marketplace.
TARGET ADDITIONAL PROFESSIONAL SERVICES INDUSTRIES. We currently deliver
our products and services primarily to the IT consulting industry. However, our
products are designed in a flexible, modular format and we plan to leverage this
architecture to deliver our products and services to other professional services
industries. For example, in January 2000, we acquired Legal Anywhere, a provider
of Internet collaboration software for the legal profession.
PURSUE ACQUISITIONS OF COMPLEMENTARY BUSINESSES. We believe that strategic
acquisitions can provide us with access to additional customers, domain
expertise and technology that will enhance our existing solutions and allow us
to enter new markets. We recently acquired Proamics, a provider of finance and
operations software to the professional services industry as well as Legal
Anywhere. We plan to continue pursuing acquisitions of complementary businesses,
products and technologies.
EXPAND GLOBAL OPERATIONS. With the global reach of the professional
services industry, we believe that there are significant opportunities to
deliver our products and services in Europe and the Asia-Pacific region, where
we have approximately 25 employees. We intend to grow our presence in Europe and
the Asia-Pacific region by expanding our field sales, marketing and service
organizations. We also plan to continue to expand our other operations needed to
support us as a global concern, including administrative infrastructure,
technology infrastructure, facilities and services.
NIKU PRODUCTS AND SERVICES
Our products and services enable users to source, manage and deliver
professional services. We currently deliver our solutions to the IT consulting
industry and plan to extend these solutions to other professional services
industries. The core functionality available across our products is divided into
the following modules:
- INTELLECTUAL CAPITAL MANAGEMENT. Our intellectual capital management
module provides extensive functionality for capturing, managing,
retrieving and utilizing the knowledge and experience of an organization
that is contained in documents such as implementation plans, case
histories, proposals and contracts. Unlike legacy document management
systems, our intellectual capital management module utilizes a
data-tagging feature to
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capture documents or other work products as they are created. This module
employs an easy-to-use search engine for information retrieval, allowing
users to retrieve and leverage organizational knowledge regardless of
where or when they need it.
- RESOURCE MANAGEMENT. Our resource management module offers extensive
capabilities for ensuring that the right people are working on the right
projects at the right time at the right billing rate. This module also
allows users to view and manage project and resource schedules and
reserve and assign resources in real time through a browser-based
interface. More effective resource management offers better business
predictability and increased client satisfaction, personnel utilization
and employee job satisfaction.
- PROJECT MANAGEMENT. Our project management module allows users to manage
projects from origination to completion. This module brings the employee
and non-employee participants, such as consultants or other service
providers, together for a project. This module also includes features for
managing ongoing client communications, project status and deliverables.
The project management module interfaces with the resource management
module and allows the sharing of information with third-party project
management applications.
- FINANCE AND OPERATIONS MANAGEMENT. Our finance and operations management
module allows users to capture, manage and report their time spent on
projects, as well as ongoing expenses, through the incorporation in our
products of Extensity time and expense software. This module also
provides capabilities for project and practice accounting, including
functionality for managing project budgets, external contractors, cost
estimates, departmental charges and invoicing. This module can also
integrate with popular third-party back-office financial packages.
- PRACTICE MANAGEMENT. Our practice management module provides users with
information and analysis with respect to important issues such as
variances between standard and actual costs and the profitability of
business units, practice groups and individual personnel. This enables
better resource utilization and implementation of best practices across
the entire organization. The practice management module helps
organizations turn projects into products by capturing detailed
information on deliverables, risks, project changes, personnel and costs.
Using this module, service providers can supply customers with more
accurate project cost estimates and timelines, enhancing customer
satisfaction and enabling increased profitability.
- BUSINESS DEVELOPMENT. Our business development module automates and
manages the business development process, including gathering and
analyzing information on potential customers, creating proposals,
developing sales presentations and creating and finalizing contracts.
We have three integrated product offerings for the sourcing, management and
delivery of professional services. These are designed to provide benefits to the
entire spectrum of professional services providers using the same core
architecture:
- eNIKU. eNiku allows organizations to automate core business processes.
eNiku is deployed on corporate intranets, internal Internet
protocol-based computer networks, allowing the sharing of information,
creation of teams and reduction of costs associated with personnel and
project management across multiple organizations. eNiku customers pay
license fees as well as annual maintenance fees. Licenses and related
services of our eNiku products accounted for all of our total revenues
for the nine months ended October 31, 1999. Prior to that time, we had
not recognized any revenues from licenses of eNiku.
- xNIKU. xNiku allows businesses to extend eNiku to partners, customers and
suppliers using corporate extranets, private Internet protocol-based
networks reaching beyond the enterprise. xNiku enables the delivery of
information to geographically-dispersed offices and remote users, as well
as to users of different computing systems and platforms.
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xNiku customers will pay a license and implementation fee as well as a
monthly subscription fee based on the number of non-employee users.
Through October 31, 1999, we had not derived any revenues for our xNiku
product. Subsequent to that date, we have licensed xNiku to three
customers.
- iNIKU. iNiku is a website which allows small businesses and individual
professionals to access content and services and operate their businesses
online. iNiku allows users to market themselves, find projects, post
projects and perform work. iNiku allows larger organizations to share
information and content with these smaller businesses and individual
professionals, facilitating the creation of a professional services
community. iNiku also provides a suite of online services for running
small businesses, including Internet-based document and file sharing,
project management and collaboration. Pre-packaged templates make it easy
to develop standardized business documents, including project proposals,
contracts and reports. In addition to services offered directly to iNiku
users, we have agreements with over 40 Internet-based content and service
providers, offering small businesses and independent professionals a
single destination where they can find many of the third-party content
and services they require to run their businesses. Content available
through iNiku includes information resources from leading industry
analysts and publishers such as Forrester Research, Gartner Group and
Nolo.com. Services available through iNiku include printing, insurance,
benefits, travel planning, finance, mail services and electronic
commerce. Through October 31, 1999, we have not derived any significant
revenues from iNiku.
THE NIKU SERVICES MARKETPLACE
The Niku Services Marketplace enables users of eNiku, xNiku or iNiku to
participate in a marketplace of buyers and sellers of professional services. The
technology linking eNiku, xNiku and iNiku allows users to participate in this
marketplace without the need to integrate computer systems with each
participant. Through the Niku Services Marketplace, service providers can find
project work in their area of expertise and organizations can find professionals
to complete their projects. Buyers of professional services can post detailed
descriptions of projects, and sellers of professional services can post personal
or business profiles detailing their work experience, preferred project types
and locations, as well as availability.
As of January 29, 2000, the Niku Services Marketplace had more than
approximately 32,000 projects available to its users and more than 21,000 iNiku
registered users. We believe that the benefits of our Internet software and
iNiku will create a growth cycle that increases the value of our the Niku
Services Marketplace to both buyers and sellers of professional services over
time. As buyers benefit from the efficiencies of the marketplace, we believe
sellers will be drawn to the marketplace by the aggregated purchasing power of
the buyers participating in that marketplace. As more sellers offer services
through the Niku Services Marketplace, more buyers are encouraged to join the
marketplace.
PROFESSIONAL SERVICES
We offer professional services to assist in the successful implementation
and use of our Internet software products. Our professional services consultants
assist customers in all aspects of the implementation process, including
requirements assessment, implementation planning and design, content design and
creation, data migration, systems integration, deployment and training. As of
January 29, 2000, we had approximately 70 full-time professional services
consultants.
Our professional services consultants also customize and deliver training
for systems administrators and end-users. We provide technical instruction for
customers, including implementation, deployment and maintenance of our Internet
software products. We also provide comprehensive end-user training programs to
allow professionals to begin using our Internet software products quickly and
easily. Services revenues accounted for all of our total revenues
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for the fiscal year ended January 31, 1999 and approximately 34% of our total
revenues for the nine months ended October 31, 1999.
We have created the Niku Partners Network to extend our ability to deliver
professional services to our customers. This network includes IT consultants
with expertise in implementing and customizing our Internet software products.
Current Niku Partners include Bristlecone, DataStudy, Management Share, Neptune
Technologies, Net-Centric Consulting Group, SE Technologies, ShaktiSoft, Sierra
Atlantic, Softgate Technologies, Sogyo Information Engineering and
Technopreneurs.
STRATEGIC RELATIONSHIPS
We have entered into a number of strategic relationships to expand our
business, including the following:
USINTERNETWORKING
We have entered into a three-year hosting agreement with USi, a leading
application service provider which hosts business applications over the Internet
for a fee. Under our hosting agreement with USi, entered into in June 1999 and
amended in September 1999, USi will host and manage iNiku and our corporate
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 nine months ended October 31, 1999, we
recorded $441,000 of revenues relating to license sales to USi for its internal
use under our software license agreement.
CNET
We have entered into an agreement with CNET, a leading computer information
network, to deliver a co-branded edition of the iNiku website to CNET users.
According to Media Metrix, CNET had over nine million unique Internet users in
October 1999. The co-branded site, www.iniku.cnet.com, offers CNET users all the
features of iNiku, such as online business applications, content and business
services. The promotion agreement, entered into in September 1999, has a
two-year term from the date that the co-branded site was made generally
available to CNET users but may be terminated on July 5, 2000 if the co-branded
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
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notice. CNET participated in our Series D preferred stock financing in November
1999. No revenues were derived from the co-branded website as of October 31,
1999.
CONTENT AND SERVICE PROVIDERS
We have contracts with over 40 Internet-based content and service providers
for iNiku. These content and service providers promote their offerings on iNiku.
These contracts typically provide that we will receive a percentage, typically
between 5% and 10%, of any revenues generated by these parties from customers
directed through iNiku. However, to date, we have not generated any significant
revenues from these relationships. These agreements are typically terminable by
either party either at any time or upon giving up to 90 days prior notice. These
content and service providers include:
<TABLE>
<S> <C> <C>
1-800-Gift Certificate 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
</TABLE>
CUSTOMERS
We target independent professional services organizations, professional
services providers within enterprises and small businesses and individual
professionals. Our customers who have purchased more than $25,000 of Niku
products, and customers who purchased at least $75,000 of the Proamics finance
and operations management module, and related services, include:
<TABLE>
<S> <C> <C>
IT CONSULTING COMPUTER SOFTWARE COMPUTER HARDWARE
AMX International Business Objects EMC
Analysts International* Computer Associates* Gateway 2000
Belenos Geac* OTHER
Bristlecone Neon Central Intelligence Agency
Comdisco* NetDialog (Kana Communications) Clear Ink
DataStudy OneSoft
DST International* Pixion
Electron Economy Project Software Development*
eXcelon SalesLogix
Information Systems Sybase
Management* Tibco Software
Inforte TIS Worldwide
Inteliant* Trilogy Software
Jansen MI Consultants USinternetworking
Management Share Vantive (PeopleSoft)
MicroAge Canada* Walker Interactive**
Navisys*
Net-Centric Consulting
Pecoma Holdings
SE Technologies
Sierra Atlantic
Softgate Technologies
Sogyo Information Engineering
Systems America
Tata Consultancy
TekEdge
Tier Technologies*
Xerox*
</TABLE>
- ---------------
* Indicates a customer of Proamics.
** Indicates a customer of both Niku and Proamics.
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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.
USi accounted for approximately 18%, Sybase accounted for approximately 22%
and SalesLogix accounted for approximately 10% of Niku's total revenues for the
nine months ended October 31, 1999.
TECHNOLOGY
The Niku technology platform is comprised of two key components: the Niku
application framework and individual applications that can be tailored to the
key business processes for a specific industry.
The Niku application framework is an Internet-computing environment that
manages unstructured data, including that found in proposals, contracts,
presentations, and status reports as well as structured data such as that found
in staffing or sales forecasts. It enables intellectual assets to be captured
automatically, while enabling accurate measurement, analysis, reporting and
reuse of this unstructured information. This framework is open standards-based,
enabling Niku and its partners to develop customized Niku-based solutions and
extensions of existing Niku applications. These extensions can include
additional application modules or interfaces to legacy applications.
NIKU APPLICATION FRAMEWORK FEATURES
The Niku application framework has the following features:
WEB BROWSER ACCESS TO APPLICATIONS. Our software is accessed through a web
browser, which allows easy access and end-user navigation. The familiar web
browser interface allows users to access the application from any personal
computer, computer network or computing device, such as a personal digital
assistant, independent of physical location. The Niku application framework also
allows updates to software and applications to be made centrally at the server
rather than at each user's computer. This ensures that each user has the latest
application version and significantly reduces distribution and installation
costs.
WALK-UP USER INTERFACE. Our user interface is designed to enable users
throughout an organization, as well as independent professionals, to easily
access the functionality provided by our products and services. Our user
interface is automatically customized to a user's requirements because it is
driven by user-specific parameters, which are defined based on the user's role,
responsibilities and workflow content.
OPEN STANDARDS. Our Internet software is designed to support open
standards. The software we use for the server computers that deliver our
applications is written in the Java programming language. We also support
electronic commerce protocols such as extensible markup language, or XML, and
secure socket layer, or SSL. Our support of open standards allows customers with
disparate computer systems and networks to utilize our applications without the
need to upgrade computer systems, software or equipment.
REMOTE AND OFF-LINE USERS. Professional services personnel often work at
remote locations, and therefore it is important that they be able to access
company or industry-specific knowledge and data from any location. Our
technology provides support for virtual private networks and connections from
the Internet, allowing access to be extended to remote users. Our technology
also facilitates work by users who are not connected to an organization's
network.
MULTI-TIER ARCHITECTURE. The Niku application framework is designed in
components, making it easier for customers to implement solutions engineered
around customized workflows, user interfaces and content. In addition, the
component-based architecture makes it easier to maintain
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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 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.
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The following diagram illustrates how these components are related in the
Niku application framework.
NIKU APPLICATION FRAMEWORK DIAGRAM
The Niku Adaptable KnowledgeStore coordinates the synchronization of the
information stored in the relational database management system and file system
and coordinates access to relational database management system and the file
system by the search engine. The relational database managed system stores
structured data, such as financial information. The file system stores
unstructured data, such as documents. The search engine allows users to search
the structured data, and unstructured data. The Applications Modules contain the
commands for the operation of the specific application and accesses structured
and unstructured data through the Niku Adaptable KnowledgeStore. The FrontWorks
communicates with the Applications Modules and generates the displays, or user
interfaces, based on user defined preferences and actions. The ImportWorks
allows the importation of external documents into the Niku Adaptable
KnowledgeStore. The DataLink adapters allow the Niku application to communicate
with other third party software products.
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.
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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.
SALES AND FIELD OPERATIONS
We market our products and services primarily through our worldwide direct
sales force. In addition, we have a strategic business development group focused
on developing relationships with market-leading organizations and potential
development partners.
We also have dedicated technical pre-sales professionals who assist with
creating customer-tailored business proposals, product demonstrations and
presentations that address the specific needs of each prospective customer. We
have technical pre-sales professionals deployed regionally across the United
States as well as internationally in Canada, The Netherlands, United Kingdom,
Germany and Australia. In addition to the direct sales organization, we have a
small telesales operation, along with external telesales vendors, to develop
qualified 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
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face competition from a number of competitors offering products and services
that vary in functionality. These include:
- developers of professional services automation software and related
Internet-based applications;
- providers of hosted software for IT consultants;
- operators of Internet-based job boards;
- developers of project management software; and
- enterprise resource planning software companies that may decide to
develop software or applications for the professional services industry.
We believe that there are a number of companies that offer products that
provide some of the functionality of our products. However, we do not believe
that any one company has a dominant position in our market as a whole.
We expect additional competition from other established and emerging
companies as the professional services automation market continues to develop.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business.
We believe that the primary competitive factors in our market include:
- a significant base of reference customers;
- breadth and depth of the solution;
- critical mass of individual professionals using the solutions;
- product quality and performance;
- customer service and support;
- core technology;
- product features and functionality;
- product usability; and
- ease of implementation.
We believe our current products and services compete favorably with respect
to these factors; however, this market is relatively new and changing rapidly.
We may not be able to maintain our competitive position against current or
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other resources. 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,
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we cannot assure you that this user agreement will afford us significant
protection. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including but not limited to, requiring those persons
with access to our proprietary information to execute confidentiality agreements
with us and restricting access to our source code. We seek to protect our
software, documentation, templates and other written materials and content under
trade secret and copyright laws, which afford only limited protection.
We have applied for four U.S. patents. We cannot assure you that these
applications will be approved, that any patents that may issue will protect our
intellectual property or that any issued patents will not be challenged by third
parties. Furthermore, other parties may independently develop similar or
competing technologies or design around any patents that may be issued. It is
possible that any patent issued to us may not provide any competitive
advantages, that we may not develop future proprietary products or technologies
that are patentable, and that the patents of others may seriously limit our
ability to do business. In this regard, we have not performed any comprehensive
analysis of patents of others that may limit our ability to do business.
We have applied for registration of the trademarks Niku and iNiku with the
U.S. Patent and Trademark Office. In addition, we have applied for trademarks in
foreign countries. These trademark applications are subject to review by the
applicable governmental authority, may be opposed by private parties, and may
not be issued. Therefore, we cannot assure you that these registrations would,
if issued, provide us with significant protection for our trademarks.
We cannot assure you that any of our proprietary rights with respect to our
products or services will be viable or be of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
its software exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States. Our means of
protecting our proprietary rights may not be adequate.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in our
software and Internet industries. We could become subject to intellectual
property infringement claims as the number of our competitors grows and our
products and services overlap with competitive offerings. These claims, even if
not meritorious, could be expensive and divert management's attention from
operating our company. If we become liable to third parties for infringing their
intellectual 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.
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FACILITIES
Our principal executive offices occupy 55,870 square feet in Redwood City,
California under a lease that expires in June 2005. We also lease an office in
the Chicago metropolitan area that occupies approximately 21,630 square feet and
have additional facilities in the Atlanta, Amsterdam, Pointe-Claire, Portland,
Quebec and Sydney metropolitan areas. We believe that our current facilities are
adequate to meet our needs for the foreseeable future.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of January 29, 2000
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Farzad Dibachi....................... 35 Chief Executive Officer and Chairman of the Board
Joshua Pickus........................ 38 President, Vertical Markets
Mark Nelson.......................... 40 Chief Financial Officer
Rhonda Dibachi....................... 38 Senior Vice President of Development
Kenneth Johnson...................... 42 Senior Vice President of Sales
Harold Slawik........................ 39 Senior Vice President of Corporate Development
Michael Brooks....................... 54 Director
John Chen............................ 44 Director
Terence Garnett...................... 42 Director
William Raduchel..................... 53 Director
Maynard Webb......................... 44 Director
</TABLE>
Farzad Dibachi has served as the chief executive officer and chairman of
the board of directors of Niku since he co-founded Niku in January 1998. Before
co-founding Niku, from October 1995 to August 1997, Mr. Dibachi was a co-founder
and the president and chief executive officer of Diba, Inc., an information
appliance software company, until it was sold to Sun Microsystems, Inc. in
August 1997. From June 1994 to November 1995, he served as senior vice
president, new media division for Oracle Corporation, a database company. From
June 1993 to June 1994, he was vice president, marketing for Oracle's tools
division and senior director of product development in Oracle's desktop products
division. Mr. Dibachi holds a B.S. in mechanical engineering and a B.A. in
computer science from San Jose State University. Mr. Dibachi is married to
Rhonda Dibachi, senior vice president of development of Niku.
Joshua Pickus has served as president, vertical markets of Niku since
November 1999. Before joining Niku, from April 1999 to November 1999, Mr. Pickus
was a general partner of the Spinnaker Crossover Fund of Bowman Capital
Management, a technology investment firm. From January 1994 to March 1999, he
was a partner at Venture Law Group, a Silicon Valley law firm. Prior to joining
Venture Law Group, Mr. Pickus was a partner at Morrison & Foerster, an
international law firm. Mr. Pickus holds an A.B. from Princeton University and a
J.D. from the University of Chicago Law School.
Mark Nelson has served as the chief financial officer of Niku since August
1999. Before joining Niku, from May 1998 to August 1999, Mr. Nelson was the vice
president, finance and corporate controller at Synopsys, Inc., a software
company. From June 1995 to May 1998, he served as corporate controller and chief
accounting officer at Plantronics, Inc., a telecommunications equipment
manufacturer. From September 1991 to June 1995, he held several director level
positions at Conner Peripherals, Inc., a disk drive manufacturer, most recently
serving as group controller from July 1994 to June 1995. Mr. Nelson holds a B.A.
in accounting from Michigan State University and is a certified public
accountant.
Rhonda Dibachi has served as the senior vice president of development of
Niku since May 1998. Before joining Niku, from October 1997 to April 1998, Ms.
Dibachi was the director of quality assurance at Webvan Group, Inc., an
Internet-based retailer of groceries. From July 1996 to October 1997, Ms.
Dibachi served as a software testing consultant at Software Development
Technologies, a software technology company. From September 1989 to May 1996,
she worked at the applications division of Oracle where she held a number of
positions, including development manager, architect and director of testing. Ms.
Dibachi holds a B.S. in nuclear engineering from Northwestern University and an
M.B.A. from Santa Clara University. Ms. Dibachi is married to Farzad Dibachi,
chief executive officer and chairman of the board of
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directors of Niku, and is the sister-in-law of Harold Slawik, senior vice
president of corporate development of Niku.
Kenneth Johnson has served as the senior vice president of sales of Niku
since January 1999. Before joining Niku, from May 1995 to December 1998, Mr.
Johnson held various positions at Baan Company N.V., a software company, most
recently serving as vice president, electronics industry and western region from
July 1998 to December 1998. From May 1994 to April 1995, Mr. Johnson was a sales
executive at Ramco Systems Corporation, an India-based start-up company. Prior
to joining Ramco Systems, Mr. Johnson was a sales executive at SAP America,
Inc., a software company. Mr. Johnson holds a B.S. in biochemistry from
California Polytechnic State University in San Luis Obispo.
Harold Slawik has served as the senior vice president of corporate
development of Niku since he co-founded Niku in February 1998. Before
co-founding Niku, from August 1997 to February 1998, Mr. Slawik served as
associate general counsel at Sun Microsystems, Inc., a software technology
company. From June 1996 to August 1997, he was vice president and general
counsel at Diba. From July 1995 to April 1996, he served as associate general
counsel at Ensodex, Inc., a software development company. From February 1990 to
July 1995, Mr. Slawik was an attorney in private practice in St. Paul,
Minnesota. Mr. Slawik holds a B.A. in philosophy from the University of St.
Thomas and a J.D. from William Mitchell College of Law. Mr. Slawik is the
brother-in-law of Rhonda Dibachi, senior vice president of development of Niku.
Michael Brooks has been a director of Niku since May 1999. Mr. Brooks has
been a partner of J.H. Whitney & Co., a venture capital firm, since January
1985. He also serves as a director of Homestore.com, Inc., Pegasus
Communications Corporation, Media Metrix, Inc., SunGard Data Systems Inc.,
USinternetworking, Inc., VitaminShoppe.com, Inc. and several other private
companies. Mr. Brooks holds a B.A. in history from Yale College and an M.B.A.
from Harvard Business School.
John Chen has been a director of Niku since March 1998. Mr. Chen has been
the president, chief executive officer and the chairman of the board of
directors of Sybase, Inc., a database company, since August 1997. From March
1995 to July 1997, he was president and chief executive officer of the open
enterprise computing division of Siemens Nixdorf, an electrical engineering and
electronics company, as well as president, chief executive officer and chairman
of Siemens Pyramid, a subsidiary of Siemens Nixdorf. Mr. Chen also serves as a
director of Beyond.com Corporation. Mr. Chen holds a B.S. in electrical
engineering from Brown University and a M.S. in electrical engineering from the
California Institute of Technology.
Terence Garnett has been a director of Niku since February 1998. Mr.
Garnett has been a managing director of Garnett Capital since January 2000.
Before joining Garnett Capital, from April 1995 to December 1999, Mr. Garnett
was a venture partner of Venrock Associates, a venture capital firm. From August
1994 to April 1995, Mr. Garnett was a private investor. From October 1991 to
August 1994, he was senior vice president of worldwide marketing and business
development and senior vice president of the new media division at Oracle. He
also serves as a director of Neoforma.com, Inc., CrossWorlds Software, Inc. and
several other private companies. Mr. Garnett holds a B.S. from the University of
California, Berkeley and an M.B.A. from Stanford Graduate School of Business.
Mr. Garnett is the brother-in-law of Angelina Schutz, our vice president of
business development.
William Raduchel has been a director of Niku since January 1999. Mr.
Raduchel has been the senior vice president and chief technology officer of
America Online, Inc. since September 1999. From January 1998 to September 1999,
he was the chief strategy officer at Sun Microsystems. From July 1991 to January
1998, he served variously as vice president of corporate planning and
development, chief financial officer, acting vice president of human resources
and chief information officer at Sun Microsystems. Mr. Raduchel also serves as a
director of MIH Limited, OpenTV, Inc. and Chordiant Software Inc. Mr. Raduchel
holds a B.A. in
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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. Mr. Webb holds a B.A. in criminal justice from Florida Atlantic University.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of six
members. The term of each of our current directors will expire at the next
annual meeting of stockholders. Following this offering, the board will consist
of six directors divided into three classes, Class I, Class II and Class III,
with each class serving staggered three-year terms. The Class I directors,
initially Messrs. Brooks and Dibachi, will stand for reelection or election at
the 2000 annual meeting of stockholders. The Class II directors, initially
Messrs. Raduchel and Webb, will stand for reelection at the 2001 annual meeting
of stockholders. The Class III directors, initially Messrs. Chen and Garnett,
will stand for reelection or election at the 2002 annual meeting of
stockholders. Messrs. Garnett and Brooks serve on the board of directors under
the terms of a voting agreement among us and some of our principal stockholders.
This voting agreement will terminate upon completion of this offering.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
Following this offering, our board of directors will also have a transaction
committee.
Compensation Committee. The current members of our compensation committee
are Messrs. Chen and Webb. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers. The compensation committee also administers our stock plans.
Audit Committee. The current members of our audit committee are Messrs.
Brooks, Garnett and Raduchel. Our audit committee reviews and monitors our
financial statements and accounting practices, makes recommendations to our
board regarding the selection of independent auditors and reviews the results
and scope of the audit and other services provided by our independent auditors.
Transaction Committee. Following this offering, the members of our
transaction committee will be Messrs. Dibachi and Garnett. Subject to certain
limitations, our transaction committee will review and authorize acquisitions of
or mergers with other companies, investments in other companies or businesses,
the incurrence of debt, bank financing or equipment lease financing and other
financing transactions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been an officer or employee of ours. None of our executive officers
currently serves or in the past has served as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on our board or compensation committee. Prior to the creation of our
compensation committee, all compensation decisions were made by our full board.
Mr. Dibachi did not participate in discussions by our board with respect to his
compensation.
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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 prospectus forms
a part, will be granted an option to purchase 50,000 shares of our common stock.
Also, each eligible director who became a member of the board prior to the
effective date of the registration statement of which this prospectus forms a
part and who did not receive an option grant will receive an option to purchase
50,000 shares of our common stock. Immediately following each annual meeting of
our stockholders, each eligible director will automatically be granted an
additional option to purchase 25,000 shares of our common stock if the director
has served continuously as a member of the board since the date of the prior
annual meeting. All options to be granted to each eligible director will have an
exercise price equal to the fair market value of our common stock on the date of
grant. The board of directors may make discretionary supplemental grants to an
eligible director who has served for less than one year from the date of such
director's initial grant, provided that no director may receive options to
purchase more than 75,000 shares of our common stock in any calendar year. The
options have 10 year terms, and will terminate three months following the date
the director ceases to be a director or a consultant or 12 months if the
termination is due to death or disability. All options granted under the
directors plan will become exercisable over a three-year period at a rate of
2.778% per month so long as he or she continues as a member of the board or as a
consultant. In the event of our dissolution or liquidation or a "change in
control" transaction, options granted under the plan will become 100% vested and
exercisable in full.
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EXECUTIVE COMPENSATION
The following table presents compensation information for our fiscal year
ended January 29, 2000 paid or accrued by our chief executive officer and each
of our other executive officers. The compensation table excludes other
compensation in the form of perquisites and other personal benefits that
constituted less than 10% of the total annual salary and bonus of each of the
named executive officers in the fiscal year ended January 29, 2000. Mr. Pickus
joined us in November 1999 at an annual base salary of $300,000. Mr. Nelson
joined us in August 1999 at an annual base salary of $200,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ------------------------
ALL OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS
---------------------------- -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Farzad Dibachi................ $180,000 $180,000 -- -- --
Chief Executive Officer
Joshua Pickus................. 75,000 25,000 -- 1,250,000(1) --
President, Vertical Markets
Mark Nelson................... 93,974 45,000 -- 350,000(2) --
Chief Financial Officer
Rhonda Dibachi................ 173,333 100,000 -- -- --
Senior Vice President of
Development
Kenneth Johnson............... 200,000 200,000 -- 250,000(3) --
Senior Vice President
of Sales
Harold Slawik................. 173,333 100,000 -- -- --
Senior Vice President
of Corporate Development
</TABLE>
- ---------------
(1) In November 1999, Mr. Pickus purchased 1,250,000 shares of our restricted
common stock at $1.00 per share. These shares are subject to our right of
repurchase that lapses as to 33.33% of the shares upon the first anniversary
of the grant date and as to 2.77% of the shares each month after that time.
Our right of repurchase lapses as to all of these shares in the event of a
change of control.
(2) In November 1999, Mr. Nelson purchased 350,000 shares of our restricted
common stock at $1.00 per share. These shares are subject to our right of
repurchase that lapses as to 25% of the shares upon the first anniversary of
the grant date and as to 2.083% of the shares each month after that time.
Our right of repurchase lapses as to all of these shares in the event of a
change of control.
(3) In March 1999, Mr. Johnson purchased 250,000 shares of our restricted common
stock at $0.10 per share. These shares are subject to our right of
repurchase that lapses as to 25% of the shares upon the first anniversary of
the grant date and as to 2.083% of the shares each month after that time.
During the fiscal year ended January 29, 2000, we did not grant any stock
options to our chief executive officer or our other executive officers.
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<PAGE> 63
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JANUARY 29, 2000
AND OPTION VALUES AT JANUARY 29, 2000
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during the fiscal year ended January 29,
2000 and the number of shares of our common stock subject to "exercisable" and
"unexercisable" stock options held as of January 29, 2000 by our chief executive
officer and each of our other executive officers. Also presented are values of
"in-the-money" options, which represent the positive difference between the
exercise price of each outstanding stock option and an assumed initial public
offering price of $11.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS
SHARES JANUARY 29, 2000 AT JANUARY 29, 2000
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Farzad Dibachi....... -- $ -- -- -- $ -- $ --
Joshua Pickus........ -- -- -- -- -- --
Mark Nelson.......... -- -- -- -- -- --
Rhonda Dibachi....... -- -- -- -- -- --
Kenneth Johnson...... -- -- -- -- -- --
Harold Slawik........ 167,708 40,250 7,292 175,000 80,139 1,923,250
</TABLE>
EMPLOYEE BENEFIT PLANS
1998 Stock Plan. As of January 29, 2000, options to purchase 4,921,236
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
as of January 29, 2000 had a weighted average exercise price of $1.03 per share.
Our 1998 Stock Plan will terminate upon this offering, at which time, our 2000
Equity Incentive Plan will become effective. As a result, no options will be
granted under our 1998 Stock Plan after this offering. However, termination will
not affect outstanding options, all of which will remain outstanding and subject
to our 1998 Stock Plan and stock option agreements until exercise or until they
terminate or expire by their terms. Options granted under our 1998 Stock Plan
are subject to terms substantially similar to those described below with respect
to options granted under our 2000 Equity Incentive Plan.
2000 Equity Incentive Plan. Our 2000 Equity Incentive Plan will become
effective on the date of this prospectus and will serve as the successor to our
1998 Stock Plan. We have reserved 6,000,000 shares of our common stock to be
issued under this plan. In addition, shares available for grant under the 1998
Stock Plan on the date of this prospectus and any shares issued under the 1998
Stock Plan that are forfeited or repurchased by us or that are issuable upon
exercise of options that expire or become unexercisable for any reason without
having been exercised in full will be available for grant and issuance under our
2000 Equity Incentive Plan. Shares will again be available for grant and
issuance under our 2000 Equity Incentive Plan that:
- are subject to issuance upon exercise of an option granted under our 2000
Equity Incentive Plan that cease to be subject to the option for any
reason other than exercise of the option;
- have been issued upon the exercise of an option granted under our 2000
Equity Incentive Plan that are subsequently forfeited or repurchased by
us at the original purchase price;
- are subject to an award granted pursuant to a restricted stock purchase
agreement under our 2000 Equity Incentive Plan that are subsequently
forfeited or repurchased by us at the original issue price; or
- are subject to stock bonuses granted under our 2000 Equity Incentive Plan
that terminate without shares being issued.
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<PAGE> 64
On each January 1, the aggregate number of shares reserved for issuance
under our 2000 Equity Incentive Plan will increase automatically by a number of
shares equal to 5% of our outstanding shares on December 31 of the preceding
year.
Our 2000 Equity Incentive Plan will terminate 10 years from the date our
board of directors approved the plan, unless it is terminated earlier by our
board of directors. The plan will authorize the award of options, restricted
stock awards and stock bonuses. No person will be eligible to receive more than
2,000,000 shares in any calendar year under the plan other than a new employee
of Niku, who will be eligible to receive up to 2,500,000 shares in the calendar
year in which the employee commences employment.
Our 2000 Equity Incentive Plan will be administered by our board of
directors. The board will have the authority to construe and interpret the plan,
grant awards and make all other determinations necessary or advisable for the
administration of the plan. Also, our non-employee directors are entitled to
receive automatic annual grants of options to purchase shares of our common
stock, as described under "Management -- Director Compensation."
Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. Incentive stock options may be granted only to
employees of Niku or of a parent or subsidiary of Niku. All other awards other
than incentive stock options may be granted to employees, officers, directors
and consultants of Niku or any parent or subsidiary of Niku, provided the
consultants render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction. The exercise price of incentive
stock options must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive stock options
granted to 10% stockholders must be at least equal to 110% of that value. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant.
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under our 2000 Equity Incentive Plan
is 10 years.
Awards granted under our 2000 Equity Incentive Plan may not be transferred
in any manner other than by will or by the laws of descent and distribution.
They may be exercised during the lifetime of the optionee only by the optionee.
The compensation committee may determine otherwise and provide for these
provisions in the award agreement, but only with respect to awards that are not
incentive stock options. Options granted under our 2000 Equity Incentive Plan
generally may be exercised for a period of time after the termination of the
optionee's service to Niku or a parent or subsidiary of Niku. Options will
generally terminate immediately upon termination of employment for cause.
The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.
If we dissolve or liquidate or have a "change in control" transaction, the
vesting of all outstanding awards will accelerate as to an additional 25% of the
shares that are unvested on the date of the change in control, and thereafter
all outstanding awards will continue to vest in equal monthly installments over
the remaining original vesting term as set forth in the award agreement. In the
discretion of the compensation committee, the vesting of these awards may be
further accelerated upon one of these transactions.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
will become effective on the first day on which price quotations are available
for our common stock on the Nasdaq National Market. We have initially reserved
1,000,000 shares of our common stock under this plan. On each January 1, the
aggregate number of shares reserved for issuance under our
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<PAGE> 65
2000 Employee Stock Purchase Plan will increase automatically by a number of
shares equal to 1% of our outstanding shares on December 31 of the preceding
year. Our board of directors or compensation committee may reduce the amount of
the increase in any particular year. The aggregate number of shares reserved for
issuance under our 2000 Employee Stock Purchase Plan may not exceed 10,000,000
shares.
Our 2000 Employee Stock Purchase Plan will be administered by our
compensation committee. Our compensation committee will have the authority to
construe and interpret the plan, and its decisions will be final and binding.
Employees generally will be eligible to participate in our 2000 Employee
Stock Purchase Plan if they are employed before the beginning of the applicable
offering period, are customarily employed by us, or our parent or any
subsidiaries that we designate, for more than 20 hours per week and more than
five months in a calendar year and are not, and would not become as a result of
being granted an option under the plan, 5% stockholders of us or our parent or
designated subsidiaries. Participation in our 2000 Employee Stock Purchase Plan
will end automatically upon termination of employment for any reason.
Under our 2000 Employee Stock Purchase Plan, eligible employees will be
permitted to acquire shares of our common stock through payroll deductions.
Eligible employees may select a rate of payroll deduction between 1% and 10% of
their compensation and are subject to maximum purchase limitations.
Except for the first offering period, each offering period under our 2000
Employee Stock Purchase Plan will be for two years and consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day on which price quotations for our common stock are available on the
Nasdaq National Market. Offering periods and purchase periods will begin on
March 1 and September 1 of each year. However, because the first day on which
price quotations for our common stock will be available on the Nasdaq National
Market may not be March 1 or September 1, the length of the first offering
period may be more or less than two years, and the length of the first purchase
period may be more or less than six months.
Our 2000 Employee Stock Purchase Plan will provide that, in the event of
our proposed dissolution or liquidation, each offering period that commenced
prior to the closing of the proposed event will continue for the duration of the
offering period, provided that the compensation committee may fix a different
date for termination of the plan. The purchase price for our common stock
purchased under the plan will be 85% of the lesser of the fair market value of
our common stock on the first day of the applicable offering period or the last
day of the applicable purchase period. The compensation committee will have the
power to change the offering dates, purchase dates and duration of offering
periods without stockholder approval, if the change is announced prior to the
beginning of the affected date or offering period.
Our 2000 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code.
The plan will terminate 10 years from the date the plan was adopted by our
board, unless it is terminated earlier under the terms of the plan. The board
will have the authority to amend, terminate or extend the term of the plan,
except that no action may adversely affect any outstanding options previously
granted under the plan.
Except for the automatic annual increase of shares described above,
stockholder approval will be required to increase the number of shares that may
be issued or to change the terms of eligibility under Our 2000 Employee Stock
Purchase Plan. The board will be able to make amendments to the plan as it
determines to be advisable if the financial accounting treatment for the plan is
different from the financial accounting treatment in effect on the date the plan
was adopted by the board.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees who
are at least 21 years old and
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who have been employed with us for at least one year are generally eligible to
participate and may enter the plan as of January 1 and July 1 of each year.
Participants may make pre-tax contributions to the plan of up to 12% of their
eligible earnings, subject to a statutorily prescribed annual limit. Each
participant is fully vested in his or her contributions and the investment
earnings. There are no matching contributions under the plan. Contributions by
the participants to the plan, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
EMPLOYMENT ARRANGEMENTS
All of our employees are at-will employees.
We have executed an offer letter with Harold Slawik, our senior vice
president of corporate development. This letter, effective January 1998,
established Mr. Slawik's initial annual base salary at $144,000. Mr. Slawik also
received a sign-on bonus of $50,000. In the fiscal year ended January 31, 2000,
Mr. Slawik received a salary of $173,333. As a co-founder of Niku, we granted
Mr. Slawik the opportunity to purchase 87,500 shares of our common stock which
he bought under a common stock purchase agreement in February 1998 at a purchase
price of $0.01 per share. These shares were subject to a right of repurchase
upon termination of his employment. Our right of repurchase has now lapsed as to
all of these shares. Under an option agreement, in January 1998, we granted to
Mr. Slawik an option to purchase 350,000 shares of our common stock at an
exercise price of $0.01 per share. This option is exercisable as to 25% of the
shares upon the first anniversary of the grant date and as to 2.083% of the
shares subject to the option each month thereafter. Mr. Slawik has exercised
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
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<PAGE> 67
three months of employment during his first two years of employment with us.
Under a restricted stock purchase agreement, in November 1999, Mr. Pickus
purchased 1,250,000 shares of our restricted common stock at a purchase price of
$1.00 per share. These shares are subject to our right to repurchase upon
termination of his employment. Our right of repurchase lapses as to 33.33% of
the shares upon the first anniversary of employment and as to 2.77% of the
shares each month thereafter. Our right of repurchase lapses as to all of the
shares in the event of a change of control. In November 1999, we loaned Mr.
Pickus $1,249,875, secured by a stock pledge agreement, in connection with his
purchase of shares of our restricted common stock. The loan accrues interest at
a rate of 6.08% and is due on or before November 1, 2002. Under a separate loan
agreement, we loaned Mr. Pickus $200,000. The loan accrues interest at a rate of
8.0% and is due on or before November 11, 2002.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to very
limited exceptions;
- we may indemnify our employees and agents to the fullest extent permitted
by the Delaware General Corporation Law, subject to very limited
exceptions;
- we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding;
- we may advance expenses, as incurred, to our employees and agents in
connection with a legal proceeding; and
- the rights conferred in the bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, we have entered into indemnity agreements with each of
our current directors and executive officers. These agreements provide for the
indemnification of our officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were our agents. We also intend to obtain
directors' and officers' insurance to cover our directors, officers and some of
our employees for liabilities, including liabilities under securities laws. We
believe that these indemnification provisions and agreements and this insurance
are necessary to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against directors
and officers as required by these indemnification provisions. At present, there
is no pending litigation or proceeding involving any of our directors, officers
or employees regarding which indemnification by us is sought, nor are we aware
of any threatened litigation that may result in claims for indemnification.
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CERTAIN TRANSACTIONS
Other than the employment arrangements described in "Management" and the
transactions described below, since we were formed, there has not been nor is
there currently proposed any transaction or series of similar transactions to
which we were or will be a party:
- in which the amount involved exceeds or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
COMMON STOCK TRANSACTIONS
In January 1998, Farzad Dibachi, our chief executive officer and chairman
of the board of directors, purchased 4,000,000 shares of our common stock at a
purchase price of $0.01 per share. In January 1998, the Garnett 1996 Children's
Trust UTA for the benefit of the children of Terence Garnett, one of our
directors, purchased 500,000 shares of our common stock at a purchase price of
$0.01 per share. In February 1998, Joshua Pickus, our president, vertical
markets, purchased 10,000 shares of our common stock at a purchase price of
$0.01 per share and Harold Slawik, our vice president of corporate development,
purchased 87,500 shares of our common stock at a purchase price of $0.01 per
share.
PREFERRED STOCK FINANCINGS
In January 1998, we sold a total of 10,000,000 shares of our Series F
preferred stock at a purchase price of $0.05 per share. In February, April and
May 1998, we sold a total of 5,142,851 shares of our Series A preferred stock at
a purchase price of $0.35 per share. In October, November and December 1998, we
sold a total of 7,999,992 shares of our Series B preferred stock at a purchase
price of $0.75 per share. In May 1999, we sold a total of 9,987,439 shares of
our Series C preferred stock at a purchase price of $1.99 per share. In November
1999, we sold a total of 7,998,012 shares of our Series D preferred stock at a
purchase price of $5.00 per share.
Purchasers of our preferred stock include, among others, the following
executive officers, directors and holders of more than 5% of our outstanding
stock or entities affiliated with them:
<TABLE>
<CAPTION>
SERIES F SERIES A SERIES B SERIES C SERIES D
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCKHOLDER STOCK STOCK STOCK STOCK STOCK
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Farzad and Rhonda Dibachi.............. 7,500,000 291,428 666,666 -- --
Joshua Pickus.......................... -- 28,571 13,333 -- --
Mark Nelson............................ -- -- -- -- 10,000
Harold Slawik.......................... 2,000,000 5,714 -- -- --
John Chen.............................. -- 285,714 -- -- --
Terence Garnett........................ 2,000,000 1,857,142 493,333 577,890 500,000
William Raduchel....................... -- 285,714 66,666 -- --
Maynard Webb........................... -- 285,714 133,333 50,251 --
Vector Capital II, L.P................. -- -- -- -- 6,226,195
Entities associated with Venrock
Associates........................... -- -- 5,173,333 2,437,186 388,000
Entities associated with J.H.
Whitney.............................. -- -- -- 4,522,613 768,208
</TABLE>
Shares for Farzad and Rhonda Dibachi include 1,500,000 shares of our Series
F preferred stock and 5,714 shares of our Series A preferred stock held by
Florence V, LLC. Mr. Dibachi disclaims beneficial ownership of shares held by
Florence V, LLC except to the extent of his percentage interest.
Shares for Harold Slawik include 1,500,000 shares of our Series F preferred
stock and 5,714 shares of our Series A preferred stock held by Florence V, LLC.
Mr. Slawik disclaims
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beneficial ownership of shares held by Florence V, LLC except to the extent of
his percentage interest. Also includes 500,000 shares held by the Franklin David
Dibachi 1996 Trust, of which Mr. Slawik serves as the trustee.
Vector Capital II, L.P. acquired its shares as part of the Proamics
acquisition.
LOANS TO EXECUTIVE OFFICERS
In March 1999, we loaned to Kenneth Johnson, our senior vice president of
sales, $24,975, secured by a pledge and security agreement, in connection with
his purchase of our restricted common stock. This loan accrues interest at a
rate of 4.77% and is due on or before January 4, 2003.
In November 1999, we loaned to Mark Nelson, our chief financial officer,
$349,965, secured by a stock pledge agreement, in connection with his purchase
of our restricted common stock. The loan accrues interest at a rate of 6.08% and
is due on or before November 18, 2002.
In November 1999, we loaned to Joshua Pickus, our president, vertical
markets, $1,249,875, secured by a stock pledge agreement, in connection with his
purchase of our restricted common stock. The loan accrues interest at a rate of
6.08% and is due on or before November 1, 2002. We also loaned $200,000 to Mr.
Pickus in November 1999 under a separate agreement, and this loan accrues
interest at a rate of 8.0% and is due on or before November 11, 2002.
ACQUISITION OF PROAMICS
In December 1999, we acquired Proamics. In connection with our acquisition
of Proamics, Vector Capital II, L.P. received 6,226,195 shares of our Series D
preferred stock of which 1,245,239 are held in escrow to secure indemnification
obligations of the former stockholders of Proamics. Each share of Series D
preferred stock will be converted into one share of our common stock upon the
closing of this offering.
PERSONS OR ENTITIES RELATED TO OUR DIRECTORS
In December 1998, we entered into a software license and services agreement
with Sybase pursuant to which we granted Sybase a license to make, install and
use copies of our software. We paid Sybase a license fee of $142,500 under this
agreement. We paid Sybase an additional $34,644 in support fees. In March 1999,
we entered into a software license agreement pursuant to which Sybase granted us
a license to use Sybase software. John Chen, one of our directors, is the
president, chief executive officer and the chairman of the board of directors of
Sybase.
We executed an offer letter with Angelina Schutz, our vice president of
business development. This letter, effective June 1999, established Ms. Schutz's
annual base salary at $150,000 and qualified her to receive $150,000 as
commission if she meets her revenue quota and management deliverables, and in
excess of this amount if she exceeds her targets. Under an option agreement, in
June 1999, we granted to Ms. Schutz an option to purchase 150,000 shares of our
common stock at an exercise price of $0.25 per share. This option is exercisable
as to 25% of the shares upon the first anniversary of the grant date and as to
2.083% of the shares subject to the option each month thereafter. Ms. Schutz is
the sister-in-law of Terence Garnett, one of our directors.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of January 29, 2000 and as adjusted to reflect the sale of
our common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- each of our executive officers; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of January 29, 2000 are deemed to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person. Unless indicated below, the address for each listed
stockholder is c/o Niku Corporation, 305 Main Street, Redwood City, California
94063.
The percentage of common stock outstanding as of January 29, 2000 is based
on 61,044,235 shares of common stock outstanding on that date, assuming that all
outstanding preferred stock has been converted into common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Farzad and Rhonda Dibachi(1)............ 11,558,094 18.9% 16.7%
Entities and individuals associated with
Venrock Associates(2)................. 7,998,519 13.1 11.6
2499 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Vector Capital II, L.P.(3).............. 6,226,195 10.2 9.0
465 Montgomery Street, 19th Floor
San Francisco, CA 94104
Terence Garnett(4)...................... 5,908,365 9.7 8.6
Entitles and individuals associated with
J.H. Whitney(5)....................... 5,290,821 8.7 7.7
177 Broad Street
Stamford, CT 06901
Michael Brooks(6)....................... 5,290,821 8.7 7.7
Harold Slawik(7)........................ 2,385,297 3.9 3.5
Joshua Pickus(8)........................ 1,296,904 2.1 1.9
Maynard Webb(9)......................... 533,187 * *
Mark Nelson(10)......................... 360,000 * *
John Chen(11)........................... 352,381 * *
William Raduchel(12).................... 344,269 * *
Kenneth Johnson(13)..................... 250,000 * *
All directors and executive officers as
a group (11 persons)(14).............. 26,773,604 43.8 38.7
</TABLE>
- ---------------
* Less than 1%.
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<PAGE> 71
(1) Represents 10,052,380 shares held by The Dibachi Family Trust UDT and
1,505,714 shares held by Florence V, LLC. Mr. Dibachi disclaims beneficial
ownership of shares held by Florence V, LLC except to the extent of his
percentage interest.
(2) Represents 3,478,372 shares held by Venrock Associates, 4,500,747 shares
held by Venrock Associates II, L.P. and 19,400 shares held by Venrock
Entrepreneurs Fund.
(3) Represents 6,226,195 shares held by Vector Capital II, L.P.
(4) Represents 1,200,000 shares held by the Garnett Children's Trust UTA,
4,632,988 shares held by the Garnett Family Trust and 75,377 shares held by
Mr. Garnett. This number does not include 3,478,372 shares held by Venrock
Associates, 4,500,747 shares held by Venrock Associates II, L.P. nor 19,400
shares held by Venrock Entrepreneurs Fund. Mr. Garnett, one of our
directors, is a consultant to Venrock Associates, Venrock Associates II,
L.P. and Venrock Entrepreneurs Fund but does not share voting or
dispositive power over the shares held by these entities.
(5) Represents 5,166,333 shares held by J.H. Whitney III, L.P. and 124,488
shares held by Whitney Strategic Partners III, L.P.
(6) Represents 5,166,333 shares held by J.H. Whitney III, L.P. and 124,488
shares held by Whitney Strategic Partners III, L.P. Mr. Brooks, one of our
directors, is a managing member of the general partner of these entities.
Mr. Brooks disclaims beneficial ownership of shares held by these entities
except to the extent of his pecuniary interest in them.
(7) Represents 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 1,296,904 shares held by the Pickus Family Trust.
(9) Represents 469,298 shares held by The Webb Family Trust and 63,889 shares
subject to options exercisable within 60 days of January 29, 2000 held by
Mr. Webb.
(10) Represents 360,000 shares held by Mark Nelson.
(11) Represents 285,714 shares held by the John S. and Sherry H. Chen Family
Trust and 66,667 shares subject to options exercisable within 60 days of
January 29, 2000 held by Mr. Chen.
(12) Represents 238,714 shares held by The William J. Raduchel Revocable Trust,
38,889 shares subject to options exercisable within 60 days of January 29,
2000 held by Mr. Raduchel and 66,666 shares held by Mr. Raduchel.
(13) Represents 250,000 shares held by Kenneth Johnson.
(14) Represents 26,582,284 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.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 250,000,000 shares of common stock, $0.0001 par value per
share, and 10,000,000 shares of preferred stock, $0.0001 par value per share. As
of January 29, 2000, and assuming the conversion of all outstanding preferred
stock into common stock, there were outstanding 61,044,235 shares of our common
stock held by approximately 263 stockholders, of which 2,437,083 shares were
subject to our right of repurchase, options to purchase 4,921,236 shares of our
common stock and warrants to purchase 630,000 shares of our common stock.
COMMON STOCK
Dividend rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
our common stock are entitled to receive dividends out of assets legally
available at the times and in the amounts as our board of directors may
determine.
Voting rights. Each holder of our common stock is entitled to one vote for
each share of common stock held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors is not provided
for in our certificate of incorporation. In addition, our certificate of
incorporation and bylaws require the approval of two-thirds, rather than a
majority, of the shares entitled to vote for certain matters. For a description
of these matters, see "-- Anti-Takeover Provisions."
No preemptive or similar rights. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Niku, the holders of our common stock are entitled to share
ratably among themselves in all assets remaining after payment of all
liabilities and the liquidation preferences of any outstanding preferred stock.
Each outstanding share of our common stock is, and all shares of our common
stock to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of our preferred
stock will be converted into shares of our common stock. See Note 6 of notes to
financial statements for a description of our preferred stock.
Following the offering, we will be authorized, subject to limitations
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
and to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board of directors can also increase or decrease the number of shares of any
series, but not below the number of shares of such series then outstanding,
without any further vote or action by the stockholders. The board may authorize
the issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of the common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of Niku and may adversely affect the market price of the our common
stock and the voting and other rights of the holders of our common stock. We
have no current plan to issue any shares of preferred stock.
WARRANTS
In February 1999, we issued to Comdisco a warrant to purchase 30,000 shares
of our Series B preferred stock at an exercise price of $0.75 per share. If not
sooner exercised, this warrant will remain outstanding for three years after the
completion of this offering unless the
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<PAGE> 73
underwriters request that Comdisco exercise this warrant, in which case the
warrant will expire immediately after the completion of this offering.
In February 1999, we also issued to Comdisco a warrant to purchase 600,000
shares of our Series B preferred stock at an exercise price of $0.75 per share.
If not sooner exercised, this warrant will remain outstanding for three years
after the completion of this offering unless the underwriters request that
Comdisco exercise this warrant, in which case the warrant will expire
immediately after the completion of this offering.
REGISTRATION RIGHTS
As a result of an amended and restated investors' rights agreement dated
November 17, 1999, as amended December 8, 1999, among us and some of our
stockholders, the holders of 51,319,497 shares of our common stock will be
entitled to rights with respect to the registration of these shares under the
Securities Act, as described below.
Demand registration rights. At any time after six months following this
offering, the holders of at least 50% of the shares having registration rights
can request that we register all or a portion of their shares, so long as such
registration covers at least 20% of their shares and the total offering price of
the shares to the public is at least $20 million. We will only be required to
file two registration statements in response to their demand registration
rights. We may postpone the filing of a registration statement for up to 120
days twice in a 12 month period if we determine that the filing would be
seriously detrimental to us and our stockholders.
Piggyback registration rights. If we register any securities for public
sale, the stockholders with registration rights will have the right to include
their shares in the registration statement. The managing underwriter of any
underwritten offering will have the right to limit the number of shares
registered by these holders to be included in the registration statement due to
marketing reasons.
Form S-3 registration rights. The holders of the shares having registration
rights can request that we register their shares if we are eligible to file a
registration statement on Form S-3 and if the total price of the shares offered
to the public is at least $2 million. We may postpone the filing of a
registration statement for up to 120 days twice in a 12 month period if we
determine that the filing would be seriously detrimental to us and our
stockholders.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
The registration rights described above will expire with respect to a
particular stockholder if it can sell all of its shares in a three month period
under Rule 144 of the Securities Act. In any event, the registration rights
described above will expire five years after this offering is completed.
Holders of these registration rights have waived the exercise of these
registration rights for 180 days following the date of this prospectus.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our certificate of incorporation and our
bylaws may have the effect of delaying, deferring or discouraging another person
from acquiring control of our company.
DELAWARE LAW
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
corporation's assets with any "interested stockholder," meaning a
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<PAGE> 74
stockholder who owns 15% or more of the corporation's outstanding voting stock,
as well as affiliates and associates of the stockholder, for three years
following the date that the stockholder became an "interested stockholder"
unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained that status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts and, accordingly,
may discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws provide that:
- following the completion of this offering, no action shall be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act by
written consent;
- following the completion of this offering, the approval of holders of
two-thirds of the shares entitled to vote at an election of directors
shall be required to adopt, amend or repeal our bylaws or amend or repeal
the provisions of our certificate of incorporation regarding the election
and removal of directors and ability of stockholders to take action;
- stockholders may not call special meetings of the stockholders without
advance notice and approval of the stockholders holding at least a
majority of the outstanding shares of stock;
- stockholders may not fill vacancies on the board;
- following the completion of this offering, our board of directors will be
divided into three classes, each serving staggered three-year terms,
which means that only one class of directors will be elected at each
annual meeting of stockholders, with the other classes continuing for the
remainder of their respective terms, and directors may only be removed
for cause by the holders of two-thirds of the shares entitled to vote at
an election of directors; and
- we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
These provisions of our certificate of incorporation and bylaws may have
the effect of delaying, deferring or discouraging another person from acquiring
control of our company.
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<PAGE> 75
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Harris Trust &
Savings Bank.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "NIKU."
A public market for the trading of our common stock has not existed prior
to this offering. Although this offering will result in a trading market for our
common stock, we do not know how liquid that market might be. The initial public
offering price for our common stock will be determined through negotiations
between the underwriters and us. If you purchase shares of our common stock, you
may not be able to resell those shares at or above the initial public offering
price.
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<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering, we will have shares of our common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of the outstanding shares, all of
the shares sold in this offering will be freely tradable, except that any shares
held by our "affiliates," as that term is defined in Rule 144 promulgated under
the Securities Act, may only be sold in compliance with the limitations
described below. The remaining 61,044,235 shares of our common stock will be
deemed "restricted securities" as defined under Rule 144. Restricted shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
--------- ----
<C> <S>
8,000,000 After the date of this prospectus, freely tradable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up
40,722,293 After 180 days from the date of this prospectus, the 180-day
lock-up terminates and these shares are saleable under Rule
144 (subject in some cases to volume limitations) or Rule
144(k) or Rule 701 (subject in some cases to a right of
repurchase by Niku)
8,356,137 After November 17, 2000, the one year anniversary of our
Series D preferred stock financing, these shares are
saleable under Rule 144 and Rule 701
8,289,236 After December 8, 2000, the one year anniversary of our
acquisition of Proamics, these shares are saleable under
Rule 144 and Rule 701
167,384 After January 31, 2001, the shares held in escrow pursuant
to our Legal Anywhere acquisition are released and these
shares are saleable under Rule 144 and Rule 701
64,930 After February 24, 2001, one year after the effective date,
these shares are saleable under Rule 144 and Rule 701
2,245,643 After June 8, 2001, the shares held in escrow pursuant to
our Proamics acquisition are released and these shares are
saleable under Rule 144 and Rule 701
1,198,612 Thereafter, these shares are saleable under Rule 144 and
Rule 701
</TABLE>
In connection with the purchase of 1,250,000 shares of our restricted
common stock by Joshua Pickus, our president, vertical markets, we loaned Mr.
Pickus $1,249,875 secured by a stock pledge agreement. In connection with the
purchase of 350,000 shares of our restricted common stock by Mark Nelson, our
chief financial officer, we loaned Mr. Nelson $349,965 secured by a stock pledge
agreement. The 1,250,000 shares of restricted common stock held by Mr. Pickus
and the 350,000 shares of restricted common stock held by Mr. Nelson will be
freely tradeable one year after each repays his respective loan in full.
However, we intend to file a registration statement on Form S-8 for the resale
of these shares 180 days from the date of this prospectus.
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<PAGE> 77
RULE 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including an affiliate of
Niku, who has beneficially owned shares for at least one year is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then-outstanding shares of our common stock, which will be approximately
690,442 shares immediately after this offering, or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of the sale is filed. In addition, a person who is not deemed to
have been an affiliate at any time during the 90 days preceding a sale and who
has beneficially owned the shares proposed to be sold for at least two years
would be entitled to sell these shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from one
of our affiliates, a person's holding period for the purpose of effecting a sale
under Rule 144 would commence on the date of transfer from the affiliate.
STOCK OPTIONS
As of January 29, 2000, options to purchase a total of 4,921,236 shares of
our common stock were outstanding, all of which were currently exercisable. We
intend to file a registration statement on Form S-8 under the Securities Act to
register all shares of our common stock subject to outstanding options and all
shares of our common stock issuable under our stock option and employee stock
purchase plans. Accordingly, shares of our common stock issued under these plans
will be eligible for sale in the public markets, subject to vesting restrictions
and the lock-up agreement described below. See "Management -- Employee Benefit
Plans."
LOCK-UP AGREEMENTS
We, each of our officers and directors and substantially all of our
securityholders have agreed, subject to specified exceptions, not to, without
the prior written consent of Goldman, Sachs & Co., offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any shares of our
common stock or options to acquire shares of our common stock during the 180-day
period following the date of this offering. Goldman, Sachs & Co. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. See "Underwriting."
Following this offering, subject to specified blackout periods, holders of
51,319,497 shares of our outstanding common stock will have two demand
registration rights with respect to their shares of our common stock, subject to
the 180-day lock-up arrangement described above, to require us to register their
shares of our common stock under the Securities Act, or rights to participate in
any future registration of securities by us. If the holders of these registrable
securities request that we register their shares, and if the registration is
effected, these shares will become freely tradable without restriction under the
Securities Act. Any sales of securities by these stockholders could have a
material adverse effect on the trading price of our common stock. See
"Description of Capital Stock -- Registration Rights."
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<PAGE> 78
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Shearman & Sterling, Menlo Park, California. As of January 29,
2000, three investment partnerships associated with Fenwick & West LLP
beneficially owned an aggregate of 55,126 shares of our common stock.
EXPERTS
The consolidated balance sheets of Niku Corporation and subsidiaries as of
January 31, 1999, and October 31, 1999, and the consolidated statements of
operations, stockholders' equity, and cash flows for the year ended January 31,
1999, and the nine months ended October 31, 1999, have been included herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated balance sheets of Proamics Corporation and subsidiaries as
of December 31, 1998 and September 30, 1999, and the consolidated statements of
operations, shareholders' deficit, and cash flows for the years ended December
31, 1997 and 1998, and the nine months ended September 30, 1999, have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent auditors, and upon the authority of said firm as experts
in accounting and auditing.
The balance sheets of Legal Anywhere, Inc. (formerly Legal Anywhere LLC) as
of December 31, 1998 and 1999, and the related statements of operations,
stockholders' and members' equity (deficit), and cash flows for the years then
ended, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent auditors, and upon the authority of
said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In August 1999, we engaged Ernst & Young LLP as our principal accountant to
commence an audit of our financial statements. However, on November 22, 1999,
prior to the completion of an audit and the issuance of any opinion, we
dismissed Ernst & Young LLP as our principal accountant. On November 22, 1999,
we engaged KPMG LLP as our principal accountant. The board of directors has
approved the appointment of KPMG LLP as our principal accountant.
In connection with the services conducted by Ernst & Young LLP for any
period there were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices or auditing scope or procedures, which, if
not resolved to Ernst & Young LLP's satisfaction, would have caused them to
reference the subject matter of the disagreement in their opinion, had the audit
been completed on the date of their dismissal.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The registration statement, including exhibits and schedules, may be inspected
without charge at the
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<PAGE> 79
principal office of the Securities and Exchange Commission in Washington, D.C.,
and copies of all or any part of it may be obtained from that office after
payment of fees prescribed by the Securities and Exchange Commission. The
Securities and Exchange Commission maintains a website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission at
http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.
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<PAGE> 80
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets............................ F-3
Consolidated Statements of Operations.................. F-4
Consolidated Statements of Stockholders' Equity
(Deficit)............................................. F-5
Consolidated Statements of Cash Flows.................. F-6
Notes to Consolidated Financial Statements............. F-7
PROAMICS CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report........................... F-23
Consolidated Balance Sheets............................ F-24
Consolidated Statements of Operations.................. F-25
Consolidated Statements of Shareholders' Deficit....... F-26
Consolidated Statements of Cash Flows.................. F-27
Notes to Consolidated Financial Statements............. F-28
LEGAL ANYWHERE, INC. FINANCIAL STATEMENTS
Independent Auditors' Report........................... F-37
Balance Sheets......................................... F-38
Statements of Operations............................... F-39
Statements of Stockholders' and Members' Equity
(Deficit)............................................. F-40
Statements of Cash Flows............................... F-41
Notes to Financial Statements.......................... F-42
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Condensed
Financial Statements.................................. F-50
Unaudited Pro Forma Combined Condensed Balance Sheet... F-51
Unaudited Pro Forma Combined Condensed Statement of
Operations............................................ F-52
Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.................................. F-54
</TABLE>
F-1
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Niku Corporation:
We have audited the accompanying consolidated balance sheets of Niku
Corporation and subsidiaries (the Company) as of January 31, 1999 and October
31, 1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the year ended January 31, 1999, and for
the nine months ended October 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Niku
Corporation and subsidiaries as of January 31, 1999 and October 31, 1999, and
the results of their operations and their cash flows for the year ended January
31, 1999, and for the nine months ended October 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
December 17, 1999, except as to Note 9(d), which is
as of January 31, 2000, and Note 9(e), which
is as of February 21, 2000.
F-2
<PAGE> 82
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 31, OCTOBER 31, AS OF
1999 1999 OCTOBER 31, 1999
----------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 5,147 $ 17,154
Short-term investments................................... -- 2,175
Accounts receivable...................................... 165 2,754
Prepaid expenses and other current assets................ 133 1,258
------- --------
Total current assets................................. 5,445 23,341
Deposits and other assets.................................. -- 160
Property and equipment, net................................ 394 4,406
Goodwill and other intangible assets, net.................. 716 831
------- --------
$ 6,555 $ 28,738
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 145 $ 3,817
Accrued liabilities...................................... 17 1,753
Current portion of long-term obligations................. -- 5,502
Deferred revenue......................................... 497 1,946
------- --------
Total current liabilities............................ 659 13,018
Long-term obligations, less current portion................ -- 968
------- --------
Total liabilities.................................... 659 13,986
------- --------
Commitments
Redeemable convertible preferred stock and warrants,
$0.0001 par value; actual -- 23,400,000 and 34,272,843
shares authorized as of January 31, 1999 and October 31,
1999, respectively; 23,142,843 and 33,130,282 shares
issued and outstanding as of January 31, 1999 and October
31, 1999, respectively; aggregate liquidation preference
of $8,300 and $33,269 as of January 31, 1999 and October
31, 1999, respectively; pro forma -- no shares
authorized, issued or outstanding........................ 8,259 28,580 $ --
------- --------
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; actual -- no shares
authorized, issued or outstanding; pro forma --
10,000,000 shares authorized; no shares issued and
outstanding............................................ -- -- --
Common stock, $0.0001 par value; actual -- 50,000,000
shares authorized as of January 31, 1999 and October
31, 1999; 5,959,995 and 7,106,118 shares issued and
outstanding as of January 31, 1999 and October 31,
1999, respectively; pro forma -- 100,000,000 shares
authorized; 48,234,412 shares issued and outstanding... 1 1 5
Additional paid-in capital............................... 2,277 10,100 38,676
Treasury stock........................................... -- (30) (30)
Deferred stock-based compensation........................ (1,576) (7,238) (7,238)
Notes receivable from stockholders....................... (45) (108) (108)
Accumulated deficit...................................... (3,020) (16,553) (16,553)
------- -------- --------
Total stockholders' equity (deficit)................. (2,363) (13,828) $ 14,752
------- -------- ========
Total liabilities and stockholders' equity
(deficit).................................................. $ 6,555 $ 28,738
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 83
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, ----------------------
1999 1998 1999
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
License............................................. $ -- $ -- $ 1,962
Services............................................ 15 -- 1,014
------- ------- --------
Total revenues................................... 15 -- 2,976
------- ------- --------
Cost of revenues:
License............................................. -- -- 174
Services............................................ 4 -- 429
------- ------- --------
Total cost of revenues........................... 4 -- 603
------- ------- --------
Gross profit..................................... 11 -- 2,373
------- ------- --------
Operating expenses:
Research and development............................ 1,610 849 6,062
Sales and marketing................................. 290 75 5,983
General and administrative.......................... 996 720 1,837
Stock-based compensation............................ 245 77 2,018
Amortization of goodwill and other intangible
assets........................................... 20 -- 184
------- ------- --------
Total operating expenses......................... 3,161 1,721 16,084
------- ------- --------
Operating loss................................... (3,150) (1,721) (13,711)
Interest income....................................... 130 56 519
Interest expense...................................... -- -- (341)
------- ------- --------
Net loss......................................... $(3,020) $(1,665) $(13,533)
======= ======= ========
Basic and diluted net loss per share.................. $ (0.62) $ (0.35) $ (2.31)
======= ======= ========
Shares used in computing basic and diluted net loss
per share........................................... 4,882 4,800 5,871
======= ======= ========
Pro forma basic and diluted net loss per share........ $ (0.14) $ (0.38)
======= ========
Shares used in computing pro forma basic and diluted
net loss per share.................................. 20,853 35,306
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 84
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
------------------ PAID-IN TREASURY STOCK-BASED FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCK COMPENSATION STOCKHOLDERS DEFICIT
--------- ------ ---------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founding
investors............................... 3,962,500 $ 1 $ 38 $ -- $ -- $ -- $ --
Issuance of common stock................. 850,000 -- 9 -- -- -- --
Issuance of common stock for note
receivable.............................. 450,000 -- 45 -- -- (45) --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 172,500 -- 10 -- -- -- --
Issuance of common stock in connection
with the acquisition of Alyanza
Corporation............................. 524,995 -- 354 -- -- -- --
Deferred compensation related to stock
option grants........................... -- -- 1,733 (1,733) -- --
Amortization of stock-based
compensation............................ -- -- -- 157 -- --
Non-employee stock compensation.......... -- -- 88 -- -- -- --
Net loss................................. -- -- -- -- -- -- (3,020)
--------- ---- ------- ------- ------- ----- --------
Balances as of January 31, 1999.......... 5,959,995 1 2,277 (1,576) (45) (3,020)
Issuance of common stock for notes
receivable.............................. 700,000 -- 93 -- -- (93) --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 746,123 -- 50 -- -- -- --
Repurchase of common stock in settlement
of notes receivable from stockholders... (300,000) -- -- (30) -- 30 --
Deferred stock compensation related to
stock option grants..................... -- -- 7,554 (7,554) -- --
Amortization of stock-based
compensation............................ -- -- -- -- 1,892 -- --
Non-employee stock compensation.......... -- -- 126 -- -- -- --
Net loss................................. -- -- -- -- -- -- (13,533)
--------- ---- ------- ------- ------- ----- --------
Balances as of October 31, 1999.......... 7,106,118 $ 1 $10,100 $ (30) $(7,238) $(108) $(16,553)
========= ==== ======= ======= ======= ===== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Issuance of common stock to founding
investors............................... $ 39
Issuance of common stock................. 9
Issuance of common stock for note
receivable.............................. --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 10
Issuance of common stock in connection
with the acquisition of Alyanza
Corporation............................. 354
Deferred compensation related to stock
option grants........................... --
Amortization of stock-based
compensation............................ 157
Non-employee stock compensation.......... 88
Net loss................................. (3,020)
--------
Balances as of January 31, 1999.......... (2,363)
Issuance of common stock for notes
receivable.............................. --
Issuance of common stock in connection
with the exercise of employee stock
options................................. 50
Repurchase of common stock in settlement
of notes receivable from stockholders... --
Deferred stock compensation related to
stock option grants..................... --
Amortization of stock-based
compensation............................ 1,892
Non-employee stock compensation.......... 126
Net loss................................. (13,533)
--------
Balances as of October 31, 1999.......... $(13,828)
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 85
NIKU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR NINE MONTHS ENDED
ENDED OCTOBER 31,
JANUARY 31, -----------------------
1999 1998 1999
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(3,020) $(1,665) $(13,533)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization....................... 28 16 300
Amortization of stock-based compensation............ 157 77 1,892
Revenue resulting from non-monetary exchange for
computer equipment and software and services..... -- -- (1,170)
Expense resulting from non-monetary exchange for
services......................................... -- -- 154
Amortization of debt discount....................... -- -- 128
Amortization of goodwill and other intangible
assets........................................... 20 -- 184
Non-employee stock-based compensation expense....... 88 -- 126
Changes in operating assets and liabilities:
Accounts receivable.............................. (165) (13) (2,590)
Prepaid expenses and other current assets........ -- (13) (1,141)
Accounts payable................................. -- 2 3,665
Accrued liabilities.............................. -- -- 1,739
Deferred revenue................................. 88 -- 1,449
------- ------- --------
Net cash used for operating activities......... (2,804) (1,596) (8,797)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment................... (193) (119) (2,935)
Purchases of short-term investments................... -- -- (2,175)
Other assets.......................................... -- -- (160)
Cash portion of Alyanza acquisition................... (173) -- --
Purchase of intangible asset.......................... -- -- (301)
------- ------- --------
Net cash used for investing activities......... (366) (119) (5,571)
------- ------- --------
Cash flows from financing activities:
Net proceeds from sale of redeemable convertible
preferred stock..................................... 8,259 7,627 19,811
Issuance of common stock.............................. 58 48 56
Proceeds from debt and detachable warrants............ -- -- 7,643
Repayment of debt and capital lease obligations....... -- -- (1,135)
------- ------- --------
Net cash provided by financing activities...... 8,317 7,675 26,375
------- ------- --------
Net increase in cash and cash equivalents................. 5,147 5,960 12,007
Cash and cash equivalents at beginning of period.......... -- -- 5,147
------- ------- --------
Cash and cash equivalents at end of period................ $ 5,147 $ 5,960 $ 17,154
======= ======= ========
Noncash financing and investing activities:
Property and equipment acquired under capital lease
obligations......................................... $ -- $ -- $ 345
======= ======= ========
Common stock issued for notes receivable.............. $ 45 $ 45 $ 93
======= ======= ========
Common stock issued for acquisition................... $ 354 $ -- $ --
======= ======= ========
Repurchase of common stock in settlement of notes
receivable from stockholders........................ $ -- $ -- $ 30
======= ======= ========
Deferred stock-based compensation..................... $ 1,821 $ -- $ 7,680
======= ======= ========
Deferred revenue resulting from non-monetary exchange
for computer equipment, software and maintenance.... $ 362 $ -- $ --
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 86
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF PRESENTATION
Niku Corporation (Niku or the Company) was incorporated in Delaware on
January 8, 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.
Fiscal year 1999 was a 52-week year. For presentation purposes, the consolidated
financial statements and notes refer to the calendar month end.
(b) BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Niku and its wholly-owned subsidiaries, Niku Canada, Niku Europe and Niku
Australia. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and SOP 98-9, since inception. SOP 97-2, as
amended, generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements.
To date, the Company has derived its revenue from licenses of its eNiku
products, maintenance and support and delivery of implementation consulting
services. The Company sells its products primarily through its direct sales
force.
Revenue recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair values of the
elements, such as software products, maintenance and support, and consulting
services. The determination of fair value is based on objective evidence which
is specific to the Company.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Niku
obligations with regard to implementation remain, the fee is fixed or
determinable, and collectibility is probable. In addition, sales to channel
partners are recognized upon sell-through to the end-user customer. The Company
considers all arrangements with payment terms extending beyond three months and
other arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. As payments become due from the customer,
the initial amounts are first allocated to deferred revenue elements such as
maintenance and support and consulting services. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Arrangements that include consulting services are evaluated to determine
whether those services are essential to the functionality of other elements of
the arrangement. When services are considered essential, revenue under the
arrangement is recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software services is
recognized as the services are performed. Maintenance and support revenue is
deferred and recognized on a straight-line basis over the life of the related
agreement, which is typically one year.
F-7
<PAGE> 87
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
Arrangements involving nonmonetary exchanges of the Company's products for
customer products or services are recognized as revenue when the following three
conditions have been met: (1) The fair value of the products received is
objectively determinable; (2) The product received will not be incorporated into
or integrated with Niku products; and (3) The product received will be used
internally by Niku in a manner consistent with its fair value.
The Company recognizes revenue on a sale to an application service provider
customer as this customer either deploys the Company's software internally or as
the customer sells through the software to end users. The Company also entered
into a three year hosting agreement with this customer that initially rendered
the combined arrangement a nonmonetary transaction, as the Company's license fee
was substantially identical to its commitments under the hosting agreement. A
subsequent modification to this hosting agreement, where the Company committed
to pay this customer for the hosting arrangement significantly more than the
Company's license fee, caused the Company to account for its revenue with this
partner as monetary, in accordance with Emerging Issues Task Force Issue No.
86-29, Nonmonetary Transactions: Magnitude of Boot and Exceptions to the Use of
Fair Value, interpretation of Accounting Principles Board No. 29, Accounting for
Nonmonetary Transactions.
The Company also enters into arrangements with consulting organizations
considered Niku Partner Network (NPN) customers. NPN arrangements exist when
Niku enters into an arrangement with a consulting organization, who has become a
customer of Niku, to use the NPN's consultants as preferred third party
providers for implementation services to Niku customers or to use the NPN's
consultants internally as codevelopment experts in developing future versions of
Niku product functionality. In most of the NPN customer arrangements Niku
commits to the use of a minimum dollar value of the NPN customer's professional
services. NPN customer transactions in which Niku commits to the use of a
minimum dollar value of an NPN customer's professional services are considered
either monetary or nonmonetary depending on whether the net cash received or
paid by Niku (representing the excess of Niku's product sale to the NPN over the
fair value of the committed professional services or the excess of the fair
value of the committed professional services over the Niku product sale,
respectively) exceeds 25% of the fair value of the exchange. If the net cash
received or paid by Niku exceeds 25% of the fair value of the exchange, the
exchange is considered monetary and the Company will recognize revenue in
accordance with EITF No. 86-29. This revenue to be recognized is limited at any
time to the fair value of the NPN's professional services used by Niku. If the
net cash received or paid by Niku does not exceed 25% of the fair value of the
exchange, the exchange is considered nonmonetary and revenue is only recognized
when Niku uses the NPN's professional services time for internal use as
codevelopment experts in developing future versions of Niku product
functionality.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from the following: (1)
Deferred maintenance and support; (2) Consulting services not yet rendered; (3)
Amounts billed to channel partners for Niku products not yet sold through to
end-user customers; (4) Amounts billed to customers with extended payments terms
which are not yet due; and (5) Amounts billed under monetary NPN arrangements in
excess of NPN professional services used by Niku.
Revenue recognized during the nine months ended October 31, 1999, from
arrangements involving nonmonetary exchanges of the Company's products for
customer products and services totaled approximately $1,371,000. There were no
corresponding cost of revenues related to these transactions. An aggregate of
$1,032,000 of equipment and software was
F-8
<PAGE> 88
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
acquired for internal use as part of these arrangements, and $154,000 of
research and development expenses was recorded for the nine months ended October
31, 1999 relating to NPN professional services for internal use as codevelopment
experts. Revenue recognized during the nine months ended October 31, 1999, from
monetary NPN customer arrangements and the arrangement with the application
service provider totaled approximately $676,000. There were no corresponding
cost of revenues relating to these transactions.
(d) INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET INFORMATION
In fiscal 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC) that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). Following the closing
of the Company's IPO, the number of authorized shares of preferred stock and
common stock will be 10,000,000 and 250,000,000, respectively. If the offering
is consummated under the terms presently anticipated, all the then outstanding
shares of the Company's redeemable convertible preferred stock will
automatically convert into shares of common stock on a one-for-one basis upon
the closing of the proposed IPO. The pro forma balance sheet information
reflects the conversion of all of the redeemable convertible preferred stock as
if it had occurred on October 31, 1999.
(e) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with remaining maturities of less than 90 days at the date of purchase. The
Company is exposed to credit risk in the event of default by the financial
institutions or the issuers of these investments to the extent of the amounts
recorded on the balance sheet in excess of amounts that are insured by the FDIC.
As of January 31, 1999, and October 31, 1999, cash equivalents consisted
principally of a money market account and commercial paper. As defined in a debt
agreement with a lender, the Company is required to maintain a cash balance with
the lender of $6.0 million.
(f) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company classifies its investments in debt securities as
available-for-sale. Available-for-sale securities are carried at fair value,
with any unrealized gains or losses recorded as a component of other cumulative
comprehensive income (loss).
(g) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments and accounts receivable
approximates fair market value. Financial instruments that subject the Company
to concentration of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable.
The Company sells its products principally to independent professional
services organizations, professional service organizations of product companies,
internal IT departments and individual professionals. Credit risk is
concentrated in North America. The Company performs ongoing credit evaluations
of its customers' financial condition and, generally, requires no collateral
from its customers. The Company has had no write-offs of accounts receivable
and, based on an ongoing evaluation of its accounts receivable collectibility
and customer creditworthiness, has recorded a $100,000 allowance for doubtful
accounts receivable during the period ended October 31, 1999.
F-9
<PAGE> 89
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(h) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally three years.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the assets or the lease term.
(i) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were generated in the acquisition of
Alyanza Software Corporation (Alyanza). Such assets are being amortized on a
straight-line basis over three years and consist of goodwill, developed
technology, and assembled workforce.
(j) IMPAIRMENT OF LONG-LIVED ASSETS
Niku evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of any asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(k) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred until technological
feasibility has been established. To date, the Company's software has been
available for general release concurrent with the establishment of technological
feasibility and, accordingly, no development costs have been capitalized.
(l) ADVERTISING COSTS
Niku's policy is to expense advertising costs as incurred. Niku's
advertising and promotion expense was $-- and $599,000 for the year ended
January 31, 1999, and the nine months ended October 31, 1999, respectively.
(m) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(n) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
F-10
<PAGE> 90
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
the enactment date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts to be recovered.
(o) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method to account for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No. 28.
(p) FOREIGN CURRENCY TRANSACTIONS
The functional currency for the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, such entities remeasure monetary assets and liabilities at
exchange rates in effect as of each reporting date while nonmonetary items are
remeasured at historical rates. Income and expense accounts are remeasured at
the average rates in effect during each such period, except for depreciation,
which is remeasured at historical rates. Remeasurement adjustments and
transactions gains and losses are recognized in income in the period of
occurrence and have not been significant to date.
(q) COMPREHENSIVE LOSS
The Company did not have any significant components of other comprehensive
loss for the year ended January 31, 1999, and the nine months ended October 31,
1999.
(r) UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the Company's results of operations and its cash flows for the nine
months ended October 31, 1998.
(s) NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding shares of restricted stock subject
to repurchase summarized below. Diluted net loss per share is computed using the
weighted-average number of shares of common stock outstanding and, when
dilutive, potential common shares from options and warrants to purchase common
stock using the treasury stock method and from convertible securities using the
if-converted basis. The following potential common shares have been
F-11
<PAGE> 91
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, ---------------------
1999 1998 1999
----------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
Shares issuable under stock options................. 3,474 2,089 3,629
Shares of restricted stock subject to repurchase.... 450 450 959
Shares issuable pursuant to warrants to purchase
convertible preferred stock....................... -- -- 630
Shares of redeemable convertible preferred stock on
an "as if converted" basis........................ 23,143 22,103 33,130
</TABLE>
The weighted-average exercise price of stock options was $0.08 for the
years ended January 31, 1999, and $0.06 and $0.26 for the nine months ended
October 31, 1998 and 1999, respectively. The weighted-average purchase price of
restricted stock was $0.10 for the year ended January 31, 1999, and $0.10 and
$0.12 for the nine months ended October 31, 1998 and 1999, respectively. The
exercise price of warrants was $0.75 for the nine months ended October 31, 1999.
Pro forma basic and diluted net loss per share is presented for the year
ended January 31, 1999, and the nine months ended October 31, 1999, to reflect
per share data assuming the conversion of all outstanding shares of redeemable
convertible preferred stock into common stock on a one-for-one basis, as if the
conversion had taken place at the beginning of fiscal 1999 or at the date of
issuance if later. This data is unaudited.
(t) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. Because the Company does not currently hold
any derivative instruments and does not engage in hedging activities, the
Company expects that the adoption of SFAS No. 133 will not have a material
impact on its consolidated financial position, results of operations, or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001.
(2) BALANCE SHEET COMPONENTS
(a) SHORT-TERM INVESTMENTS
All of the Company's investments are considered available-for-sale
securities and consisted of corporate bonds and commercial paper as of October
31, 1999. The entire short-term investment balance is due within one year.
Investments totaling $6.4 million are included in cash and cash equivalents at
October 31, 1999. Realized and unrealized gains and losses for
available-for-sale securities were immaterial for all periods presented.
F-12
<PAGE> 92
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(b) PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1999
----------- -----------
<S> <C> <C>
Computer equipment and office equipment..................... $314 $1,179
Software.................................................... 95 1,191
Furniture and fixtures...................................... 13 1,404
Leasehold improvements...................................... -- 960
---- ------
422 4,734
Accumulated depreciation and amortization................... 28 328
---- ------
$394 $4,406
==== ======
</TABLE>
Equipment under capital leases aggregated $345,000 as of October 31, 1999.
Accumulated amortization on the assets under capital leases aggregated $35,000
as of October 31, 1999.
(3) ACQUISITION OF ALYANZA
In December 1998, Niku completed the acquisition of Alyanza, a privately
held software company in San Diego, California. Niku issued 525,000 shares of
its common stock and paid $135,000 cash for all of Alyanza's outstanding capital
stock. In addition, Niku assumed certain liabilities of Alyanza totaling
$208,000 and incurred merger-related costs of approximately $38,000. The
transaction was accounted for as a purchase. The purchase price of approximately
$735,000 was allocated $100,000 to developed technology, $200,000 to assembled
workforce, and $435,000 goodwill. Pro forma revenues, net loss and basic and
diluted net loss per share for the year ended January 31, 1999, would have been
$95,000, $3,652,000 and $0.69, respectively. The pro forma amounts give effect
to the acquisition of Alyanza as it had occurred on February 1, 1998.
(4) DEBT
In February 1999, the Company entered into an agreement with a lender for a
$3,000,000 loan with an annual interest rate of 12%. The agreement calls for
equal monthly payments of principal and interest beginning July 1999 through
February 2002. The Company has the option to prepay the loan after 12 months
from the loan commencement date with a prepayment penalty of 1% of the then
outstanding balance (along with any unpaid accrued interest). The prepayment
penalty does not apply if the prepayment is in conjunction with a merger or
initial public offering. In connection with the $3,000,000 loan, the Company
issued warrants to purchase 600,000 shares of its Series B redeemable
convertible preferred stock at an exercisable price of $0.75 per share. The
warrant expires the earlier of February 2006, or three years after an initial
public offering of the Company's common stock. The fair value of the warrants
issued, calculated using the Black-Scholes option pricing model, using $1.10 as
the fair value of the underlying redeemable convertible preferred stock and the
following weighted-average assumptions: no dividends; contractual life of seven
years; risk-free interest rate of 6.00%; expected volatility of 70%, was
$510,000. This amount will be amortized on a straight-line basis over the term
of the loan. As of October 31, 1999, the aggregate future maturities for the
three months ended January 31, 2000, and for fiscal 2001 and 2002 were $350,000,
$1,140,000, and $1,284,000, respectively. This loan is secured by our net
tangible assets.
F-13
<PAGE> 93
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
In September 1999, the Company entered into a revolving line of credit
agreement with a lender for a line of credit up to $4,000,000 bearing interest
at the prime rate plus 1% (8.25% October 31, 1999). As of October 31, 1999, the
Company has an outstanding principal balance of approximately $3,771,000.
Interest payments are due monthly with the outstanding principal balance due
October 1, 2000. This debt agreement contains certain financial covenants
requiring that the Company maintain a minimum cash balance of $6.0 million and a
tangible net worth of $9.0 million. This loan is secured by our tangible assets.
(5) LEASES AND COMMITMENTS
In February 1999, the Company entered into a master lease agreement for
equipment specifically approved by the lessor up to an aggregate price of
$500,000. As of October 31, 1999, the Company had drawn down approximately
$345,000 related to this agreement. In conjunction with the agreement, the
Company granted the lessor warrants to purchase 30,000 shares of its Series B
redeemable convertible preferred stock at an exercise price of $0.75 per share.
The warrants expire the earlier of February 2006, or three years after an
initial public offering of the Company's common stock. The fair value of the
warrants issued, calculated using the Black-Scholes option pricing model, using
$1.10 as the fair value of the underlying redeemable convertible preferred stock
and the following weighted-average assumptions: no dividends; contractual life
of seven years; risk-free interest rate of 6.00%; expected volatility of 70%,
was not material.
In May 1999, Niku entered into a noncancelable operating lease for its
facilities expiring in August 2005.
Future minimum lease payments as of October 31, 1999, were as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000 (three months)......................................... $ 38 $ 959
2001........................................................ 149 952
2002........................................................ 140 1,985
2003........................................................ 12 2,059
2004........................................................ -- 2,140
Thereafter.................................................. -- 3,748
---- -------
Total minimum lease payments.............................. 339 $11,843
=======
Less amount representing imputed interest................... 30
----
Present value of minimum lease payments..................... 309
Less current portion........................................ 132
----
Capital lease obligation, less current portion.............. $177
====
</TABLE>
The Company's rent expense was $79,000 for the year ended January 31, 1999
and $61,000 and $501,000 for the nine months ended October 31, 1998 and 1999,
respectively.
The Company has entered into certain strategic relationships with its NPN
customers, an application service provider, and CNET. As part of these
arrangements the Company has committed to pay these entities for services
amounts aggregating $2,450,000 for the period from November 1, 1999 to January
31, 2000, and $4,013,000 and $952,000 for fiscal years 2001 and 2002
respectively.
F-14
<PAGE> 94
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(6) STOCKHOLDERS' EQUITY
(a) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Redeemable convertible preferred stock outstanding as of October 31, 1999,
is as follows:
<TABLE>
<CAPTION>
ISSUED
SHARES AND CARRYING
DESIGNATED OUTSTANDING VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Series:
Series F....................................... 10,000,000 10,000,000 $ 493,000
Series A....................................... 5,142,851 5,142,851 1,791,000
Series B....................................... 8,629,992 7,999,992 5,975,000
Series C....................................... 10,500,000 9,987,439 19,811,000
---------- ---------- -----------
34,272,843 33,130,282 $28,070,000
========== ========== ===========
</TABLE>
The Company has warrants to purchase 630,000 shares of Series B redeemable
convertible preferred stock outstanding as of October 31, 1999, with a carrying
value of $510,000. (See Notes 4 and 5)
The rights, preferences, and privileges of the holders of Series F, A, B,
and C redeemable convertible preferred stock are as follows:
- Dividends are noncumulative and payable only upon declaration by the
Company's Board of Directors at a rate of $0.0025, $0.0175, $0.0375, and
$0.10 per share for Series F, A, B, and C redeemable convertible
preferred stock, respectively.
- Holders of Series F, A, and B redeemable convertible preferred stock have
a liquidation preference of $0.05, $0.35, and $0.75, respectively, plus
any declared but unpaid dividends, over holders of common stock. Holders
of Series C redeemable convertible preferred stock have a liquidation
preference of $2.50 per share through the first anniversary date of the
issuance, $3.125 per share through the second anniversary date of the
issuance, and $3.91 per share through the third anniversary date of the
issuance, plus any declared but unpaid dividends, over holders of common
stock.
- Each share of Series F, A, B, and C convertible preferred stock is
convertible at any time into one share of common stock subject to certain
antidilution provisions.
- Each holder of convertible preferred stock has voting rights equal to the
number of shares of common stock into which such shares could be
converted.
- At any time after May 13, 2006, upon notification by not less than
two-thirds of the holders of the Series C redeemable convertible
preferred stock, the Company must redeem all of the outstanding
redeemable convertible preferred stock in four equal installments
beginning on the first anniversary of the date of redemption by paying in
cash a sum per share equal to the original issuance price plus declared
but unpaid dividends.
(b) STOCK PLANS
The Company is authorized to issue up to 8,000,000 shares of common stock
in connection with its 1998 stock option plan (the 1998 Plan) to directors,
employees, and consultants. The Plans provide for the issuance of stock purchase
rights, incentive stock options, or nonstatutory stock options.
F-15
<PAGE> 95
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
The stock purchase rights are subject to a restricted stock purchase
agreement whereby the Company has the right to repurchase the stock upon the
voluntary or involuntary termination of the purchaser's employment with the
Company at the original issuance cost. The Company's repurchase right lapses at
a rate determined by the stock plan administrator, but at a minimum rate of 20%
per year. Through October 31, 1999, the Company has issued 1,445,750 shares
under restricted stock purchase agreements, of which 300,000 shares have been
repurchased and 959,000 shares are subject to repurchase at a weighted-average
price of $0.12 per share. Certain of these restricted shares were issued to
officers of the Company for full recourse promissory notes with interest rates
ranging from 4.77% to 6.08% and terms of four years.
Under the Plan, the exercise price for incentive stock options is at least
100% of the stock's fair market value on the date of grant for employees owning
10% or less of the voting power of all classes of stock, and at least 110% of
the fair market value on the date of grant for employees owning more than 10% of
the voting power of all classes of stock. For nonstatutory stock options, the
exercise price is also at least 110% of the fair market value on the date of
grant for employees owning more than 10% of the voting power of all classes of
stock and no less than 85% for employees owning 10% or less of the voting power
of all classes of stock.
Under the Plan, options generally expire in 10 years. However, the term of
the options may be limited to 5 years if the optionee owns stock representing
more than 10% of the voting power of all classes of stock. Vesting periods are
determined by the Company's Board of Directors and generally provide for shares
to vest ratably over a 5-year period.
As of October 31, 1999, there were 2,302,250 additional shares available
for grant under the 1998 stock option plans.
(c) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold because
the exercise price of each option or purchase price of each share of restricted
stock equaled or exceeded the fair value of the underlying common stock as of
the grant date for each stock option or purchase date of each restricted stock
share, except for stock options granted and restricted stock sold from January
31, 1998 through October 31, 1999. With respect to the stock options granted and
restricted stock sold from January 31, 1998 to October 31, 1999, the Company
recorded deferred stock compensation of $9,287,000 for the difference at the
grant or issuance date between the exercise price of each stock option granted
or purchase price of each restricted share sold and the fair value of the
underlying common stock. This amount is being amortized on an accelerated basis
over the vesting period, generally four to five years, consistent with the
method described in FASB Interpretation No. 28. Amortization of the October 31,
1999 balance of deferred stock-based compensation for the three months ended
January 29, 2000, fiscal years ended 2001, 2002, 2003 and nine months ended
October 31, 2003 would approximate $1,300,000, $3,700,000, $1,500,000, $613,000
and $75,000, respectively. The amortization of deferred stock compensation,
combined
F-16
<PAGE> 96
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
with the expense associated with stock options granted to non-employees, relates
to the following items in the accompanying consolidated statements of operations
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED --------------------------
JANUARY 31, OCTOBER 31, OCTOBER 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cost of revenues.............................. $ -- $-- $ 17
Research and development...................... 90 28 597
Sales and marketing........................... 56 7 1,140
General and administrative.................... 99 42 264
---- --- ------
Total....................................... $245 $77 $2,018
==== === ======
</TABLE>
Had compensation costs been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss (in thousands) and
basic and diluted net loss per share would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, OCTOBER 31,
1999 1999
----------- -----------
<S> <C> <C>
Net loss:
As reported.............................................. $(3,020) $(13,533)
Pro forma................................................ $(3,031) $(13,607)
Basic and diluted net loss per share:
As reported.............................................. $ (0.62) $ (2.31)
Pro forma................................................ $ (0.62) $ (2.32)
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends; risk-free interest rate of 4.97% and 5.78% for the year ended January
31, 1999, and the nine months ended October 31, 1999, respectively; and expected
life of 4 years for the year ended January 31, 1999, and the nine months ended
October 31, 1999, respectively.
F-17
<PAGE> 97
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
A summary of the status of the Company's options under the Plans, is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, 1999 OCTOBER 31, 1999
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year/period............................ -- $ -- 3,473,500 $0.08
Granted.................................. 4,277,000 0.08 1,973,500 0.54
Forfeited................................ (181,000) 0.10 (371,750) 0.10
Exercised................................ (622,500) 0.08 (1,446,123) 0.14
---------- ----------
Outstanding at end of year/period........ 3,473,500 0.08 3,629,127 0.26
========== ==========
Options exercisable at end of
year/period............................ 893,249 0.10 241,678 0.07
========== ==========
Weighted-average fair value of options
granted during the period with exercise
prices equal to fair value at date of
grant.................................. 1,512,500 0.02 -- --
Weighted-average fair value of options
granted during the period with exercise
prices less than fair value at date of
grant.................................. 2,764,500 0.73 1,973,500 3.37
</TABLE>
As of October 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE ---------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE OF LIFE EXERCISE OF EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
-------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 517,709 8.19 $0.01 85,417 $0.01
$0.10 1,431,668 8.92 0.10 150,011 0.10
$0.25 1,158,000 9.61 0.25 6,250 0.25
$1.00 521,750 10.00 1.00 -- --
--------- ----- ------- -----
3,629,127 $0.26 241,678 $0.07
========= ===== ======= =====
</TABLE>
(7) INCOME TAXES
The differences between the income tax expense (benefit) computed at the
federal statutory rate and the Company's tax provision for all periods presented
primarily relate to net operating losses not benefited.
F-18
<PAGE> 98
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
The individual components of the Company's deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1999
----------- -----------
<S> <C> <C>
Net operating loss carryovers............................... $ 1,071 $ 5,451
Credit carryforward......................................... 129 129
Other....................................................... -- 97
------- -------
Total deferred tax assets......................... 1,200 5,677
Valuation allowance......................................... (1,200) (5,677)
------- -------
Net deferred tax assets........................... $ -- $ --
======= =======
</TABLE>
The net changes in the valuation allowance for the year ended January 31,
1999 and for the nine months ended October 31, 1999 were increases of $1.2
million and $4.5 million, respectively. We believe sufficient uncertainty exists
regarding our ability to realize our deferred tax assets and, accordingly, a
valuation allowance has been established against the net deferred tax assets.
As of October 31, 1999, the Company had approximately $13.7 million of net
operating loss carryforwards for both federal and state purposes available to
offset taxable income in future years. The federal net operating loss
carryforwards expire if not utilized by 2006. In addition, the company had
approximately $61,000 and $47,000 of tax credit carryforwards for increased
research expenditures for federal and state purposes, respectively. The federal
increased research credits expire if not utilized by 2019 and the state
increased research credit can be carried over indefinitely. The Company also had
approximately $21,000 of manufacturer's investment credit carryforward for state
purpose, which may expire if not utilized by 2001.
Federal and state laws impose substantial restrictions on the utilization
of net operating loss and tax credit carryforwards in the event of an "ownership
change," as defined in Section 382 of the Internal Revenue Code. The Company has
not yet determined whether an ownership change occurred due to significant stock
transactions in each of the reporting years disclosed. If an ownership change
has occurred, utilization of the net operating loss and tax credit carryforwards
could be significantly reduced.
(8) SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING
During 1999 the Company adopted the provisions of SFAS No. 131, Disclosure
About Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer (CEO). The CEO reviews financial information
presented on a consolidated basis for purposes of making operating decisions and
assessing financial performance. The consolidated financial information reviewed
by the CEO is identical to the information presented in the accompanying
consolidated statements of operations and the Company has no significant foreign
F-19
<PAGE> 99
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
operations. Therefore, the Company operates in a single operating segment:
Internet software. Disaggregated information is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
OCTOBER 31,
YEAR ENDED --------------
JANUARY 31, 1999 1998 1999
---------------- ---- ------
<S> <C> <C> <C>
Revenues:
License.............................................. $-- $-- $1,962
Services:
Consulting........................................ 15 -- 886
Maintenance....................................... -- -- 128
--- --- ------
$15 $-- $2,976
=== === ======
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUE
---------------------------------- PERCENT
NINE MONTHS OF TOTAL
ENDED ACCOUNTS
YEAR ENDED OCTOBER 31, RECEIVABLE
JANUARY 31, ------------------- OCTOBER 31,
1999 1998 1999 1999
----------- ----------- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A.................................... 100% -- -- --
Customer B.................................... -- -- 22% 24%
Customer C.................................... -- -- 18% 6%
Customer D.................................... -- -- 10% 12%
</TABLE>
For the nine months ended October 31, 1999, 39% of the Company's total
revenue was from customers with an officer and/or director serving as a board
member of the Company.
(9) SUBSEQUENT EVENTS
(a) ISSUANCE OF SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK
In November 1999, the Company issued 7,998,012 shares of Series D
redeemable convertible preferred stock at $5.00 per share for net proceeds of
approximately $39,930,000. The rights, preferences, and privileges of the Series
D redeemable convertible preferred stock are the same as the Series F, A, B and
C redeemable convertible preferred stock except that the annual dividend rate is
$0.25 per share and the liquidation preference is $6.25 per share.
(b) ACQUISITION OF PROAMICS
On December 8, 1999, the Company acquired Proamics Corporation (Proamics),
a privately held company in Chicago, Illinois. Proamics is a provider of project
accounting, time and expense, and billing solutions to professional services
organizations. Niku issued 3,501,938 shares of its common stock and 6,491,203
shares of the Company's Series D redeemable convertible preferred stock with a
combined value of approximately $49,966,000 for all of Proamics's outstanding
capital stock. The transaction is to be accounted for as a purchase.
F-20
<PAGE> 100
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
The approximately $50 million purchase price will be allocated to acquired net
tangible and intangible assets, including goodwill.
(c) STOCK PLANS
In December 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Equity Incentive Plan (2000 Plan). The Company
has reserved 6,000,000 shares of common stock for issuance under the 2000 Plan.
Shares under the 1998 Stock Plan (1998 Plan) that are not issued or subject to
outstanding options at the date the 2000 Plan is effective will no longer be
available under the 1998 Plan and will become available for grant under the 2000
Plan. On each January 1, the aggregate number of shares reserved for issuance
under the 2000 Plan will increase automatically by a number of shares equal to
5% of the outstanding shares on December 31 of the preceding year. The 2000 Plan
will terminate 10 years from the date the Company's Board of Directors approved
the plan.
Under the 2000 Plan, the exercise price for incentive stock options is at
least 100% of the stock's fair market value on the date of grant for employees
owning 10% or less of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonstatutory stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for employees owning more than 10% of the voting power of all
classes of stock and no less than 85% for employees owning 10% or less of the
voting power of all classes of stock.
Under the 2000 Plan, options generally expire in 10 years. However, the
term of the options may be limited to 5 years if the optionee owns stock
representing more than 10% of the voting power of all classes of stock. Vesting
periods are determined by the Company's Board of Directors and generally provide
for shares to vest ratably over a 4-year period.
In December 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Employee Stock Purchase Plan (the Purchase Plan)
and reserved a total of 1,000,000 shares of the Company's common stock for
issuance under the Purchase Plan. On each January 1, the aggregate number of
shares reserved for issuance under the Purchase Plan will increase automatically
by a number of shares equal to 1% of the total outstanding shares on December 31
of the preceding year. The aggregate number of shares reserved for issuance
under the Purchase Plan may not exceed 10,000,000 shares. Generally, the
offering period is 24 months in length. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the common stock at the
beginning of the applicable offering period or the end of the applicable
purchase period.
(d) ACQUISITION OF LEGAL ANYWHERE
On January 31, 2000, the Company acquired Legal Anywhere, Inc. (Legal
Anywhere), a privately-held company in Portland, Oregon. Legal Anywhere provides
Internet-based "collaborative tools" to law firms and corporate legal
departments. Niku issued 853,689 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 $11 million purchase price will be allocated to acquired net
tangible and intangible assets, including goodwill.
F-21
<PAGE> 101
NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.)
(e) DEFERRED STOCK COMPENSATION
During the three-month period ended January 29, 2000, the Company will
record additional deferred stock compensation of approximately $ 16,700,000
related to approximately 1,600,000 stock options granted and 1,600,000 shares of
restricted stock sold during that period. Amortization of total deferred stock
compensation recorded through January 29, 2000, will be approximately $6,300,000
during the three-month period ended January 29, 2000, and approximately
$11,300,000, $4,500,000, $1,600,000 and $200,000 will be amortized during fiscal
2001, 2002, 2003, and 2004, respectively.
F-22
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Proamics Corporation:
We have audited the accompanying consolidated balance sheets of Proamics
Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and
the related consolidated statements of operations, shareholders' deficit, and
cash flows for each of the years in the two-year period ended December 31, 1998
and for the nine months ended September 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Proamics
Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and
the results of their operations and their cash flows for each of the years in
the two-year period ended December 31, 1998 and for the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
December 20, 1999
F-23
<PAGE> 103
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,340,807 $ 3,247,556
Accounts receivable, net of allowance for doubtful
accounts of $694,306 and $348,939, respectively......... 2,564,836 3,864,390
Inventory................................................. 99,410 41,066
Prepaid expenses.......................................... 18,030 61,911
Other current assets...................................... -- 26,568
----------- ------------
Total current assets............................... 4,023,083 7,241,491
----------- ------------
Property and equipment...................................... 1,509,176 2,276,764
Less accumulated depreciation and amortization.............. (697,078) (1,035,826)
----------- ------------
Net property and equipment......................... 812,098 1,240,938
----------- ------------
Other noncurrent assets..................................... 181,928 192,321
----------- ------------
Total assets....................................... $ 5,017,109 $ 8,674,750
=========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities:
Notes payable to shareholders............................. $ -- $ 500,000
Current portion of long-term debt......................... 1,050,000 --
Accounts payable.......................................... 1,162,528 871,825
Accrued expenses.......................................... 944,844 1,387,886
Deferred revenue.......................................... 1,552,890 1,498,795
Current portion of capital lease obligations.............. 248,377 386,017
----------- ------------
Total current liabilities.......................... 4,958,639 4,644,523
Long-term debt, less current portion, net of unamortized
discount of $595,382 and $12,099, respectively............ 6,055,800 1,987,901
Deferred rent............................................... 16,869 27,172
Capital lease obligations, less current portion............. 428,382 351,330
----------- ------------
Total liabilities.................................. 11,459,690 7,010,926
----------- ------------
Mandatorily redeemable Series A cumulative preferred stock,
$0.00001 par value; 117,000 shares authorized; 103,500
shares issued and outstanding at September 30, 1999,
redemption at face value including accrued dividends of
$781,161.................................................. -- 11,131,161
------------
Mandatorily redeemable Series C cumulative preferred stock,
$0.00001 par value; 24,000 shares authorized; 24,000
shares issued and outstanding at September 30, 1999,
redemption at face value including accrued dividends of
$58,389................................................... -- 1,258,389
------------
Shareholders' deficit:
Series B convertible preferred stock, $0.00001 par value;
9,833,585 shares authorized; 8,698,941 shares issued and
outstanding at September 30, 1999....................... -- 87
Common stock, no par value and $0.00001 par value at
December 31, 1998 and September 30, 1999, respectively;
21,000,000 and 40,000,000 shares authorized at December
31, 1998 and September 30, 1999, respectively;
11,290,541 and 11,669,328 shares issued and outstanding
at December 31, 1998 and September 30, 1999,
respectively............................................ -- 117
Additional paid-in capital................................ 2,019,752 2,929,899
Accumulated deficit....................................... (8,462,333) (13,428,911)
Treasury stock, at cost; 2,269,175 shares at September 30,
1999.................................................... -- (226,918)
----------- ------------
Total shareholders' deficit........................ (6,442,581) (10,725,726)
----------- ------------
Total liabilities and shareholders' deficit........ $ 5,017,109 $ 8,674,750
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 104
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------------
1997 1998 1998 1999
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License fees........................... $1,867,426 $ 3,164,872 $2,438,790 $ 2,496,671
Service fees........................... 4,705,296 7,038,547 5,036,496 6,084,532
Maintenance and support fees........... 555,181 661,748 479,641 617,662
---------- ----------- ---------- -----------
Total revenues................. 7,127,903 10,865,167 7,954,927 9,198,865
---------- ----------- ---------- -----------
Cost of revenues:
Cost of license fees................... 410,678 190,307 150,874 118,565
Cost of service fees................... 3,015,046 4,497,043 3,104,520 4,842,221
Cost of maintenance and support fees... 279,295 460,138 323,033 461,546
---------- ----------- ---------- -----------
Total cost of revenues......... 3,705,019 5,147,488 3,578,427 5,422,332
---------- ----------- ---------- -----------
Gross profit........................ 3,422,884 5,717,679 4,376,500 3,776,533
---------- ----------- ---------- -----------
Operating expenses:
Sales and marketing.................... 1,582,506 2,687,646 2,093,637 3,067,505
Research and development............... 1,046,225 1,349,341 1,065,315 2,009,534
General and administrative............. 981,980 2,348,726 1,483,439 2,214,751
---------- ----------- ---------- -----------
Total operating expenses....... 3,610,711 6,385,713 4,642,391 7,291,790
---------- ----------- ---------- -----------
Loss from operations................ (187,827) (668,034) (265,891) (3,515,257)
---------- ----------- ---------- -----------
Other income (expense):
Interest income........................ 18,031 32,330 19,712 93,628
Interest expense....................... (169,299) (311,291) (210,234) (294,532)
Amortization of discount on long-term
debt................................ (291,051) (202,708) (151,767) (19,593)
Other expense.......................... (9,658) (3,799) -- --
---------- ----------- ---------- -----------
Total other expense............ (451,977) (485,468) (342,289) (220,497)
---------- ----------- ---------- -----------
Net loss before extraordinary
gain.............................. (639,804) (1,153,502) (608,180) (3,735,754)
Extraordinary gain on early
extinguishment of long-term debt....... -- -- -- 2,381,812
---------- ----------- ---------- -----------
Net loss....................... $ (639,804) $(1,153,502) $ (608,180) $(1,353,942)
========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 105
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........................... -- $-- 10,540,541 $ -- $ 1,188 $(6,669,027)
Net loss............................................... -- -- -- -- -- (639,804)
Debt and accrued interest contributed to paid-in
capital.............................................. -- -- -- -- 1,982,947 --
--------- --- ---------- ---- ---------- ------------
Balance at December 31, 1997........................... -- -- 10,540,541 -- 1,984,135 (7,308,831)
Net loss............................................... -- -- -- -- -- (1,153,502)
Common stock warrants.................................. -- -- -- -- 15,617 --
Issuance of shares to consultant....................... -- -- 750,000 -- 20,000 --
--------- --- ---------- ---- ---------- ------------
Balance at December 31, 1998........................... -- -- 11,290,541 -- 2,019,752 (8,462,333)
Reincorporation of Company............................. -- -- -- 113 (113) --
Distribution to shareholders of affiliated entity...... -- -- -- -- -- (2,773,086)
Issuance of Series B convertible preferred stock....... 8,698,941 87 -- -- 1,149,913 --
Dividends on mandatorily redeemable Series A cumulative
preferred stock...................................... -- -- -- -- -- (781,161)
Dividends on mandatorily redeemable Series C cumulative
preferred............................................ -- -- -- -- -- (58,389)
Issuance of shares in settlement of long-term debt..... -- -- 378,787 4 37,875 --
Preferred stock issuance costs......................... -- -- -- -- (277,528) --
Net loss............................................... -- -- -- -- -- (1,353,942)
Purchase of treasury stock............................. -- -- -- -- -- --
--------- --- ---------- ---- ---------- ------------
Balance at September 30, 1999.......................... 8,698,941 $87 11,669,328 $117 $2,929,899 $(13,428,911)
========= === ========== ==== ========== ============
<CAPTION>
TREASURY STOCK
---------------------
SHARES AMOUNT TOTAL
--------- --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996........................... -- $ -- $ (6,667,839)
Net loss............................................... -- -- (639,804)
Debt and accrued interest contributed to paid-in
capital.............................................. -- -- 1,982,947
--------- --------- ------------
Balance at December 31, 1997........................... -- -- (5,324,696)
Net loss............................................... -- -- (1,153,502)
Common stock warrants.................................. -- -- 15,617
Issuance of shares to consultant....................... -- -- 20,000
--------- --------- ------------
Balance at December 31, 1998........................... -- -- (6,442,581)
Reincorporation of Company............................. -- -- --
Distribution to shareholders of affiliated entity...... -- -- (2,773,086)
Issuance of Series B convertible preferred stock....... -- -- 1,150,000
Dividends on mandatorily redeemable Series A cumulative
preferred stock...................................... -- -- (781,161)
Dividends on mandatorily redeemable Series C cumulative
preferred............................................ -- -- (58,389)
Issuance of shares in settlement of long-term debt..... -- -- 37,879
Preferred stock issuance costs......................... -- -- (277,528)
Net loss............................................... -- -- (1,353,942)
Purchase of treasury stock............................. 2,269,175 (226,918) (226,918)
--------- --------- ------------
Balance at September 30, 1999.......................... 2,269,175 $(226,918) $(10,725,726)
========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 106
PROAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (639,804) $(1,153,502) $ (608,180) $(1,353,942)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 120,431 235,070 149,441 338,748
Amortization of discount on long-term debt....... 291,051 202,708 151,767 19,593
Extraordinary gain on early extinguishment of
long-term debt................................. -- -- -- (2,381,812)
Expense related to issuance of common stock for
services....................................... -- 20,000 -- --
Changes in assets and liabilities:
Accounts receivable, net....................... (1,799,211) 450,615 355,694 (1,488,674)
Inventory...................................... (121,525) 106,815 85,519 58,344
Prepaid expenses............................... -- -- 40 (43,881)
Other assets................................... (124,973) (3,050) 7,259 (36,961)
Accounts payable............................... 292,037 92,493 98,357 (119,384)
Accrued expenses............................... 391,005 94,708 447,750 443,042
Deferred revenue............................... 1,029,781 (184,132) (103,093) (54,095)
Deferred rent.................................. -- 16,869 11,808 10,303
Other liabilities.............................. 12,680 (17,315) (17,315) --
----------- ----------- ---------- -----------
Net cash provided by (used in) operating
activities................................... (548,528) (138,721) 579,047 (4,608,719)
----------- ----------- ---------- -----------
Cash flows from investing activities -- purchases of
property and equipment............................... (63,623) (167,567) (79,490) (425,398)
----------- ----------- ---------- -----------
Cash flows from financing activities:
Payments on capital lease obligations................ (62,901) (126,732) (86,303) (281,602)
Payments on long-term debt........................... -- -- -- (1,500,000)
Proceeds from issuance of preferred stock, net....... -- -- -- 11,222,472
Distributions to shareholders of affiliated entity... -- -- -- (2,773,086)
Purchase of treasury stock........................... -- -- -- (226,918)
Proceeds from issuance of notes payable to
shareholders....................................... -- -- -- 500,000
Proceeds from issuance of long-term debt............. 1,000,000 1,000,000 -- --
----------- ----------- ---------- -----------
Net cash provided by (used in) financing
activities................................... 937,099 873,268 (86,303) 6,940,866
----------- ----------- ---------- -----------
Net increase in cash and cash equivalents...... 324,948 566,980 413,254 1,906,749
Cash and cash equivalents at beginning of period....... 448,879 773,827 773,827 1,340,807
----------- ----------- ---------- -----------
Cash and cash equivalents at end of period............. $ 773,827 $ 1,340,807 $1,187,081 $ 3,247,556
=========== =========== ========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for -- interest.......... $ 178,084 $ 284,470 $ 328,273 $ 318,327
=========== =========== ========== ===========
Noncash financing activities:
Capital lease obligations.......................... $ 320,256 $ 523,447 $ 182,540 $ 342,190
=========== =========== ========== ===========
Debt and accrued interest converted into
contributed capital.............................. $ 1,982,947 $ -- $ -- $ --
=========== =========== ========== ===========
Accounts receivable reduced with early
extinguishment of long-term debt................. $ -- $ -- $ -- $ 189,120
=========== =========== ========== ===========
Accounts payable reduced with early extinguishment
of long-term debt................................ $ -- $ -- $ -- $ 172,500
=========== =========== ========== ===========
Long-term debt converted into mandatorily
redeemable Series C cumulative preferred stock... $ -- $ -- $ -- $ 1,200,000
=========== =========== ========== ===========
Long-term debt converted into common stock......... $ -- $ -- $ -- $ 37,879
=========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 107
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Proamics Corporation and subsidiaries (Proamics or the Company) are engaged
in the business of developing software applications for resale and in providing
consulting services related to the installation of their software. The Company's
products are sold to end-users throughout the world directly through its
internal sales force as well as third-party distributors. The historical
consolidated financial statements of Proamics include the financial position and
results of operations of Isthmus Corporation (Isthmus). Proamics and Isthmus
were separate legal entities which had the same shareholders with substantially
the same ownership percentages. On February 23, 1999, Isthmus merged with and
into Proamics with Proamics being the surviving corporation. All of the issued
and outstanding shares of common stock of Isthmus were canceled in connection
with the merger. The merger was a combination of entities under common control
and has been accounted for on an "as if" pooling-of-interests basis with the
accompanying financial statements restated for all periods presented. In
addition, on March 5, 1999, the Company purchased all outstanding shares of
Lotzoff & Associates, Inc. (an affiliated entity).
(b) UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements for the nine months ended September 30, 1998 are
unaudited. In the opinion of the Company's management, the unaudited interim
financial statements include adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for that period.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Proamics
Corporation and its wholly owned subsidiaries, Proamics Canada Ltd. and Proamics
UK, Ltd. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
(d) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and SOP 98-9. Revenue from license fees is
recognized when persuasive evidence of an agreement exists, delivery of the
product has occurred, no significant Company obligations with regard to
implementation remain, the fee is fixed or determinable, and collectibility is
probable. Maintenance and support fees are recognized ratably over the term of
the maintenance and support period. Service fees are derived from the Company's
consulting services and are comprised of both time and expense contracts and
fixed-price contracts. Time and expense contract revenues are recognized as the
services are performed. Fixed-price contract revenues are recognized based on
the percentage-of-completion method.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from the following: (1)
deferred maintenance and support; (2) consulting services not yet rendered; and
(3) license fees from distribution agreements with third-party software vendors.
F-28
<PAGE> 108
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(e) CASH EQUIVALENTS
Cash equivalents are comprised of certain highly liquid investments with
original maturities of generally three months or less. As of September 30, 1999,
cash equivalents consisted principally of a money market account and U.S.
government securities.
(f) INVENTORIES
Inventories of shrink-wrapped software are stated at the lower of cost,
determined on a first-in, first-out basis, or market.
(g) PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is computed using
the straight-line method based on the estimated useful lives, ranging from three
to five years, of the various classes of property.
(h) SOFTWARE DEVELOPMENT COSTS
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility, are classified as research and development costs and
are charged to costs and expenses as incurred. Once technological feasibility
has been determined, significant costs incurred in the construction phase of
software development, including coding and testing and product quality
assurance, are capitalized. To date, no software development costs have been
capitalized as technological feasibility has been achieved substantially
concurrent with the general release of the Company's software products.
(i) INCOME TAXES
Prior to March 8, 1999, the Company was an S Corporation under the
provisions of Subchapter S of the Internal Revenue Code, whereby its income was
not subject to Federal income taxes and was allocated and taxed to its
shareholders by inclusion in the individuals' Federal income tax return.
Accordingly, the statements of operations for the years ended December 31, 1997
and 1998 do not include a provision for Federal, foreign and state income taxes.
The S Corporation election was terminated on March 7, 1999.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and
liability method of accounting for income taxes in which deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
F-29
<PAGE> 109
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(k) CAPITAL LEASES
The Company classifies a lease as a capital lease if (1) the lease
transfers ownership of the property to the Company by the end of the lease term,
(2) the lease contains an option to purchase the leased property at a bargain
price, (3) the lease term is equal to or greater than 75 percent of the
estimated economic life of the leased property, or (4) the present value of
rental and other minimum lease payments equals or exceeds 90 percent of the fair
value of the leased property. For those leases classified as capital leases, the
Company records the present value of future minimum lease payments as an asset
and as a capital lease obligation.
(2) PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, are summarized as follows as of December 31, 1998 and September
30, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Computer equipment......................................... $1,265,277 $ 1,652,015
Office furniture and fixtures.............................. 87,793 147,361
Computer software.......................................... 142,629 376,176
Leasehold improvements..................................... 13,477 101,212
---------- -----------
1,509,176 2,276,764
Less accumulated depreciation and amortization............. (697,078) (1,035,826)
---------- -----------
$ 812,098 $ 1,240,938
========== ===========
</TABLE>
F-30
<PAGE> 110
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LONG-TERM DEBT AND NOTES PAYABLE TO SHAREHOLDERS
In July 1997, the Company borrowed $1,000,000 from Sirrom Capital
Corporation (Sirrom). In connection with this borrowing, the Company issued
common stock warrants to Sirrom representing 3.5% of the Company's ownership
capital on a fully diluted basis. The common stock warrants issued to Sirrom had
a de minimus value at the date of issuance.
In November 1998, the Company borrowed an additional $1,000,000 from
Sirrom. In connection with this borrowing, Proamics issued common stock warrants
to Sirrom representing an additional 1.5% of the Company's ownership capital on
a fully diluted basis. Using the Black-Scholes option-pricing model, a value of
$15,617 was assigned to the warrants and recorded as additional paid-in capital
and discount on long-term debt. The discount is being amortized over the life of
the long-term debt. The $2,000,000 of notes payable to Sirrom bear interest at a
rate of 13% per annum, are due on July 31, 2002, and are secured by a security
interest in corporate assets. (See Note 13)
On March 5, 1999, the Company had an outstanding note payable to Platinum
Software Corporation (Platinum) for $3,936,310, net of unamortized discount of
$563,690. On March 5, 1999, Proamics entered into a payoff and termination
agreement with Platinum whereby Proamics paid $1,000,000 and issued 378,787
shares of Proamics common stock with an estimated fair value of $37,879 to
Platinum in March 1999 and paid $500,000 to Platinum in June 1999 in complete
satisfaction of its note payable to Platinum as well as a contingent $1,000,000
royalty payable to Platinum. Accordingly, the Company recorded an extraordinary
gain on early extinguishment of long-term debt of $2,381,812 representing the
difference between the Company's $3,936,310 note payable balance and the fair
value of the consideration paid to Platinum.
On March 3 1999, the Company borrowed a total of $500,000 from two
shareholders. Such borrowings are due on demand and bear interest at a rate of
10%.
(4) LEASE COMMITMENTS
The Company entered into capital leases for property and equipment during
1999 and prior years. Leased property and equipment capitalized and included in
the Company's consolidated balance sheets at December 31, 1998 and September 30,
1999 was $611,411 and $703,601, respectively.
The Company leases office facilities and certain equipment under
noncancelable operating leases. Rent expense under operating leases for the
years ended December 31, 1997 and 1998 and for the nine months ended September
30, 1999 was $215,067, $319,122, and $345,872 respectively.
F-31
<PAGE> 111
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum annual rental commitments under noncancelable leases at
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
------------ -------- ----------
<S> <C> <C>
1999 (3 months)............................................. $128,663 $ 95,485
2000........................................................ 425,875 386,798
2001........................................................ 319,787 350,750
2002........................................................ 19,851 302,446
2003........................................................ -- 53,820
-------- ----------
894,176 $1,189,299
==========
Less amounts representing interest.......................... 156,829
--------
Present value of minimum lease payments................... 737,347
Less current maturities..................................... 386,017
--------
$351,330
========
</TABLE>
(5) EQUITY TRANSACTIONS AND MANDATORILY REDEEMABLE PREFERRED STOCK
On January 1, 1997, the Company, its shareholders, and Cramlo Investments,
Ltd. entered into an agreement whereby $1,982,947 of debt and accrued interest
were contributed to paid-in capital of the Company.
In December 1998, Proamics granted 750,000 shares of common stock to an
individual in connection with a consulting agreement. As of December 31, 1998,
the consultant had vested in 250,000 shares. In March 1999, the Company
repurchased 500,000 unvested shares and 50,000 vested shares of Proamics common
stock from the consultant at a purchase price of $0.01 per share. Included in
the Company's 1998 consolidated statement of operations is $20,000 of general
and administrative expense representing the estimated fair value of the equity
granted to the consultant.
On March 5, 1999, Proamics entered into a stock purchase agreement with
Lotzof & Associates, Inc. (an affiliated entity) whereby Proamics purchased all
of the issued and outstanding shares of common stock of Lotzof & Associates,
Inc. for $2,773,086. Lotzof & Associates, Inc. became a wholly owned subsidiary
of Proamics. The principal asset acquired as a result of this acquisition was a
contingent royalty obligation owed by Proamics to Lotzof & Associates, Inc. of
up to $3,500,000 for 5% of the Company's net revenues from the licensing of
certain software products for a seven-year period ending in October 2000. The
purchase price was recorded as a distribution to Proamics shareholders.
On March 9, 1999, Proamics entered into stock redemption agreements with
certain shareholders to purchase an aggregate 2,269,175 shares of its common
stock for an aggregate purchase price of $226,918.
On March 9, 1999, Proamics changed its state of incorporation from Illinois
to Delaware. All of the outstanding shares of Proamics-Illinois common stock
were converted, on a one for one basis, into shares of common stock of
Proamics-Delaware. Proamics also amended its charter and authorized 9,974,585
shares of preferred stock, $0.00001 par value, of which 117,000 are designated
as Series A, 9,833,585 are designated as Series B, and 24,000 are designated as
Series C. Proamics also authorized 40,000,000 shares of common stock with a par
value of $0.00001. The Series A preferred stock is senior in liquidation to the
Series C preferred stock
F-32
<PAGE> 112
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
while the Series C preferred stock is senior in liquidation to the Series B
preferred stock and common stock. The Series B preferred stock and common stock
are pari-passu in liquidation.
On March 9, 1999, Vector Capital II, L.P. and certain of its affiliates
(collectively, Vector) and Proamics entered into a preferred stock purchase
agreement whereby Proamics issued 90,000 shares of its Series A preferred stock
and 7,564,297 shares of its Series B preferred stock to Vector for $9,000,000
and $1,000,000, respectively. The preferred stock purchase agreement obligated
Vector to purchase an additional 13,500 shares of Series A preferred stock and
1,134,644 shares of Series B preferred stock for $1,350,000 and $150,000,
respectively, prior to June 9, 1999. In addition, Vector has the option to
purchase an additional 13,500 shares of Series A preferred stock and 1,134,644
shares of Series B preferred stock for $1,350,000 and $150,000, respectively, on
or prior to March 9, 2002. (See Note 13)
The Series A preferred stock issued to Vector accrues dividends at a rate
of 15% per annum for the period from March 1, 1999 to August 1, 2001, 5.45% per
annum for the period from August 1, 2001 to March 1, 2003, and 9% for the period
from March 1, 2003 until its scheduled redemption. Accrued dividends are payable
when and as declared by the Company's board of directors, but if they are not
paid quarterly, the accrued dividends will accumulate and further dividends will
accrue thereon.
Proamics shall redeem, at face value plus accrued dividends, 1/36 of the
outstanding shares of Series A preferred stock on March 1, 2004 and an equal
number of shares each month thereafter until all Series A shares have been
redeemed. Proamics has the right to redeem the Series A preferred stock on and
after February 1, 2002. Proamics is required to redeem all shares of Series A
preferred stock upon a public offering of its shares.
The Series B preferred stock issued to Vector is convertible into shares of
common stock on a one for one exchange basis subject to certain dilution
adjustments as outlined in the preferred stock purchase agreement.
On March 9, 1999, Proamics entered into a preferred stock purchase
agreement with members of the Cramlo Group and Cramlo Investments, Ltd.
(collectively, Cramlo) whereby Proamics issued 24,000 shares of its Series C
preferred stock in settlement of its aggregate $1,200,000 notes payable to
Cramlo.
The Series C preferred stock accrues dividends at a rate of 8.5% until its
scheduled redemption. Accrued dividends are payable when and as declared by the
Company's board of directors, but if they are not paid quarterly, the accrued
dividends will accumulate and further dividends will accrue thereon.
Proamics shall redeem, at face value plus accrued dividends, plus accrued
dividends 1/36 of the outstanding shares of Series C preferred stock on March 1,
2004 and an equal number of shares each month thereafter until all Series C
shares have been redeemed. Proamics has the right to redeem the Series C
preferred stock on and after February 1, 2002. Proamics is required to redeem
all shares of Series C preferred stock upon a public offering of its shares.
(6) 401(k) RETIREMENT PLAN
The Company has a profit-sharing plan that covers substantially all
employees who have satisfied minimum age and service requirements. Employees
elect to contribute to the plan through salary deferrals pursuant to Section
401(k) of the Internal Revenue Code. The Company has the right, on a
discretionary basis, to match employee contributions. No matching contributions
were made in 1997, 1998, and 1999.
F-33
<PAGE> 113
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) PHANTOM STOCK AND STOCK OPTION PLANS
The Company maintains a plan under which certain employees are awarded
stock appreciation rights. Under this nonqualified plan, compensation is payable
only when the Company has a positive book value and certain other conditions are
met. Compensation may be paid in the form of either cash or Company stock, at
the Company's option, to rights holders based upon the difference between book
value at date of grant and book value at date of payment. All shares awarded are
subject to a five-year vesting schedule. Vesting can be accelerated upon the
occurrence of various transactions relating to a change in control of the
Company. The Company accrues the value of these rights as compensation expense
in the period in which such value arises. No compensation expense was recognized
in 1997, 1998, and 1999.
During 1997, the Company increased the number of shares authorized for
issuance under the plan from 1,000,000 to 2,000,000.
On March 9, 1999, Proamics adopted a Stock Option Plan and reserved
6,353,522 shares of common stock for issuance under this plan. No options have
been issued or granted under the plan.
(8) SOFTWARE DEVELOPMENT AND DISTRIBUTION AGREEMENT
In July 1997, the Company entered into a software development and
distribution agreement with a third-party software vendor. Under the terms of
the agreement, each party was granted a worldwide, irrevocable, nonexclusive
right and license to sell the other party's software product in exchange for
royalties. The agreement also requires the software vendor to pay the Company
the greater of a nonrefundable minimum royalty of $1,000,000 or the royalties
which would otherwise be calculable based on a prescribed formula and which is
due upon the sale of the Company's products. In December 1998, the software
development and distribution agreement was amended to reduce the nonrefundable
minimum royalty to $800,000 and change the expiration date for the agreement
from February 28, 1999 to January 31, 1999. License fees from the nonrefundable
minimum royalty have been recognized ratably over the amended term of the
minimum royalty period. Beginning in February 1999, the software vendor paid the
Company royalties on a quarterly basis based on actual sales of the Company's
product.
In June 1998, the Company entered into a software development and
distribution agreement with a third-party software vendor. Under the terms of
the agreement, each party was granted a worldwide, irrevocable, nonexclusive
right and license to sell the other party's software product in exchange for
royalties. The agreement also requires the software vendor to pay the Company
the greater of a one-time nonrefundable minimum royalty of $1,000,000 or the
royalties which would otherwise be calculable based on a prescribed formula and
which is due upon the sale of the Company's products. License fees from the
nonrefundable minimum royalty are recognized ratably over the 24-month term of
the minimum royalty period.
(9) SIGNIFICANT CUSTOMERS
The Company's two largest customers accounted for approximately 24% of
revenues for the year ended December 31, 1997 and the Company's largest customer
accounted for approximately 24% and 21% of revenues for the year ended December
31, 1998 and for the nine months ended September 30, 1999, respectively.
F-34
<PAGE> 114
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
One customer accounted for approximately 12% of accounts receivable at
December 31, 1998 and two customers accounted for approximately 31% of accounts
receivable at September 30, 1999.
(10) COMMITMENTS AND CONTINGENCIES
The Company is subject to potential legal actions which arise in the
ordinary course of business. In the opinion of management, the disposition of
all potential or threatened claims will not have a material impact on the
financial position of the Company.
(11) INCOME TAXES
The Company had no income tax expense for the years ended December 31, 1997
and 1998 and for the nine months ended September 30, 1999.
The reconciliation of the Company's income tax expense for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999 to
income taxes computed using the Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------- SEPTEMBER 30,
1997 1998 1999
--------- --------- -------------
<S> <C> <C> <C>
Federal income tax benefit at the statutory rate... $(217,533) $(392,191) $ (460,340)
State income tax benefit, net of Federal tax
benefit.......................................... (6,335) (11,419) (161,567)
S Corporation earnings not taxed to the Company.... 217,533 392,191 (693,420)
Establishment of deferred tax assets on S
Corporation termination.......................... -- -- (1,038,684)
Research and experimentation credit................ -- -- (97,270)
Establishment of valuation allowance............... -- -- 2,437,681
Other.............................................. 6,335 11,419 13,600
--------- --------- -----------
$ -- $ -- $ --
========= ========= ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 135,451
Depreciation and amortization............................. 4,894
Capitalized software...................................... 1,003,230
Accrued vacation.......................................... 96,011
Net operating loss carryforward........................... 1,100,825
Research and development credit........................... 97,270
-----------
Total deferred tax assets.............................. 2,437,681
Less valuation allowance.................................. (2,437,681)
-----------
Net deferred tax assets................................ $ --
===========
</TABLE>
F-35
<PAGE> 115
PROAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At September 30, 1999, the Company had net operating loss carryforwards for
income tax purposes of approximately $2,800,000 expiring in the year ending
December 31, 2019.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. Management has established a valuation for the full
amount of the deferred tax assets at September 30, 1999 due to the sufficient
uncertainty regarding the Company's ability to realize its deferred tax assets.
The net change in the valuation allowance during the nine months ended September
30, 1999 was an increase of $2,437,681.
(12) SUBSEQUENT EVENTS
On November 15, 1999, Vector purchased an additional 13,500 shares of the
Company's Series A preferred stock and 1,134,644 shares of the Company's Series
B preferred stock for $1,350,000 and $150,000, respectively.
On December 8, 1999, the Company was acquired by Niku Corporation. Proamics
received 3,501,938 shares of Niku common stock and 6,491,203 shares of Niku's
preferred stock for all of the Company's outstanding capital stock.
On December 8, 1999, the Company repaid $2,000,000 of notes payable to
Sirrom.
F-36
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Legal Anywhere, Inc. (Formerly
Legal Anywhere LLC):
We have audited the accompanying balance sheets of Legal Anywhere, Inc.
(formerly Legal Anywhere LLC) (the Company) as of December 31, 1998 and 1999,
and the related statements of operations, stockholders' and members' equity
(deficit), and cash flows for each of the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Legal Anywhere, Inc. (formerly
Legal Anywhere LLC) as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Portland, Oregon
January 15, 2000, except as to Note 11, which is
as of January 31, 2000
F-37
<PAGE> 117
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 9,018 1,257,210
Accounts receivable, net.................................. 10,080 125,386
Other receivables......................................... -- 136,000
Prepaid and other current assets.......................... -- 59,715
--------- ----------
Total current assets.............................. 19,098 1,578,311
Property and equipment, net................................. 5,128 195,074
Other assets, net........................................... -- 39,722
--------- ----------
Total assets...................................... $ 24,226 1,813,107
========= ==========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,384 58,182
Accrued expenses.......................................... -- 26,320
Deferred revenue.......................................... 5,977 54,067
Line of credit............................................ 64,000 --
--------- ----------
Total current liabilities......................... 74,361 138,569
Other liabilities........................................... -- 7,358
--------- ----------
Total liabilities................................. 74,361 145,927
--------- ----------
Commitments
Stockholders' and members' equity (deficit):
Members' contributions.................................... 443,231 --
Preferred stock, no par value. Authorized 5,000,000
shares; no shares issued and outstanding............... -- --
Common stock, no par value. Authorized 10,000,000 shares;
3,642,030 shares issued and outstanding at December 31,
1999................................................... -- 3,499,658
Deferred compensation..................................... -- (137,400)
Accumulated deficit....................................... (493,366) (1,695,078)
--------- ----------
Total stockholders' and members' equity
(deficit)....................................... (50,135) 1,667,180
--------- ----------
Total liabilities and stockholders' and members'
equity (deficit)................................ $ 24,226 1,813,107
========= ==========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 118
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1998 1999
--------- -----------
<S> <C> <C>
Revenue:
License................................................... $ 32,687 $ 201,128
Support and other......................................... 20,310 67,442
--------- -----------
52,997 268,570
--------- -----------
Cost of revenue:
License................................................... 4,550 1,045
Support and other......................................... 5,246 26,239
--------- -----------
9,796 27,284
--------- -----------
Gross profit........................................... 43,201 241,286
--------- -----------
Operating expenses:
Research and development.................................. 91,533 495,533
Sales and marketing....................................... -- 613,446
General and administrative................................ 63,664 365,680
--------- -----------
155,197 1,474,659
--------- -----------
Loss from operations................................... (111,996) (1,233,373)
--------- -----------
Other income (expense):
Interest income........................................... -- 33,075
Interest expense.......................................... (4,725) (1,414)
--------- -----------
(4,725) 31,661
--------- -----------
Net loss............................................... $(116,721) $(1,201,712)
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 119
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
MEMBERS' ------------------------- DEFERRED ACCUMULATED AND MEMBERS'
CONTRIBUTIONS SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
------------- ------------ ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... $ 335,204 -- $ -- $ -- $ (376,645) $ (41,441)
Members' contributions... 92,500 -- -- -- -- 92,500
Members' contributions of
consulting services.... 15,527 -- -- -- -- 15,527
Net loss................. -- -- -- -- (116,721) (116,721)
--------- --------- ---------- --------- ----------- -----------
Balance at December 31,
1998................... 443,231 -- -- -- (493,366) (50,135)
Reorganization as a C
Corporation............ (443,231) 1,114,022 443,231 -- -- --
Issuance of common
stock.................. -- 2,528,008 2,791,547 -- -- 2,791,547
Deferred compensation on
issuance of stock
options................ -- -- 193,650 (193,650) -- --
Amortization of deferred
compensation........... -- -- -- 56,250 -- 56,250
Noncash consulting
expense on issuance of
stock options.......... -- -- 71,230 -- -- 71,230
Net loss................. -- -- -- -- (1,201,712) (1,201,712)
--------- --------- ---------- --------- ----------- -----------
Balance at December 31,
1999................... $ -- 3,642,030 $3,499,658 $(137,400) $(1,695,078) $ 1,667,180
========= ========= ========== ========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 120
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(116,721) $(1,201,712)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................ 1,900 38,072
Deferred rental expense.............................. -- 7,358
Allowance for doubtful accounts...................... 3,775 725
Noncash expense...................................... 15,527 71,230
Amortization of deferred compensation................ -- 56,250
Changes in assets and liabilities:
Accounts receivable............................... -- (116,031)
Other receivables................................. -- (136,000)
Prepaid and other assets.......................... (13,855) (90,438)
Accounts payable and accrued expenses............. (6,616) 80,118
Deferred revenue.................................. 5,977 48,090
--------- -----------
Net cash used by operating activities............. (110,013) (1,242,338)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (2,969) (227,017)
Trademark costs........................................... -- (10,000)
--------- -----------
Net cash used by investing activities............. (2,969) (237,017)
--------- -----------
Cash flows from financing activities:
(Repayment) borrowings on line of credit, net............. 29,500 (64,000)
Members' contributions.................................... 92,500 --
Proceeds of issuance of common stock...................... -- 2,791,547
--------- -----------
Net cash provided by financing activities......... 122,000 2,727,547
--------- -----------
Increase in cash.................................. 9,018 1,248,192
Cash at beginning of year................................... -- 9,018
--------- -----------
Cash at end of year......................................... $ 9,018 $ 1,257,210
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 4,725 $ 1,414
========= ===========
Supplemental disclosure of noncash financing activities:
Deferred compensation on issuance of options.............. $ -- $ 193,650
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE> 121
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Legal Anywhere was founded as an Oregon limited liability company in 1996.
In January 1999, all assets and liabilities of Legal Anywhere LLC were
transferred to Legal Anywhere, Inc. (the Company), an Oregon Corporation.
The Company provides Internet-based "collaborative tools" to law firms and
corporate legal departments. Such tools enable lawyers to communicate and work
with other lawyers, clients and others concerning matters such as document
development, calendaring, case management, research and knowledge management.
(b) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(c) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and SOP 98-9, since inception. SOP 97-2, as
amended, generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements.
To date, the Company has derived its revenue from licenses of its
collaborator product, maintenance and support, hosting services and delivery of
implementation consulting services. The Company sells its product primarily
through its direct sales force.
Revenue recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair values of the
elements, such as software products, maintenance and support, hosting services
and consulting services. The determination of fair value is based on objective
evidence which is specific to the Company.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable.
Revenue from hosting fees is recognized after services are provided and the
Company has no further obligation to perform services.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from the deferred maintenance
and support or consulting services not yet rendered.
F-42
<PAGE> 122
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(d) RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
(e) SOFTWARE DEVELOPMENT COSTS
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility, are classified as research and development costs and
are charged to costs and expenses as incurred. Once technological feasibility
has been determined, significant costs incurred in the construction phase of
software development, including coding and testing and product quality
assurance, are capitalized. To date, no software development costs have been
capitalized as technological feasibility has been achieved substantially
concurrent with the general release of the Company's software product.
(f) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets as follows: computer hardware and software
over three years; furniture and equipment over five years; and leasehold
improvements over the remaining life of the lease or the useful life, whichever
is shorter. Maintenance and repairs are expensed as incurred.
(g) INCOME TAXES
Effective January 1999, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts to be recovered.
Prior to January 1999, the Company elected to be taxed under the
partnership provisions of the Internal Revenue Code. Under those provisions, the
Company did not pay federal or state corporate income taxes on its taxable
income. Instead, the stockholders were individually responsible for federal and
state income taxes. Accordingly, no provision for income taxes was made in the
accompanying financial statements.
(h) ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of $3,775
and $4,500 at December 31, 1998 and 1999, respectively.
F-43
<PAGE> 123
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(i) OTHER ASSETS, NET
Other assets consist of a lease deposit for office space and expenses
related to a trademark.
During 1999, the Company filed for a trademark. The expenses relating to
the trademark has been capitalized and is being amortized using the
straight-line method over five years. Amortization expense for the year ended
December 31, 1999 was $1,001.
The Company will assess impairment when events and circumstances indicate
that impairment might exist. To date, there has been no indication of
impairment.
(j) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. This statement permits a
company to choose either a fair-value-based method of accounting for its
stock-based compensation arrangements or to comply with the Accounting
Principles Board Opinion 25 (APB Opinion 25) intrinsic-value-based method adding
pro forma disclosures of net income computed as if the fair-value-based method
had been applied in the financial statements. The Company applies SFAS No. 123
by retaining the APB Opinion 25 method of accounting for stock-based
compensation for employees with annual pro forma disclosures of net income.
Stock-based compensation for non-employees is accounted for using the
fair-value-based method.
(k) ADVERTISING
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $900 and $7,100 for the years ended
December 31, 1998 and 1999, respectively.
(l) COMPREHENSIVE LOSS
The Company did not have any significant components of other comprehensive
loss for the years ended December 31, 1998 and 1999.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short-term nature of
these instruments.
(n) SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131), for the year ended December 31,
1999. Based on definitions contained within SFAS 131, the Company has determined
that it operates in one segment.
(o) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging
F-44
<PAGE> 124
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
activities related to those instruments, as well as other hedging activities.
Because the Company does not currently hold any derivative instruments and does
not engage in hedging activities, the Company expects that the adoption of SFAS
No. 133 will not have a material impact on its financial position, results of
operations or cash flows. The Company will be required to adopt SFAS No. 133 for
the year ended December 31, 2001 in accordance with FASB SFAS No. 137, which
delayed implementation of SFAS 133.
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Computer hardware and software.............................. $ 5,133 $135,783
Furniture and equipment..................................... 2,969 83,700
Leasehold improvements...................................... -- 15,636
------- --------
8,102 235,119
Less accumulated depreciation and amortization.............. (2,974) (40,045)
------- --------
$ 5,128 $195,074
======= ========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1999 was
$1,900 and $37,071, respectively.
(3) LINE OF CREDIT
At December 31, 1998, the Company had a line of credit which allowed for
borrowings up to $75,000. The line bore interest at 0.5% plus the bank's prime
rate. There was $64,000 outstanding under the line of credit at December 31,
1998. The line of credit was secured by the assets of the Company and guaranteed
by a stockholder.
The line of credit was paid in full in 1999 and was cancelled in April
1999.
(4) STOCKHOLDERS' EQUITY
(A) PREFERRED STOCK
The Company has authorized 5,000,000 shares of no par value preferred
stock. The Board of Directors (the Board) of the Company has authority to divide
the preferred stock into as many series as it shall determine from time to time.
Each series of preferred stock shall have the powers, preferences and rights as
determined by the Board at its discretion. At December 31, 1998 and 1999, no
preferred stock had been issued.
(B) COMMON STOCK
The Company has authorized 10,000,000 shares of no par value common stock.
Each share of common stock has voting rights of one vote per share.
(5) STOCK INCENTIVE PLAN
Effective January 1999, the Company adopted the 1999 Stock Incentive Plan
(the Plan) which provides for the granting of stock options to employees,
directors and consultants. Under
F-45
<PAGE> 125
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
the terms of the Plan, eligible employees may receive statutory and nonstatutory
stock options, stock bonuses and stock appreciation rights for purchase of
shares of the Company's common stock at prices, vesting, exercisability and such
other terms as determined by the board of directors. Cancelled options are
available for future grant. The Company has reserved 908,000 shares of its
common stock for issuance under the Plan.
During 1999, the Company granted 322,750 options to certain key employees
and 37,750 options to consultants to purchase shares of the Company's common
stock at $0.40 per share. The options were issued at a price below the fair
market value of the Company's stock on the date of grant of $1.00. The
difference between the stock option grant price and the fair market value on the
date of grant has been included as deferred compensation for employees of
$193,650. The deferred compensation is recorded as compensation expense over the
vesting period of the options in the statements of operations. Total
amortization of deferred compensation recorded in the accompanying statement of
operations for the year ended December 31, 1999 was $56,250.
The Company has computed, for pro forma disclosure purposes, the value of
all options granted during the year ended December 31, 1999 using the minimum
value method using the following weighted average assumptions for grants for the
year ended December 31, 1999:
<TABLE>
<S> <C>
Divided yield..................................... $ --
Risk-free interest rate........................... 5.1%
Expected life..................................... 7 years
</TABLE>
The Company applies Accounting Principle Bulletin Opinion No. 25 in
accounting for stock options issued to employees and directors under the
Plan and, accordingly, no compensation expense has been recognized for
these stock options in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its
stock options under Statement of Financial Accounting Standards (SFAS) No.
123, the Company's net loss would have been increased to the pro forma
amount indicated below:
<TABLE>
<CAPTION>
NET LOSS
-----------
<S> <C>
Net loss:
As reported............................................... $(1,201,712)
Pro forma................................................. (1,388,140)
</TABLE>
F-46
<PAGE> 126
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
A summary of the status of the Company's Plan at December 31, 1999 and
changes during the year then ended is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding, January 22, 1999
(date of Plan adoption)............................ -- $ --
Granted.............................................. 472,000 0.54
Exercised............................................ -- --
Canceled............................................. -- --
------- ------
Outstanding, December 31, 1999....................... 472,000 $ 0.54
======= ======
</TABLE>
The outstanding stock options have an exercise price ranging from $0.40 to
$1.00 and a weighted average remaining contractual life of nine years. At
December 31, 1999, a total of 101,750 options were vested at a weighted average
exercise price of $0.45 per share and with a weighted average remaining
contractual life of nine years.
The per share average fair value of options granted during the year ended
December 31, 1999 was $0.69. The total fair value of options granted during the
year ended December 31, 1999 was $325,914, which would be amortized on a
straight-line basis over the vesting period of the options.
The following table sets forth as of December 31, 1999 the number of
options outstanding, exercise price, weighted average remaining contractual
life, weighted average exercise price, number of exercisable options and
weighted average exercise price of exercisable options by groups of similar
price and grant date:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
- ---------------------------------------------------- ------------------
WEIGHTED
OUTSTANDING AVERAGE WEIGHTED WEIGHTED
OPTIONS AT REMAINING AVERAGE AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE VESTED EXERCISE
PRICE 1999 LIFE (YEARS) PRICE OPTIONS PRICE
-------- ------------ ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.01 - 0.50 360,500 9 $ .40 93,750 $ .40
0.51 - 1.00 111,500 9 1.00 8,000 1.00
</TABLE>
(7) INCOME TAXES
As described in note 1, prior to January 1999, the Company elected to be
taxed under the partnership provisions of the Internal Revenue Code.
Accordingly, the Company did not pay any federal or state corporate income
taxes.
F-47
<PAGE> 127
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
Due to the Company's losses before the provision for income taxes for the
year ended December 31, 1999, there has been no provision for federal and state
taxes. The reconciliation of the actual benefit to the "expected" benefit
computed by applying the U.S. federal corporate rate is as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Computed "expected" income tax benefit...................... (34)%
Increases (decreases) resulting from:
State income taxes, net of federal tax benefit............ (4)
Change in valuation allowance............................. 38
---
--%
===
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $1,060,000 to offset against future income for federal and state
tax purposes. These carryforwards expire through 2019. A provision of the
Internal Revenue Code requires the utilization of net operating losses be
limited when there is a change of more than 50% in ownership of the Company.
Such a change occurred with the issuance of common stock in March of 1999.
Accordingly, the utilization of the net operating loss carryforwards generated
from periods prior to March of 1999 is limited.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's deferred tax assets and deferred tax
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $408,000
Deferred compensation..................................... 49,000
Other..................................................... 2,000
--------
Total gross deferred tax assets........................ 459,000
Less valuation allowance.................................... 459,000
--------
Net deferred tax assets................................ $ --
========
</TABLE>
(8) SIGNIFICANT CUSTOMERS
During the years ended December 31, 1998 and 1999, one customer each year
accounted for 35% and 13%, respectively, of total revenue.
(9) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases office space and equipment under non-cancelable
operating leases which expire at various dates through May 2004.
F-48
<PAGE> 128
LEGAL ANYWHERE, INC.
(FORMERLY LEGAL ANYWHERE LLC)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000........................................... $179,156
2001........................................... 177,616
2002........................................... 135,216
2003........................................... 110,516
2004........................................... 46,049
--------
$648,553
========
</TABLE>
Lease expense totaled $101,457 in 1999. The Company did not have any
operating leases during the year ended December 31, 1998 and, accordingly, did
not incur any lease expense for 1998.
(B) ROYALTIES
In April 1999, the Company entered into a royalty agreement to pay
royalties based on the number of licenses sold including that technology. The
Company's new release, expected in May 2000, will be the first version to
include this technology, therefore, there were no royalty payments under the
agreement for the year ended December 31, 1999.
(10) RELATED PARTY TRANSACTIONS
For the year ended December 31, 1999, the Company purchased accounting
services in the amount of approximately $40,000 from a company owned by a
shareholder.
The Company issued stock options to purchase 318,750 shares of common stock
to certain key members of management of the Company who are also stockholders
during the year ended December 31, 1999.
(11) SUBSEQUENT EVENTS
On January 31, 2000, Niku Corporation acquired all the issued and
outstanding shares of the Company in exchange for 853,689 shares of Niku common
stock valued at approximately $9,391,000. In addition, all outstanding stock
options of the Company will be assumed by Niku.
In January 2000, the Company issued 119,000 stock options to employees with
an exercise price below the deemed fair market value. In connection with the
grants, the Company will recognize approximately $83,000 in deferred
compensation.
F-49
<PAGE> 129
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Niku, Proamics and Legal Anywhere been a combined company during
the specified periods. The unaudited pro forma combined condensed financial
statements, including the related notes, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical financial
statements and related notes thereto of Niku, Proamics and Legal Anywhere,
included elsewhere in this filing. The following unaudited pro forma combined
condensed financial statements give effect to the acquisition of Proamics and
Legal Anywhere by Niku using the purchase method of accounting. The unaudited
pro forma combined condensed financial statements are based on the respective
historical audited and unaudited financial statements and related notes of Niku,
Proamics and Legal Anywhere.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to the long-term
tangible and intangible assets or, in some circumstances, resulting in a charge
to the statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amounts of the assets and liabilities
adjusted. For example, if all goodwill and intangible assets resulting from the
acquisitions of Proamics and Legal Anywhere were amortized over three years it
would have resulted in a charge to the unaudited pro forma statements of
operations of $19,300,000 and $14,475,000 for the year ended January 31, 1999,
and the nine months ended October 31, 1999, respectively. See notes 2(d) and
2(f) to the unaudited pro forma combined condensed financial statements.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisitions took place on October 31, 1999, and combines Niku's audited October
31, 1999 consolidated balance sheet with Proamics' audited September 30, 1999
consolidated balance sheet and Legal Anywhere's unaudited September 30, 1999
balance sheet. The unaudited pro forma combined condensed statements of
operations assumes the acquisitions took place on February 1, 1998, and combines
Niku's audited consolidated statement of operations for the year ended January
31, 1999, with Proamics' audited consolidated statement of operations and Legal
Anywhere's audited statement of operations for the year ended December 31, 1998,
and Niku's audited consolidated statement of operations for the nine months
ended October 31, 1999, with Proamics' audited consolidated statement of
operations for the nine months ended September 30, 1999, and Legal Anywhere's
unaudited statement of operations for the nine months ended September 30, 1999.
F-50
<PAGE> 130
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
OCTOBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ -----------------------
NIKU PROAMICS LEGAL ANYWHERE ADJUSTMENTS COMBINED
-------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 17,154 $ 3,248 $ 816 $ $ 21,218
Short-term investments............ 2,175 -- -- 2,175
Accounts receivable............... 2,754 3,864 33 6,651
Prepaid expenses and other current
assets.......................... 1,258 130 41 1,429
-------- -------- ------- -------- --------
Total current assets....... 23,341 7,242 890 -- 31,473
Deposits and other assets........... 160 192 40 392
Property and equipment, net......... 4,406 1,241 191 5,838
Goodwill and other intangible
assets, net....................... 831 -- -- 47,802(a)
10,098(c) 58,731
-------- -------- ------- -------- --------
$ 28,738 $ 8,675 $ 1,121 $ 57,900 $ 96,434
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................. $ 3,817 $ 872 $ 90 $ $4,779
Accrued liabilities............... 1,753 1,388 16 500(a)
500(c) 4,157
Current portion of long-term
obligations..................... 5,502 886 -- 6,388
Deferred revenue.................. 1,946 1,499 15 (1,000)(b) 2,460
-------- -------- ------- -------- --------
Total current
liabilities.............. 13,018 4,645 121 -- 17,784
Long-term obligations, less current
portion........................... 968 2,366 7 3,341
-------- -------- ------- -------- --------
Total liabilities.......... 13,986 7,011 128 -- 21,125
-------- -------- ------- -------- --------
Redeemable convertible preferred
stock and warrants................ 28,580 12,390 -- (12,390)(a)
-------- -------- -------
32,456(a) 61,036
-------- --------
Stockholders' equity (deficit):
Common stock...................... 1 -- 2,442 (2,442)(c) 1
Additional paid-in capital........ 10,100 2,930 -- (2,930)(a)
17,510(a)
10,591(c) 38,201
Treasury stock.................... (30) (227) 227(a) (30)
Deferred stock compensation....... (7,238) -- (137) 137(c) (7,238)
Notes receivable from
stockholders.................... (108) -- -- (108)
Accumulated deficit............... (16,553) (13,429) (1,312) 13,429(a)
-- 1,312(c) (16,553)
-------- -------- ------- -------- --------
Total stockholders' equity
(deficit)................ (13,828) (10,726) 993 37,834 14,273
-------- -------- ------- -------- --------
$ 28,738 $ 8,675 $ 1,121 $ 57,900 $ 96,434
======== ======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-51
<PAGE> 131
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------- -----------------------
NIKU PROAMICS LEGAL ANYWHERE ADJUSTMENTS COMBINED
------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License................... $ -- $ 3,165 $ 33 $ $ 3,198
Services.................. 15 7,700 20 7,735
------- ------- ------- -------- --------
Total revenues....... 15 10,865 53 -- 10,933
Cost of revenues:
License................... -- 190 5 195
Services.................. 4 4,957 5 4,966
------- ------- ------- -------- --------
Total cost of
revenues.......... 4 5,147 10 -- 5,161
------- ------- ------- -------- --------
Gross profit......... 11 5,718 43 -- 5,772
Operating expenses:
Research and development.. 1,610 1,349 91 3,050
Sales and marketing....... 290 2,688 -- 2,978
General and
administrative......... 996 2,349 64 3,409
Stock-based compensation.. 245 -- -- -- 245
Amortization of goodwill
and other intangible
assets................. 20 -- -- 12,371(d)
3,366(f) 15,757
------- ------- ------- -------- --------
Total operating
expenses........ 3,161 6,386 155 15,737 25,439
------- ------- ------- -------- --------
Operating loss.... (3,150) (668) (112) (15,737) (19,667)
Interest and other income
(expense), net......... 130 (486) (5) (361)
------- ------- ------- -------- --------
Net loss.......... $(3,020) $(1,154) $ (117) $(15,737) $(20,028)
======= ======= ======= ======== ========
Basic and diluted net
loss per share....... $ (0.62) $ (1.27)
======= ========
Shares used to compute
basic and diluted net
loss per share....... 4,882 9,993(e)
=======
854(g) 15,729
========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-52
<PAGE> 132
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ ----------------------
NIKU PROAMICS LEGAL ANYWHERE ADJUSTMENTS COMBINED
-------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License................... $ 1,962 $ 2,497 $ 117 $ $ 4,576
Services.................. 1,014 6,702 40 7,756
-------- ------- ----- -------- --------
Total revenues....... 2,976 9,199 157 -- 12,332
Cost of revenues:
License................... 174 119 -- 293
Services.................. 429 5,303 20 5,752
-------- ------- ----- -------- --------
Total cost of
revenues.......... 603 5,422 20 -- 6,045
-------- ------- ----- -------- --------
Gross profit......... 2,373 3,777 137 -- 6,287
Operating expenses:
Research and
development............ 6,062 2,010 295 8,367
Sales and marketing....... 5,983 3,068 366 9,417
General and
administrative......... 1,837 2,214 262 4,313
Stock-based
compensation........... 2,018 -- 56 -- 2,074
Amortization of goodwill
and other intangible
assets................. 184 -- -- 9,278(d)
2,525(f) 11,987
-------- ------- ----- -------- --------
Total operating
expenses........ 16,084 7,292 979 11,803 36,158
-------- ------- ----- -------- --------
Operating loss.... (13,711) (3,515) (842) (11,803) (29,871)
Interest and other income
(expense), net......... 178 (220) 24 (18)
-------- ------- ----- -------- --------
Net loss.......... $(13,533) $(3,735) $(818) $(11,803) $(29,889)
======== ======= ===== ======== ========
Basic and diluted net
loss per share....... $ (2.31) $ (1.79)
========
Shares used to compute
basic and diluted net
loss per share....... 5,871 9,993(e)
========
854(g) 16,718
========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-53
<PAGE> 133
NIKU CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
On December 8, 1999, the Company acquired Proamics Corporation (Proamics),
a privately-held company in Chicago, Illinois. Niku issued 3,501,938 shares of
its common stock and 6,491,203 shares of the Company's Series D redeemable
convertible preferred stock for all of Proamics' outstanding capital stock
valued at approximately $49,966,000 for all of Proamics' outstanding capital
stock. On January 31, 2000, the Company acquired Legal Anywhere, Inc. (Legal
Anywhere), a privately-held company in Portland, Oregon. The Company issued
853,689 shares of its common stock value at approximately $9,391,000 for all of
Legal Anywhere's outstanding capital stock and assumed all outstanding Legal
Anywhere stock options. Both transactions are to be accounted for as a purchase.
The pro forma combined condensed balance sheet as of October 31, 1999,
gives effect to the acquisitions as if they had occurred on October 31, 1999.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To record common stock issued by Niku and record applicable purchase
accounting entries for the acquisition of Proamics.
Under purchase accounting, the total purchase price will be allocated
to Proamics' assets and liabilities based on their relative fair
values. Amounts allocated to current products and technology and
assembled workforce will be amortized on a straight-line basis over
estimated useful lives of 3 years and customers lists will be
amortized on a straight-line basis over estimated useful lives of 4
years. Goodwill will be amortized over an estimated useful life of 5
years. Allocations are subject to valuations as of the date of the
consummation of the acquisition. The amounts and components of the
estimated purchase price along with the preliminary allocation of the
estimated purchase price to assets purchased are as follows (in
thousands):
<TABLE>
<S> <C>
Common stock................................................ $17,510
Series D redeemable convertible preferred stock............. 32,456
Estimated transaction costs................................. 500
-------
Total purchase price.............................. $50,466
=======
Cash and cash equivalents................................... $ 3,248
Accounts receivable......................................... 3,864
Prepaid expenses and other current assets................... 130
Deposits and other assets................................... 192
Property and equipment and other noncurrent assets.......... 1,241
Accounts payable............................................ (872)
Accrued liabilities......................................... (1,388)
Deferred revenue (after adjustment (b) below)............... (499)
Long-term obligations....................................... (3,252)
-------
Fair value of net tangible assets of Proamics..... 2,664
Assembled workforce......................................... 1,445
Customer lists.............................................. 2,543
Current products and technology............................. 18,672
Goodwill.................................................... 25,142
-------
Net assets acquired.................................... $50,466
=======
</TABLE>
(b) To reflect the reduction of deferred revenue to its fair value.
F-54
<PAGE> 134
The actual allocation of the purchase price will depend upon the
composition of Proamics' net assets on the closing date and Niku's evaluation of
the fair value of the net assets as of the date indicated. Consequently, the
actual allocation of the purchase price could differ from that presented above.
(c) To record common stock and stock options issued by Niku and record
applicable purchase accounting entries for the acquisition of Legal
Anywhere. The fair value of the 141,282 stock options issued was
estimated using the Black-Scholes option pricing model using an assumed
fair value of $11.00 per share for the underlying common stock. Amounts
allocated to indentifiable intangible assets and goodwill will be
amortized on a straight-line basis over estimated useful lives of 3
years. Allocations are subject to valuations as of the date of the
consummation of the acquisition. The amounts and components of the
estimate purchase price along with the preliminary allocation of the
estimated purchase price to assets purchased are as follows (in
thousands):
<TABLE>
<S> <C>
Common stock................................................ $ 9,391
Estimated fair value of stock options assumed............... 1,200
Estimated transaction costs................................. 500
-------
$11,091
=======
Cash........................................................ $ 816
Accounts receivable......................................... 33
Prepaid expenses and other current assets................... 41
Property and equipment...................................... 191
Other assets................................................ 40
Accounts payable............................................ (90)
Accrued expenses............................................ (16)
Deferred revenue............................................ (15)
Long-term obligations....................................... (7)
-------
Fair value of net tangible assets of Legal Anywhere....... 993
Assembled workforce......................................... 300
Customer lists.............................................. 1,700
Trade name.................................................. 200
Current products and technology............................. 2,300
Goodwill.................................................... 5,598
-------
Net assets acquired....................................... $11,091
=======
</TABLE>
The actual allocation of the purchase price will depend on the
composition of Legal Anywhere's net assets on the closing date and Niku's
evaluation of the fair value of the net assets as of the date indicated.
Consequently, the actual allocation of the purchase price could differ from
that presented above.
(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The pro forma combined condensed statements of operations give effect to
the acquisitions as if they had occurred on February 1, 1998.
The pro forma combined condensed statements of operations do not include
amortization of deferred stock compensation related to stock options granted and
restricted stock sold through January 29, 2000, expected to be approximately
$6,300,000 during the three-month period ended January 29, 2000, and
$11,300,000, $4,500,000, $1,600,000 and $200,000 during fiscal 2001, 2002, 2003,
and 2004, respectively.
F-55
<PAGE> 135
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(d) Adjustment to record the amortization of goodwill and intangible assets
resulting from the preliminary allocation of the Proamics purchase
price calculated as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
VALUE USEFUL LIFE AMORTIZATION
------ ----------- ------------
<S> <C> <C> <C>
Assembled workforce.......................... $1,445 3 years $ 483
Customer lists............................... 2,543 4 years 636
Current products and technology.............. 18,672 3 years 6,224
Goodwill..................................... 25,142 5 years 5,028
-------
$12,371
=======
</TABLE>
(e) To reflect the shares of common stock to be issued as consideration for
the acquisition of Proamics and shares of Series D redeemable
convertible preferred stock to be issued as consideration for the
acquisition on an "as if converted" basis.
(f) Adjustment to record the amortization of goodwill and intangible assets
resulting from the preliminary allocation of Legal Anywhere purchase
price calculated as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
VALUE USEFUL LIFE AMORTIZATION
------ ----------- ------------
<S> <C> <C> <C>
Assembled workforce.......................... $ 300 3 years $ 100
Customer lists............................... 1,700 3 years 567
Trade name................................... 200 3 years 67
Current products and technology.............. 2,300 3 years 766
Goodwill..................................... 5,598 3 years 1,866
------
$3,366
======
</TABLE>
(g) To reflect the shares of common stock to be issued as consideration for
the acquisition of Legal Anywhere.
F-56
<PAGE> 136
UNDERWRITING
Niku and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to conditions
specified in the underwriting agreement, each underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Dain Rauscher Incorporated, Thomas Weisel Partners LLC and U.S.
Bancorp Piper Jaffray Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Goldman, Sachs & Co. .......................................
Dain Rauscher Incorporated..................................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total..................................................... 8,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,200,000 shares from Niku to cover such sales. They may exercise that option
for 30 days. If any shares are purchased under this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Niku. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY NIKU
-------------------
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
The per share underwriting discounts and commission equals the public offering
price per share of common stock less the per share amount paid by the
underwriters to Niku.
In November 1999, Tailwind Capital Partners, L.P., an entity affiliated
with Thomas Weisel Partners LLC, purchased an aggregate of 150,000 shares of our
Series D preferred stock for an aggregate purchase price of $750,000. The shares
of our Series D preferred stock beneficially owned by this affiliate of Thomas
Weisel Partners LLC have been deemed by the National Association of Securities
Dealers, Inc. to be underwriting compensation and will be restricted from sale,
transfer, assignment or hypothecation for a period of one year from the date of
this offering, except as otherwise permitted by the National Association of
Securities Dealers, Inc. Conduct Rule 2710 (c)(7)(A).
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
Niku and its directors, officers, employees and other stockholders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior
U-1
<PAGE> 137
written consent of Goldman, Sachs & Co. This restriction does not apply to any
issuances under our existing employee benefit plans or, with respect to
individuals, transfers by gift, will or intestate succession, or with respect to
partnerships, transfers to partners, provided that in each case the transferee
agrees to be bound by the restriction for any remaining period, or pursuant to
an acquisition or strategic investment transaction, provided that any person who
acquires securities in an acquisition or strategic investment transaction agrees
to be bound by the restriction for any remaining period. See "Shares Eligible
for Future Sale" for a discussion of transfer restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price for the common stock in this offering will be
negotiated among Niku and the representatives. The factors to be considered in
determining the initial public offering price of the shares in addition to
prevailing market conditions, will be Niku's historical performance, estimates
of the business potential and earnings prospects of Niku, an assessment of
Niku's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Niku has applied for approval for quotation of its common stock on the
Nasdaq National Market under the symbol "NIKU."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of this underwriter in stabilizing or short-sale covering
transactions.
These activities by the underwriters may stabilize, maintain or affect the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Niku has requested the underwriters to reserve for sale, at the initial
public offering price, approximately 400,000 shares of common stock offered in
this offering for business partners, suppliers and other associates of the
Company and its management who have expressed an interest in purchasing the
shares of common stock in the offering. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares which are not purchased by these persons
will be offered by the underwriters to the general public on the same terms as
the other shares offered in this offering.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters of this offering. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the representatives to underwriters that may make Internet distributions on the
same basis as other allocations.
U-2
<PAGE> 138
Niku estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1,000,000.
Niku has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act of 1933.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on
approximately 78 public offerings of equity securities that have been completed.
Thomas Weisel Partners does not have any material relationship with Niku or any
of its officers, directors or other controlling person, except with respect to
(1) its contractual relationship with Niku pursuant to the underwriting
agreement entered into in connection with this offering and (2) the relationship
of its affiliate with Niku as the holder of 150,000 shares of our Series D
preferred stock.
U-3
<PAGE> 139
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Special Note Regarding Forward-
Looking Statements................. 21
Use of Proceeds...................... 22
Dividend Policy...................... 22
Capitalization....................... 23
Dilution............................. 25
Selected Consolidated Financial
Data............................... 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 29
Business............................. 42
Management........................... 57
Certain Transactions................. 67
Principal Stockholders............... 69
Description of Capital Stock......... 71
Shares Eligible for Future Sale...... 75
Legal Matters........................ 77
Experts.............................. 77
Where You Can Find Additional
Information........................ 77
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
-------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
8,000,000 Shares
NIKU CORPORATION
Common Stock
-------------------------
[NIKU LOGO]
-------------------------
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 29,146
NASD filing fee............................................. 12,000
Nasdaq National Market initial filing fee................... 1,000
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 350,000
Road show expenses.......................................... 30,000
Printing and engraving expenses............................. 150,000
Blue sky fees and expenses.................................. 600
Transfer agent and registrar fees and expenses.............. 1,000
Miscellaneous............................................... 57,854
----------
Total..................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:
- the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;
- the Registrant may indemnify its other employees and agents to the
fullest extent permitted by the Delaware General Corporation Law, subject
to very limited exceptions;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding;
II-1
<PAGE> 141
- the Registrant may advance expenses, as incurred, to its employees and
agents in connection with a legal proceeding; and
- the rights conferred in the Bylaws are not exclusive.
The Registrant has entered into Indemnification Agreements with each of its
current directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Certificate of Incorporation and to provide additional
procedural protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of the Registrant regarding which
indemnification is sought, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification.
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnification
Agreements entered into between the Registrant and each of its directors and
officers may be sufficiently broad to permit indemnification of the Registrant's
directors and officers for liabilities arising under the Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Form of Underwriting Agreement.............................. 1.01
Registrant's Certificate of Incorporation................... 3.01
Registrant's Bylaws......................................... 3.03
Form of Indemnification Agreement........................... 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the effective date of this Registration
statement, the Registrant has issued and sold the following unregistered
securities:
1. In January 1998, the Registrant issued and sold 10,000,000 shares of
Series F preferred stock to a group of four individual investors, each
of which is a trust controlled by two of the founders of the Registrant,
and one venture capital fund and 3,962,500 shares of common stock to a
group of eight individual investors, consisting of two trusts controlled
by two of the founders and six employees of the Registrant, for an
aggregate consideration of $539,625 in cash. This sale of preferred
stock was made in reliance on Section 4(2) and/or Rule 506 of Regulation
D under the Securities Act.
2. In February 1998, the Registrant issued and sold 4,285,709 shares of
Series A preferred stock to a group of thirteen individual investors,
consisting of two trusts controlled by members of the board of directors
of the Registrant, five employees of the Registrant and six unrelated
individual investors, and three venture capital funds for an aggregate
consideration of $1,499,998.15 in cash. In April and May of 1998, the
Registrant issued and sold an additional 857,142 shares of Series A
preferred stock to a group of three individual investors, each of which
is a trust controlled by a member of the board of directors of the
Registrant, for an aggregate consideration of $299,999.70 in cash. This
sale of preferred stock was made in reliance on Section 4(2) and/or Rule
506 of Regulation D under the Securities Act.
II-2
<PAGE> 142
3. In October 1998, the Registrant issued and sold 6,959,997 shares of
Series B preferred stock to a group of five individual investors, four
of which are trusts controlled by three members of the board of
directors of the Registrant, and three venture capital funds for an
aggregate consideration of $5,219,997.75 in cash. In November 1998, the
Registrant issued and sold an additional 426,665 shares of Series B
preferred stock to a group of three individual investors, consisting of
a member of the board of directors of the Registrant and two employees
of the Registrant, and one venture capital fund for an aggregate
consideration of $319,998.75 in cash. In December 1998, the Registrant
issued and sold an additional 613,330 shares of Series B preferred stock
to a group of five individual investors, consisting of four employees of
the Registrant and another unrelated individual investor, two venture
capital funds and one corporate investor, Comdisco, Inc., for an
aggregate consideration of $459,997.50 in cash. The sale of these shares
was made in reliance on Section 4(2) and/or Rule 506 of Regulation D
under the Securities Act.
4. In December 1998, in connection with its acquisition of Alyanza Software
Corporation, the Registrant issued 524,995 shares of common stock to a
group of nine individuals, all of whom were former stockholders of
Alyanza. The sale of these shares was made in reliance on Section 4(2)
and/or Rule 506 of Regulation D under the Securities Act.
5. In February 1999, the Registrant issued to Comdisco, Inc. warrants to
purchase up to 630,000 shares of Series B Preferred Stock at an exercise
price of $0.75 per share which expires, if not earlier exercised, upon
the earlier of February 2, 2006 or three years from the effective date
of the Registrant's initial public offering.
6. In May 1999, the Registrant issued and sold 9,987,439 shares of Series C
preferred stock to a group of twelve individual investors, consisting of
one member of the board of directors of the Registrant, two trusts
controlled by two members of the board of directors of the Registrant
and nine employees of the Registrant, thirteen venture capital funds and
one corporate investor, Comdisco, Inc., for an aggregate consideration
of $19,875,003.61 in cash. The sale of these shares was made in reliance
on Section 4(2) and/or Rule 506 of Regulation D under the Securities
Act.
7. In November 1999, the Registrant issued and sold 7,998,012 shares of
Series D preferred stock to a group of thirty 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.
8. In November 1999, in connection with its acquisition of Proamics
Corporation, the Registrant issued 3,501,938 shares of common stock and
6,491,203 shares of Series D preferred stock to a group of twenty-six
individual investors, two venture capital funds and one corporate
investor, 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.
9. From its inception on January 8, 1998 through January 29, 2000, the
Registrant has issued 2,848,750 shares of common stock to its employees,
consultants and other service providers through restricted stock
purchases or pursuant to stock purchase agreements.
10. From its inception on January 8, 1998 through January 29, 2000,
Registrant has issued 1,091,566 shares of common stock to its employees
upon exercise of options, and as of January 29, 2000, 4,921,236 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.
II-3
<PAGE> 143
11. In January 2000, in connection with its acquisition of Legal Anywhere,
Inc., the Registrant 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 a
view to or for sale in connection with any distribution and appropriate legends
were affixed to the share certificates issued in these transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
1.01+ Form of Underwriting Agreement.
2.01+ Agreement and Plan of Reorganization with Alyanza Software
Corporation, dated December 10, 1998.
2.02+ Agreement and Plan of Reorganization with Proamics
Corporation, dated November 16, 1999.
2.03+ Agreement and Plan of Reorganization with Legal Anywhere,
Inc., dated January 19, 2000.
3.01+ Registrant's Amended and Restated Certificate of
Incorporation.
3.02+ Form of Registrant's Amended and Restated Certificate of
Incorporation (to be filed immediately after the closing of
this offering).
3.03+ Registrant's Amended and Restated Bylaws.
3.04+ Registrant's Amended and Restated Bylaws (to be filed
immediately after the closing of this offering).
4.01+ Form of Specimen Certificate for Registrant's common stock.
4.02+ Fourth Amended and Restated Investors' Rights Agreement,
dated November 18, 1999, as amended December 8, 1999.
4.03+ Series F Preferred Stock Purchase Agreement, dated January
23, 1998.
4.04+ Series A Preferred Stock Purchase Agreement, dated February
13, 1998.
4.05+ Series B Preferred Stock Purchase Agreement, dated October
13, 1998.
4.06+ Series C Preferred Stock Purchase Agreement, dated May 13,
1999.
4.07+ Series D Preferred Stock Purchase Agreement, dated November
18, 1999.
5.01+ Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnification Agreement entered into between
Registrant and its directors and executive officers.
10.02+ 1998 Stock Plan, as amended.
10.03+ Form of 2000 Equity Incentive Plan.
10.04+ Form of 2000 Employee Stock Purchase Plan.
10.05+ Business Loan Agreement, dated September 23, 1999, by and
between Mid-Peninsula and Registrant.
10.06+ Subordinated Loan and Security Agreement, dated as of
February 2, 1999, by and between Comdisco, Inc. and
Registrant.
10.07**++ iMap Agreement, dated June 30, 1999, by and between
USinternetworking, Inc. and Registrant.
10.08**++ Software License Agreement, dated June 30, 1999, by and
between USinternetworking, Inc. and Registrant.
10.09**++ Managed Services Agreement dated August 19, 1999, by and
between USinternetworking, Inc. and Registrant.
</TABLE>
II-4
<PAGE> 144
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.10**++ Promotion Agreement dated September 10, 1999 by and between
CNET, Inc. and Registrant.
10.11++ Software License and Services Agreement, dated December 22,
1998, by and between Registrant and Sybase, Inc.
10.12++ Software License Agreement, dated March 19, 1999, by and
between Sybase, Inc. and Registrant.
10.13+ Offer Letter for Joshua Pickus.
10.14+ Offer Letter for Mark Nelson.
10.15+ Offer Letter for Rhonda Dibachi.
10.16+ Offer Letter for Kenneth Johnson.
10.17+ Offer Letter for Harold Slawik.
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.
16.01++ Letter from Ernst & Young LLP.
21.01+ List of Registrant's Subsidiaries.
23.01+ Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02++ Consent of KPMG LLP, independent accountants.
23.03++ Consent of KPMG LLP, independent accountants.
23.04++ Consent of KPMG LLP, independent accountants.
24.01+ Power of Attorney.
27.01+ Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
++ Filed herewith.
** Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
(b) The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts
Other financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court
II-5
<PAGE> 145
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective;
and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Redwood City,
State of California, on this 16th day of February, 2000.
NIKU CORPORATION
By: /s/ FARZAD DIBACHI
------------------------------------
Farzad Dibachi
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ FARZAD DIBACHI Chief Executive Officer and Director February 16, 2000
- ------------------------------------------
Farzad Dibachi
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ MARK NELSON Chief Financial Officer February 16, 2000
- ------------------------------------------
Mark Nelson
ADDITIONAL DIRECTORS:
* Director February 16, 2000
- ------------------------------------------
Michael Brooks
* Director February 16, 2000
- ------------------------------------------
John Chen
* Director February 16, 2000
- ------------------------------------------
Terence Garnett
* Director February 16, 2000
- ------------------------------------------
William Raduchel
* Director February 16, 2000
- ------------------------------------------
Maynard Webb
*By: /s/ MARK NELSON Attorney-in-fact February 16, 2000
- -----------------------------------------
Mark Nelson
</TABLE>
II-7
<PAGE> 147
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
1.01+ Form of Underwriting Agreement.
2.01+ Agreement and Plan of Reorganization with Alyanza Software
Corporation, dated December 10, 1998.
2.02+ Agreement and Plan of Reorganization with Proamics
Corporation, dated November 16, 1999.
2.03+ Agreement and Plan of Reorganization with Legal Anywhere,
Inc., dated January 19, 2000.
3.01+ Registrant's Amended and Restated Certificate of
Incorporation.
3.02+ Form of Registrant's Amended and Restated Certificate of
Incorporation (to be filed immediately after the closing of
this offering).
3.03+ Registrant's Amended and Restated Bylaws.
3.04+ Registrant's Amended and Restated Bylaws (to be filed
immediately after the closing of this offering).
4.01+ Form of Specimen Certificate for Registrant's common stock.
4.02+ Fourth Amended and Restated Investors' Rights Agreement,
dated November 18, 1999, as amended December 8, 1999.
4.03+ Series F Preferred Stock Purchase Agreement, dated January
23, 1998.
4.04+ Series A Preferred Stock Purchase Agreement, dated February
13, 1998.
4.05+ Series B Preferred Stock Purchase Agreement, dated October
13, 1998.
4.06+ Series C Preferred Stock Purchase Agreement, dated May 13,
1999.
4.07+ Series D Preferred Stock Purchase Agreement, dated November
18, 1999.
5.01+ Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnification Agreement entered into between
Registrant and its directors and executive officers.
10.02+ 1998 Stock Plan, as amended.
10.03+ Form of 2000 Equity Incentive Plan.
10.04+ Form of 2000 Employee Stock Purchase Plan.
10.05+ Business Loan Agreement, dated September 23, 1999, by and
between Mid-Peninsula and Registrant.
10.06+ Subordinated Loan and Security Agreement, dated as of
February 2, 1999, by and between Comdisco, Inc. and
Registrant.
10.07**++ iMap Agreement, dated June 30, 1999, by and between
USinternetworking, Inc. and Registrant.
10.08**++ Software License Agreement, dated June 30, 1999, by and
between USinternetworking, Inc. and Registrant.
10.09**++ Managed Services Agreement dated August 19, 1999, by and
between USinternetworking, Inc. and Registrant.
10.10**++ Promotion Agreement dated September 10, 1999 by and between
CNET, Inc. and Registrant.
10.11++ Software License and Services Agreement, dated December 22,
1998, by and between Registrant and Sybase, Inc.
10.12++ Software License Agreement, dated March 19, 1999, by and
between Sybase, Inc. and Registrant.
10.13+ Offer Letter for Joshua Pickus.
10.14+ Offer Letter for Mark Nelson.
10.15+ Offer Letter for Rhonda Dibachi.
10.16+ Offer Letter for Kenneth Johnson.
10.17+ Offer Letter for Harold Slawik.
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.18+ Restricted Stock Purchase Agreement, dated November 1, 1999,
by and between Joshua Pickus and Registrant.
10.19+ Restricted Stock Purchase Agreement, dated November 18,
1999, by and between Mark Nelson and Registrant.
10.20+ Full Recourse Promissory Note, dated November 11, 1999, by
and between Joshua Pickus and Registrant.
16.01++ Letter from Ernst & Young LLP.
21.01+ List of Registrant's Subsidiaries.
23.01+ Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02++ Consent of KPMG LLP, independent accountants.
23.03++ Consent of KPMG LLP, independent accountants.
23.04++ Consent of KPMG LLP, independent accountants.
24.01+ Power of Attorney.
27.01+ Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
++ Filed herewith.
** Confidential treatment has been requested with regard to certain portions of
this document. Such portions were filed separately with the Securities and
Exchange Commission.
<PAGE> 1
* Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.07
[USi LOGO OMITTED]
USi Agreement Number: 84
iMAP AGREEMENT
USinternetworking, Inc. ("USi"), a Delaware corporation with its principal
office located at One USi Plaza, Annapolis, MD 21401-7428 and Niku Corporation
("Client"), a Delaware corporation with offices at 955 Charter Street, Redwood
City, California 94063, hereby agree that the following terms and conditions
will apply to each iMAP Solution provided under this iMAP Agreement
("Agreement").
1. SCOPE OF SERVICE
1.1 SERVICES
USi will provide the services as defined in individual Product Schedules
which will be mutually agreed upon, attached hereto and incorporated
herein as Exhibit A. The Product Schedules may be modified by mutual
written agreement. Changes or additions to work performed under each
Product Schedule may require changes in the resources provided by Usi.
Notwithstanding the foregoing, no additional costs or charges shall be
due from Licensee without Licensee's prior written consent.
1.2 SEPARATE AGREEMENT
Each Product Schedule shall reflect a separate agreement of the parties,
and, unless otherwise clearly specified in writing, the terms and
conditions of each Product Schedule shall be independent of and shall
have no impact upon, the provisions of any other Product Schedule.
1.3 ADDITIONAL SERVICES
Client may order additional iMAP Solutions or add on to existing iMAP
Solutions by contacting USi. USi will send Client a Product Schedule,
based on USi's formal requirements analysis and/or proposal for the
additional services, specifying the terms of the iMAP Solution,
including the payment(s) due for each ordered item. Client may accept
the terms of the iMAP Solution by signing that Product Schedule and
returning it to USi. All executed Product Schedules will become part of
this Agreement and will be covered by all of this Agreement's terms and
conditions.
2. DEFINITIONS
2.1 "ACCEPTABLE USE POLICY" shall mean USi's policy on the use of its Global
Network posted at http://www.usi.net/usepolicy.html as of June 30, 1999.
2.2 "ADDENDA" shall mean any written document executed by both parties which
modifies the terms of this Agreement or any executed Product Schedule.
2.3 "AGREEMENT" shall mean this iMAP Agreement, any and all Exhibits
attached hereto and all Product Schedules attached simultaneously with
the execution of the Agreement or agreed upon and executed subsequent
hereto.
2.4 "CONSULTING AND IMPLEMENTATION SERVICES" shall mean the services
provided by USi as part of the iMAP Solution and may be set forth in the
Product Schedule as applicable.
2.5 "CONTENT" means any and all text, multimedia or images (graphics, audio
and video), data and the like provided by Client and installed on a
server, which shall be subject to the terms and conditions set forth in
the Product Schedule and Acceptable Use Policy.
2.6 "CUSTOMIZATION" shall mean any customized deliverable created by USi as
part of the iMAP Solution.
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Proprietary & Confidential
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2.7 "DOCUMENTATION" shall mean the Software Application user manual(s) and
any other materials supplied by USi concurrently with the delivery of
and for use with the iMAP Solution.
2.8 "GLOBAL NETWORK" shall mean USi's Internet-based data center and
network.
2.9 "HARDWARE" shall mean any computing or networking equipment USi uses
and/or provides to Client for its use as part of the iMAP Solution.
2.10 "iMAP SOLUTION" shall mean the collective bundling of any and all
Consulting and Implementation Services, Customization, access to the
Global Network, Hardware, Project Software, Software Application(s), USi
Software and Work Product, as outlined in each executed Product
Schedule.
2.11 "PRODUCT SCHEDULE" shall mean a written order for any iMAP Solution
accepted by USi and executed by both parties, which shall be subject to
the terms and conditions of this Agreement and which, at a minimum,
shall contain a description of the work to be undertaken and the
obligations and responsibilities of each party related to that Product
Schedule.
2.12 "PROJECT SOFTWARE" shall mean any software developed by USi under this
Agreement or any Product Schedule. 2.13 "SLA" shall mean the Service
Level Agreement specified in each Product Schedule. 2.14 "SOFTWARE
APPLICATION" shall mean the Third Party computer software USi provides
to Client for its use as part of the iMAP Solution.
2.15 "THIRD PARTY" shall mean any natural person or legal entity other than
USi and Client.
2.16 "USi SOFTWARE" shall mean certain software which was developed by USi
independently of this Agreement or pursuant to the terms of this
Agreement as may be required for customization.
2.17 "WORK PRODUCT" shall mean all Consulting and Implementation Services
performed and/or created by USi under this Agreement as well as any
other products of its work created hereunder which may consist of
reports, designs, data or similar materials.
3. LICENSE
3.1 RIGHTS GRANTED
In accordance with the terms of this Agreement, USi grants to Client a
limited, nontransferable, non-exclusive license to use the iMAP Solution
included in the executed Product Schedules attached hereto and
Documentation for the sole purpose of supporting the operations of
Client's business as described in the Product Schedule. Notwithstanding
anything to the contrary, Client may not use the iMAP Solution in a
resale capacity, to process and/or analyze the data of a Third Party as
a service bureau or on any Hardware other than as set forth in the
relevant Product Schedule.
3.2 OWNERSHIP
Except as expressly provided in Section 11 below, all components of the
iMAP Solution provided to Client shall remain at all times the property
of USi and/or its Third Party Software Application vendors and contain
trade secrets and other valuable proprietary information of USi and/or
its Third Party vendor.
3.3 EFFECTIVE DATE
This Agreement shall be effective on the date it is executed by USi, and
shall remain in effect for the Term unless terminated in accordance with
the provisions set forth in this Agreement.
3.4 SOFTWARE
Client acknowledges and understands that USi may provide to Client (a)
USi Software and/or (b) Software Applications owned by Third Parties
which USi uses under license agreements from Third Parties defined
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in Section 2.14 as "Software Application." Client acknowledges that (a)
title to all such USi Software and Software Application remains with and
is subject to the proprietary rights of USi or its Third Party vendor,
and (b) such USi Software and Software Application contain trade secrets
and other valuable proprietary information of USi or its Third Party
vendor.
3.5 RESTRICTIONS
Except as authorized by USi,Client agrees it shall not: (a) alter or
modify the USi or Software Application or any part thereof; (b) copy or
duplicate, or permit a Third Party to copy or duplicate, the USi
Software or Software Application or any part thereof or (c) reverse
engineer, decompile or disassemble USi Software or Software Application,
unless otherwise provided in the relevant Product Schedule.
3.6 NON-TRANSFERABLE
Client agrees not to license, sell, transfer or lease the USi Software
or Software Application to any Third Party. Client agrees not to
disclose any source code or technical information regarding USi Software
or Software Application that Client obtains from USi under this
Agreement.
4. TERM
4.1 AGREEMENT TERM
The term of this Agreement (the "Term") shall commence on the Effective
Date and shall expire three (3) years thereafter unless (a) either
terminated pursuant to the terms of this Agreement or (b) extended by
mutual written agreement.
4.2 PRODUCT SCHEDULE
Each individual Product Schedule shall include a period of performance.
In the event that any Product Schedule period of performance extends
beyond the Term, the Term shall automatically be extended and remain in
effect until such time as the Product Schedule period of performance is
completed.
5. PAYMENTS
5.1 FEES
As compensation for the license of the iMAP Solution granted to Client
and the provisions of services as applicable, Client agrees to pay the
amount(s) specified in each executed Product Schedule. Any fee specified
in a Product Schedule will only remain in effect until the date
specified in the Product Schedule.
5.2 PAYMENT TERMS
Unless otherwise specified in the Product Schedule, payments will be due
and payable to USi within thirty (30) days of Client's receipt of USi's
invoice. Such invoices will be generated in accordance with the terms
specified in each Product Schedule. USi reserves the right, in USi's
absolute discretion, to perform a credit check on Client.
5.3 TAXES
Client shall be responsible for the payment of all taxes associated with
this Agreement or its use of the iMAP Solution (other than taxes based
on USi's net income), including, but not limited to, personal property
taxes, import taxes, taxes on telecommunication services, information
services, data processing services or similar governmental charges that
may be assessed by any jurisdiction, whether based on gross revenue or
delivery of products or services. If USi is required to pay any such
taxes directly, Client shall, upon receipt of USi's invoice, reimburse
USi for any amount that USi has paid. Notwithstanding the above, Client
shall not be required to pay those taxes from which Client is legally
exempt.
5.4 INSURANCE
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If and when USi Hardware is placed on Client's premises, Client will
obtain and maintain adequate liability insurance and insurance against
loss of or damage to such Hardware to an extent to be agreed in the
applicable Product Schedule.
5.5 INTEREST
Any payments not made when due will be subject to an interest charge of
one and one-half percent (1.5%) per month, unless applicable law
specifies a lower lawful rate of interest, in which case past due
payments shall bear interest at that lower maximum rate.
6. WARRANTIES
6.1 PERFORMANCE WARRANTY
USi warrants that (a) work performed to complete any Product Schedule
will be performed by qualified personnel in a professional, workmanlike
manner, consistent with the prevailing standards of the industry and in
accordance with the descriptions in the applicable Product Schedule; and
(b) it will complete each Product Schedule as soon as commercially
practicable.
6.2 AUTHORITY WARRANTY
USi warrants that it has the authority to (i) license the Software
Application(s) for the purposes set forth in this Agreement and the
Product Schedule and (ii) provide the services described in this
Agreement and the Product Schedule(s). Client acknowledges and agrees
that its sole and exclusive remedies for breach of these warranties are
set forth in Section 8.1 of this Agreement.
6.3 LIMITATION
Unless otherwise expressly provided herein or in a Product Schedule,
neither USi nor any of its service providers, licensors, employees or
agents warrant (a) that the functions contained in the iMAP Solution
provided hereunder will meet Client's requirements or (b) that the
operation of the iMAP Solution will be uninterrupted or error free or
(c) that the products or services will have the capacity to meet the
demand during specific hours. USi will not be liable for unauthorized
access to or alteration, theft or destruction of Client's data files,
programs, procedures or information through accident, fraudulent means
or devices, or any other method, unless such access, alteration, theft
or destruction is caused as a result of USi's negligence or intentional
misconduct. Nor will Niku be liable for unauthorized access to or
alteration, theft or destruction of data files, programs, procedures or
information stored or hosted by USi under this Agreement through
accident, fraudulent means or devices, or any other method, unless such
access, alteration, theft or destruction is caused as a result of
Client's negligence or intentional misconduct.
6.4 EXCLUSION
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES
AND CONDITIONS, EXPRESSED, IMPLIED OR STATUTORY, INCLUDING, BUT NOT
LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, TITLE OR NONINFRINGEMENT.
7. CLIENT CARE
7.1 CLIENT ASSISTANCE CENTER
Under the Client Care program, USi will provide a level of service
concerning Client's iMAP Solution as outlined in each specific Product
Schedule. In all cases, Client will have availability to USi's Client
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Assistance Center twenty-four (24) hours per day, seven (7) days per
week, three hundred sixty-five (365) days per year. Client acknowledges
and agrees that all calls into the Client Assistance Center are public
and may be monitored and/or recorded for quality control purposes.
7.2 SERVICE LEVEL AGREEMENTS
USi will provide a Service Level Agreement with each iMAP Solution which
will be stated in each executed Product Schedule. Specific remedies for
USi's failure to meet the applicable Service Level Agreement will be
stated in each executed Product Schedule.
7.3 MAINTENANCE WINDOW
USi has established set maintenance windows on Tuesday and Friday
mornings between the hours of 2am and 6am (ET). During this time, USi
reserves the right to take down a Client's server(s) in order to conduct
routine maintenance checks to both software and hardware. If a Client's
server(s) will be down for more than [***] within this pre-established
window, USi will advise Client of such at least ten (10) calendar days
prior to any scheduled maintenance downtime. USi will not be responsible
for any damages or costs incurred by Client, if any, for scheduled down
time. USi reserves the right to change its maintenance window upon
thirty (30) days prior notice to Client.
8. INDEMNITY OBLIGATIONS
8.1 USi INDEMNITY OBLIGATIONS
USi will (i) defend Client against any claim that the products or
services delivered by USi infringe a patent, copyright, trade secret, or
other proprietary right in the United States; and (ii) pay costs,
damages and attorney's fees finally awarded against Client as a result
of such claims.
(a) Infringement Remedies. In addition to defending Client as stated
above, if a claim occurs, or in USi's opinion, is likely to
occur, USi will, at its sole option and expense, (subject to its
agreement with Software Application vendors) either (i) procure
Client the right to continue using the Software Application in
question, or (ii) replace or modify the infringing Software
Application so that it becomes noninfringing; provided that the
Software Application's functionality are not materially and
adversely affected by such replacement or modification. If
neither of these alternatives is reasonably available, Client
shall return the Software Application at issue and USi will
refund the amount paid by Client to USi for such Software
Application as depreciated. The depreciation shall be an equal
amount per year over a three (3) year life commencing with the
date of installation.
(b) Exclusions. USi shall not be liable for infringement claims
based on (i) the combination, operation or use of Software
Application with hardware, data or software not supplied by USi
if the claim would have been avoided by use of other hardware,
data or software; or (ii) modifications to Software Application
if the modifications were not made by USi.
8.2 CLIENT INDEMNITY OBLIGATIONS
Client will (a) defend USi against any claims by Third Parties arising
from Client's use of the iMAP Solution provided by USi hereunder
excluding, however, (i) claims under Section 8.1; and (ii) claims for
bodily injury or damages to tangible personal property proximately
caused by the negligent act, error or omission of USi and (b) pay costs,
damages and attorney's fees finally awarded against USi and any
settlement costs incurred as a result of such claims.
8.3 CONDITIONS
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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The indemnification obligations set forth above in Sections 8.1 and 8.2
are contingent upon compliance with the following conditions by the
party seeking indemnification:
(a) Providing prompt written notice of a claim within twenty (20)
days of its service upon indemnified party;
(b) Providing all information and evidence within its control which
is necessary for the indemnifying party to conduct a defense;
and
(c) Providing the indemnifying party with sole control of the
defense and all related settlement negotiations. However, the
non-indemnifying party may participate in the defense or
settlement of the claim at its own expense.
8.4 LIMITATIONS OF REMEDY
This Section 8 states the entire obligations of the parties with respect
to indemnity or infringement of copyrights, patents, trade secrets or
other intellectual property or proprietary rights.
9. LIMITATION OF LIABILITY
9.1 LIMITATION OF LIABILITY
Each party's entire liability and exclusive remedies are set forth in
this Section 9, Section 6, Section 8 and Section 10. Except for a breach
under Section 8 or 12.1, each party's liability to the other party for
damages (regardless of the form of action, whether in contract, tort,
warranty or otherwise) shall in no event exceed [***]. This Section
9.1 shall supercede and prevail over any provisions to the contrary in
this Agreement, the Product Schedules or any document incorporated by
reference into this Agreement.
9.2 DISCLAIMER OF DAMAGES
EXCEPT IN THE CASE OF CLIENT'S BREACH OF SECTION 3.5 OR EITHER PARTY'S
BREACH OF SECTION 8, 12.1, NEITHER PARTY SHALL BE LIABLE FOR ANY
SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR FOR
THE LOSS OF PROFIT, REVENUE, OR DATA, EVEN IF THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGES. EACH PARTY
FURTHER AGREES THAT THE OTHER PARTY SHALL NOT BE LIABLE FOR ANY CLAIM OR
DEMAND BY ANY THIRD PARTY, EXCEPT TO THE EXTENT EXPRESSLY COVERED UNDER
SECTION 8 (INDEMNITY OBLIGATIONS) OR SECTION 9 (LIMITATION OF
LIABILITY). THIS SECTION 9.2 SHALL SUPERCEDE AND PREVAIL OVER ANY
PROVISIONS TO THE CONTRARY IN THIS AGREEMENT, THE PRODUCT SCHEDULES OR
ANY DOCUMENT INCORPORATED BY REFERENCE INTO THIS AGREEMENT.
10. TERMINATION
10.1 TERMINATION FOR BREACH
Either party may terminate this Agreement immediately upon written
notice to the other party if the other party materially breaches any
obligation under this Agreement and fails to cure such breach within
thirty (30) days after receiving notice of the breach. Unless otherwise
agreed in writing, termination of this Agreement shall also
automatically terminate all Product Schedules which are incomplete at
the time of termination. Termination of one Product Schedule shall have
no effect on any other Product Schedule or the Agreement so long as the
party in default of the Product Schedule being terminated complies with
the terms and conditions of the Agreement and other Product Schedules.
Notwithstanding anything to the
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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contrary, either party shall have the right to terminate this Agreement
and the license granted herein in the event the other party (a)
terminates or suspends its business, (b) becomes subject to any
bankruptcy or insolvency proceeding under Federal or state statute, (c)
becomes insolvent or becomes subject to direct control by a trustee,
receiver or similar authority, or (d) has wound up liquidated,
voluntarily or otherwise. In the event of, and thirty (30) days after,
termination by reason of Client's failure to comply with any part of
this Agreement, or any act which shall give rise to USi's right to
terminate, USi shall have the right to terminate the license and, on
five (5) days' notice, to the return of the iMAP Solutions and all
copies wherever located. In the event of a termination by reason of
USi`s failure to comply with any part of this Agreement, the time period
for USi to terminate the license shall be extended to [***]. Within ten
(10) days after termination of the license, Client shall return to USi
all tangible portions of the iMAP Solutions, including any Hardware
provided by USi and any Software in the form provided by USi or as
modified, or, upon request by USi, destroy all tangible portions of the
iMAP Solutions and all copies, and certify in writing that they have
been destroyed. Termination of this Agreement shall not relieve either
party of its obligations regarding confidentiality under Section 12
below. Lastly, no cure period shall be afforded in an event of a breach
of Sections 3.5 or 12.1, for which the nonbreaching party shall be
entitled to all legal and equitable remedies, including but not limited
to, injunctive relief, without requirement of bond.
10.2 EFFECT OF TERMINATION
Termination of this Agreement for any reason shall not affect any past
due or remaining payments Client is required to make under this
Agreement or applicable Product Schedule, or any additional remedies
provided by law or equity to either party. All rights that have been
granted to Client shall immediately be terminated and all unpaid charges
accrued under this Agreement shall become immediately due and payable
upon the happening of any event of termination. The Parties also agree
to return to one another, within sixty (60) days of a request, any
property, data sheets, schematics, samples, customer lists, confidential
information, in whatever form or media which are used by a disclosing
party or which are furnished to a recipient.
10.3 RETURN OF CONTENT
In the event of a termination of this Agreement or any Product Schedule
for default by USi, or on account of Client's decision not to renew a
Product Schedule at the end of the applicable period of performance
defined in each Product Schedule, USi shall deliver to Client, at no
additional cost to Client, and in a format and on a date mutually
agreeable to both parties, (i) all data contained on Hardware (Section
2.9) used in the iMAP Solution delivered to Client; (ii) all Content
(Section 2.5), (iii) all Project Software (Section 2.12); and (iv) all
Work Product (Section 2.17). Client agrees that, after termination of
this Agreement or a specific Product Schedule, (a) USi shall have no
obligation to support the Work Product or Project Software; (b) Client
may use the Work Product and Project Software solely to support the
internal operations of its business, with the understanding that (i)
Client's providing web sites at http://www.iniku.com and
http://www.niku.com is deemed an "internal" operation of its business,
and (ii) Client in no event will permit any third party to host the Work
Product or Project Software; (c) Client may not resell, disclose, or
allow access to the Work Product or Project Software to any Third Party;
and (d) USi reserves all rights to (i) the use of the Work Product or
Project Software in whatever manner USi chooses, including in the
support of iMAP Solutions provided to other USi clients; and (ii) the IP
addresses
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or address blocks assigned by USi in support of the iMAP Solution
delivered to Client under this Agreement and related Product
Schedule(s).
11. SOFTWARE AND WORK PRODUCT DEVELOPED UNDER AGREEMENT
11.1 TITLE
Except as otherwise provided for in Section 11.2 below or as may be
expressly agreed in any Product Schedule, USi shall retain (a) title to
and ownership of any Hardware provided by USi; and (b) whatever rights
it has in any Software Application(s); and (c) any USi Software. Without
affecting Client's rights under Section 3.1, above, to the extent that
Project Software contains any USi Software or Software Application(s),
such Project Software is subject to restrictions as may be applicable to
the USi Software or Software Application(s) which is incorporated
therein.
11.2 CLIENT OWNERSHIP
Client shall retain title to and all ownership rights (a) in any Work
Product; (b) in any Project Software; and (c) in Content, but grants USi
a perpetual, royalty-free license to use the Work Product and Project
Software pursuant to Section 10.3(d).
12. GENERAL PROVISIONS
12.1 NONDISCLOSURE
Each party shall retain in confidence all proprietary information
transmitted to the other that the disclosing party has identified in
writing as being proprietary and/or confidential, and will make no use
of such information except under the terms and during the term of this
Agreement. Client agrees to use all reasonable precautions and take all
necessary steps to prevent the iMAP Solution from being acquired by
unauthorized persons, and to take appropriate action, by instruction,
agreement, or otherwise, with regard to all persons permitted access to
the iMAP Solution, in order to ensure the iMAP Solution is protected.
Client shall not disclose the iMAP Solution to any person for any
purpose other than as provided in this Agreement. However, neither party
shall have an obligation to maintain the confidentiality of information
that (a) it has rightfully received from another party prior to its
receipt from the disclosing party; (b) the disclosing party has
disclosed to a Third Party without any obligation to maintain such
information in confidence, (c) enters the public domain or becomes
generally known to the public by some action other than breach of this
Agreement by the receiving party; or (d) is independently developed by
the receiving party. Each party shall safeguard proprietary and
confidential information disclosed by the other using the same degree of
care it uses to safeguard its own proprietary and confidential
information but, in no event, shall use less than a reasonable degree of
care. Each party's obligation under this paragraph shall extend for a
period of three (3) years following termination or expiration of this
Agreement.
12.2 ASSIGNMENT
Neither this Agreement nor any rights granted hereunder may be sold,
leased, assigned or otherwise transferred, in whole or in part by either
party by operation of law otherwise, and any such attempted assignment
shall be void and of no effect without the advance written consent of
the other party, such consent not to be unreasonably withheld or
delayed; provided, however, that such consent shall not be required if
either party assigns this Agreement to a wholly owned subsidiary or in
connection with a merger, acquisition, or sale of all or substantially
all of its assets, unless the surviving entity is a competitor
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of the other party. USi reserves the right to assign its right to
receive and collect payments hereunder without the consent of Client,
provided that in such case Niku's rights will remain unchanged.
12.3 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of law.
12.4 WAIVER
No waiver of any breach of any provisions of this Agreement shall
constitute a waiver of any other breach of the same or any other
provision of the Agreement, and no waiver shall be effective unless made
in writing.
12.5 SEVERABILITY
In the event that any term or provision of this Agreement conflicts with
the law under which this Agreement is to be construed, or if any such
provision is held invalid by a court with jurisdiction over the parties
to this Agreement, such provision shall be restated to reflect, as
nearly as possible, the original intentions of the parties in accordance
with applicable law, and the remainder of this Agreement shall remain in
full force and effect.
12.6 ENFORCEMENT
Both parties agree to pay all reasonable costs and expenses the other
party incurs in successfully enforcing this Agreement, including
reasonable attorneys' fees.
12.7 FORCE MAJEURE
Neither party shall be liable for any delay or failure in performance
due to Force Majeure, which shall mean acts of God, earthquake, labor
disputes, changes in law, regulation or government policy, riots, war,
fire, epidemics, acts or omissions of vendors or suppliers,
transportation difficulties or other occurrences which are beyond either
party's reasonable control. In the event that USi is prevented or
delayed in the delivery or installation of the iMAP Solution for reasons
beyond its control, such delivery or installation shall take place as
soon thereafter as is reasonably possible. This provision shall not
apply to any obligation of Client to pay money under this Agreement or
any Product Schedule.
12.8 NOTICE
Any notice or invoice required or permitted under this Agreement shall
be in writing and delivered by hand or mailed by overnight express
charges prepaid or certified mail with return receipt requested to the
address set forth above. Notices or invoices shall be deemed received
when delivered.
12.9 SURVIVAL
The terms of Sections 3, 4, 5, 8, 9, 11 and 12 shall survive the
termination or expiration of this Agreement.
12.10 ACCEPTABLE USE POLICY
Client agrees at all times, and to require and enforce its employees,
agents and contractors at all times, to comply with the USi Acceptable
Use Policy, the terms of which may be modified from time to time by USi
on the website referred to above in Section 2.1.
(a) The modifications to the AUP will not apply to Client until
thirty (30) days after written notice from USi unless a shorter
period is necessary for USi to avoid disruption from its
internet service providers or to otherwise avoid liability, in
which case USi would provide written notice as soon as is
reasonable.
(b) If USi receives notice that Client has violated the AUP, USi
will notify Client and use reasonable efforts to give Client
seven (7) days notice prior to termination or suspension;
provided, however: (1) Such seven day period will be shortened
to forty eight hours if USi has received written notice from its
internet service
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providers that such provider will disrupt service to USi because
of Client's violation of the AUP and (2) notwithstanding the
foregoing, if a shorter period is necessary for USi to avoid
disruption by its service providers or to otherwise avoid
liability, USi may terminate or suspend the iMAP Solution in the
shorter period of time, provided that such shorter time shall
not be less than three (3) hours after USi contacts Client at
the pager number to be provided by Client.
Client agrees to indemnify and hold USi harmless from any damages, costs
and expenses incurred by USi caused by the breach of this provision.
12.11 THIRD PARTY RIGHTS
The provisions of this Agreement are solely for the benefit of the
parties hereto and not for the benefit of any Third Parties.
12.12 ENTIRE AGREEMENT
This Agreement (including all Product Schedules and Addenda, if any)
contains the full understanding between the parties and supercedes all
prior representations or agreements, whether oral or written, with
respect to such matters. The Agreement (including all Product Schedules
and Addenda, if any) may only be changed by a written document signed by
both parties. Except as specified in Sections 8 and 9, to the extent of
any inconsistencies between the Agreement and the Product Schedule, the
Product Schedule shall control, except if the Agreement is modified by
Addenda, then the Addenda shall control. Principles of contract
construction or rules of law that, in the event of inconsistency or
ambiguity, would construe against the drafter this Agreement or any
Product Schedule, shall not apply.
USINTERNETWORKING, INC. NIKU CORPORATION
By: /s/ William T. Price By: /s/ Kenneth Johnson
------------------------------- -------------------------------------
Name: William T. Price Name: Kenneth Johnson
Title: Vice President Title: VP Sales
and General Counsel
Date: 6/30/99 Date: 6-30-99
----------------------------- -----------------------------------
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[USi GRAPHIC OMITTED]
USi Agreement Number: 84
Effective Date: September 29, 1999
PRODUCT SCHEDULE
This Product Schedule is governed by and incorporated into the terms and
conditions contained in the iMAP Agreement entered into between
USinternetworking, Inc. ("USi") and Niku Corporation ("Client") dated June 30,
1999. USi's Proposal to Client dated September 29, 1999 ("Proposal") is
attached as Exhibit A to this Product Schedule, although only those Sections of
the Proposal specifically referenced below shall be incorporated into the terms
and conditions of this Product Schedule.
REPLACEMENT OF PREVIOUS
PRODUCT SCHEDULE: THIS PRODUCT SCHEDULE REPLACES IN ITS ENTIRETY THE
PRODUCT SCHEDULE, WITH AN EFFECTIVE DATE OF JUNE
30, 1999, PREVIOUSLY EXECUTED BETWEEN USi AND
CLIENT.
IMAP SOLUTION: Complex Web Site Management as detailed in
Sections 1, 2, 3, and 4 of the Proposal.
PAYMENT SCHEDULE: Client agrees to the following Payment Schedule:
1. Thirty-six (36) equal monthly service
fee payments of $72,161 commencing upon
the Effective Date of this Product
Schedule, due and payable within thirty
(30) days of Client's receipt of invoice
from USi.
All monthly service fee invoices will be issued in
advance on the 15th of the month prior to the
calendar month of service. This pricing is valid
for the Initial Period and is exclusive of any
applicable taxes, tariffs, telecommunications
surcharges or other governmental fees or charges
that may be imposed from time to time by
applicable law or regulation.
CLIENT SHALL RECEIVE A CREDIT FOR ANY PAYMENTS
MADE UNDER THE PREVIOUS PRODUCT SCHEDULE AGAINST
THE FIRST INVOICE DUE HEREUNDER.
EFFECTIVE DATE OF
PRODUCT SCHEDULE: September 29, 1999
PERIOD OF PERFORMANCE: The Period of Performance of this Product Schedule
shall commence on the Effective Date and shall
continue for a period of thirty-six (36) months
(the "Initial Period"). Thereafter, this Product
Schedule shall automatically renew on a
month-to-month basis until terminated by either
party giving the other party at least sixty (60)
days prior written notice.
EARLY TERMINATION: Client may terminate the last [***] of the Initial
Period by providing USi with ninety (90) days
written notice prior to the end of the [***] of
the Initial Period. Client agrees to pay USi a
termination fee equal to [***] upon its election
to terminate this Product Schedule pursuant to
this section.
UPGRADE COMPONENTS: During the first six (6) months of the Initial
Period, Client can add the following Upgrade
Components to the iMAP Solution by executing an
applicable Addenda to this Product Schedule. Upon
exercise of this upgrade, the monthly service fee
payment will increase by applicable amount shown
below for the remaining term of the Initial Period
commencing on the first day the Upgrade Component
is implemented.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
UPGRADE COMPONENT ADDITIONAL MONTHLY FEE
- -----------------------------------------------------------------------------------------
<S> <C>
Additional Internet bandwidth per additional 1Mbps increments $1,500
- -----------------------------------------------------------------------------------------
Additional cost per Sun E4500 server $7,400
- -----------------------------------------------------------------------------------------
Additional cost per Sun E250 server $2,100
- -----------------------------------------------------------------------------------------
Additional locally-mirrored EMC Storage capacity usable $6,641
with BCV per additional 100Gb increments
- -----------------------------------------------------------------------------------------
Additional RAM for E4500 server (one (1) Gb increments) See Note 1
- -----------------------------------------------------------------------------------------
Additional CPUs for E4500 server (one (1) CPU increments) See Note 1
- -----------------------------------------------------------------------------------------
Incremental CPU & Memory (Per two 1 Gb Memory Upgrades and 2 $2,644
CPUs)
- -----------------------------------------------------------------------------------------
Additional CPU/RAM for E4500 server (one CPU/one Gb $1,400
increments)
- -----------------------------------------------------------------------------------------
</TABLE>
Note 1: The configuration of Client's E4500
servers will allow three (3) additional
I/O slots for expansion of additional
CPUs and RAM. Each I/O card will
accommodate two (2) additional CPUs and
two (2) additional Gbs of RAM. This
allows for a maximum of six (6)
additional CPUs and six (6) additional
Gbs of RAM per E4500 server. USi
recommends that Client upgrades in
bundles of 1 CPU/ 1 Gb RAM or 2 CPU/2 Gb
RAM to eliminate the I/O card
configuration complexity.
CLIENT CARE: Under the Client Care program, Client's Help Desk
will have availability to USi's Client Assistance
Center twenty-four (24) hours per day, seven (7)
days per week, three hundred sixty-five (365) days
per year.
Page 1
Proprietary & Confidential
<PAGE> 12
BANDWIDTH VARIATION POLICY: Should Client exceed bandwidth or server
processing requirements of this project, USi
reserves the right to amend this Product Schedule
and increase the monthly fees to reflect the
additional bandwidth requirements. USi will
provide Client with a monthly status report of
bandwidth and server usage.
CONSULTING SERVICES: USi will provide Consulting Services as outlined
in Sections 1, 2, 3 and 4 of the Proposal.
SECURITY PROCEDURES: USi defines certain policies and procedures to
provide the level of security associated with the
iMAP Solution. Client acknowledges and understands
that no network security procedures can assure
complete network security or prevent all
unauthorized access to the network. These policies
and procedures will change over time to reflect
emerging technologies, business practices and
Internet-related issues.
SERVICE LEVEL AGREEMENT:
USi'S SERVICE LEVEL:
USi will provide for [***] during Phase I and for [***] during Phase 2 monthly
service availability for those components of the service within USi's direct
control, where "available" is defined as an Internet user being able to [***] to
the appropriate [***]. Specifically, covered services will include [***] and the
[***] facility, all [***], and all [***] provided by [***] as part of the [***].
REMEDY: (PHASE 1)
In the event USi is unable to provide an Internet client access to the custom
hosting server with:
1. [***] Availability in any given calendar month, Client shall receive a
credit to their account equal to [***] of that month's service fees
excluding rebilled circuit charges.
2. [***] Availability in any given calendar month, Client shall receive a
credit to their account equal to [***] of that month's service fees
excluding rebilled circuit charges.
3. [***] Availability in any given calendar month, Client shall receive a
credit to their account equal to [***] of that month's service fees,
excluding rebilled circuit charges.
If USi fails to meet [***] Availability for [***] calendar months, Client may
terminate this Product Schedule without penalty, regardless of any term
remaining on the Agreement, without liability to either party for penalties or
damages associated with such termination and upon thirty (30) days prior written
notice to USi.
REMEDY: (PHASE 2)
In the event USi is unable to provide an Internet client access to the custom
hosting server with:
1. [***] Availability in any given calendar month, Client shall receive a
credit to their account equal to [***] of that month's service fees
excluding rebilled circuit charges.
2. [***] Availability in any given calendar month, Client shall receive a
credit to their account equal to [***] of that month's service fees
excluding rebilled circuit charges.
3. [***] Availability in any given calendar month, Client shall receive a
credit to their account equal to [***] of that month's service fees,
excluding rebilled circuit charges.
If USi fails to meet [***] Availability for [***], Client may terminate this
Product Schedule without penalty, regardless of any term remaining on the
Agreement, without liability to either party for penalties or damages associated
with such termination and upon thirty (30) days prior written notice to USi.
"Availability" percentage shall be calculated as follows:
[***]
where "n" is the total number of hours in any given calendar month, and "x" is
the Availability percentage.
Specifically excluded from "n" in this calculation and exceptions to the levels
of Availability provided herein are (a) [***]; (b) reasons of Force Majeure (as
defined in Section 12.8 of the Agreement); (c) issues associated with [***] not
on [***] list; (d) use of unapproved or [***] and/or; (e) issues arising from
the [***] by Client, its employees, agents, customers or contractors.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 2
<PAGE> 13
In the event of a Force Majeure event, the Client shall have the option of
canceling this Product Schedule with USi if the resulting total outage time is
greater than [***] in any [***] period, without liability to either party for
penalties or damages associated with such outages or termination and upon thirty
(30) days prior written notice to USi.
The remedies stated in this Section are Client's sole and exclusive remedies for
service interruption.
CLIENT RESPONSIBILITIES: This section describes Client's additional
responsibilities under this Agreement.
1. Client will designate qualified personnel to act as liaisons between
Client and USi.
2. Client is responsible for obtaining and complying with license terms for
all Client-provided software, if any, which are sufficient to allow use
of the software on the Hardware.
3. Client is solely responsible for the Contents of its transmissions and
the transmissions of Third Parties accessing the iMAP Solution through
Client. Client agrees to comply with U.S. and International law with
regard to the transmission of technical data which is exported from the
United States through the iMAP Solution. Client further agrees not to
use the iMAP Solution (a) for illegal purposes or (b) to interfere with
or disrupt other network users, network services or network equipment.
Interference or disruptions include, but are not limited to,
distribution of unsolicited advertising or chain letters, propagation of
computer worms and viruses, and use of the network to make unauthorized
entry to any other machine accessible via the network. If USi finds a
violation of the foregoing by Client, USi will immediately notify Client
in writing, and Client will close the account f the party responsible
for the violation within [***]. If Client fails to close the applicable
account within [***], USi may suspend its services until such time as
Client closes the applicable account.
4. Client shall be responsible for providing USi with end user login names
and passwords for the purpose of authenticating and authorizing Global
Network access by end users to the iMAP Solution.
5. Client shall be responsible for handling all communication, technical
support to and business relations with end users who are the customers
of Client including but not limited to responding to inquiries and
questions.
6. Client shall be responsible for providing to USi all information
required for the Acceptance Test in a timely manner and in form directed
by USi. Client shall participate in the Acceptance Testing in good faith
and with all due diligence.
7. Client shall provide USi with access to such hardware, software and
network connections that reside on Client's premises as USi shall
require.
8. Client shall be responsible for obtaining and maintaining the following
hardware and/or software:
a. Software Licenses: NAKS, Fulcrum, JavaVM, Apache, and
PictureTalk
Client may add or delete items from this list at any time.
9. Client shall be responsible to perform the obligations set forth in the
incorporated provisions of the Proposal.
OFFER EXPIRATION DATE: SEPTEMBER 30, 1999
USINTERNETWORKING, INC. NIKU CORPORATION
/s/ William T. Price /s/ Martin Neiman
- ----------------------------------- ----------------------------------------
(signature) (signature)
William T. Price
Vice President and General Counsel MARTIN NEIMAN
----------------------------------------
(printed name)
CIO
----------------------------------------
(title)
9/30/99 9/30/99
- ----------------------------------- ----------------------------------------
(date) (date)
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 3
<PAGE> 1
* Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.08
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") is made effective June 30,
1999 ("Effective Date") by and between Niku Corporation, a Delaware corporation
with offices at 955 Charter Street, Redwood City, California 94063 ("Niku"), and
USinternetworking, Inc., a Delaware corporation with offices at One USi Plaza,
Annapolis, MD 21401-7428 ("Licensee").
1. DEFINITIONS.
1.1 "Authorized Users" means the employees or agents of Licensee who
are authorized to use the Software, as defined in Exhibit A.
1.2 "Designated Facility" means the business facility of Licensee
identified in Exhibit A. The Designated Facility may be changed
only with the prior, written consent of an authorized officer of
Niku.
1.3 "End User" means any party licensed by Licensee under this
Agreement to: (a) use, but not to further distribute, the
Software; or (b) access the Software remotely from Licensee's
servers.
1.4 "Documentation" means the on-line help files and written manuals
included with the Software which describe its features and use.
1.5 "License Fee" means the amount to be paid to Niku by Licensee
for the rights granted under this Agreement, as specified in
Exhibit A.
1.6 "Software" means the binary code version of the Niku software
product listed in Exhibit A.
1.7 "Support Fees" means the amount of annual fees to be paid by
License for technical support and maintenance for the Software,
as specified in Exhibit A.
2. DELIVERY. Niku will use reasonable efforts to deliver the Software to
Licensee as soon as practicable after the Effective Date.
3. LICENSE.
3.1 GRANT. Subject to the payment of the License Fee and compliance
with the other terms of this Agreement, Niku grants Licensee a
nonexclusive, nontransferable right and license:
a) to sublicense/distribute unmodified Software and
Documentation to End Users, provided, however, that prior to any
distribution of Software or Documentation, Licensee must enter
into a sublicense agreement with each End User that is
consistent with and not less restrictive than the terms herein;
b) to install and use one copy of each of the Software on a
server computer system at the Designated Facility for purposes
of remote End User system access and Authorized User use..
Licensee may make and maintain up to three (3) copies of the
installed server Software for archival, back-up, and internal
testing purposes, and
NIKU/USINTERNETWORKING CONFIDENTIAL
- 1 -
<PAGE> 2
c) to use the Documentation in connection with the use of the
Software by Authorized Users.
3.2 THIRD PARTY SOFTWARE. To the extent the Software incorporates
any software licensed by Niku from a third party, Niku grants
Licensee a sublicense that is co-extensive with the rights to
Software granted under Section 3.1.
3.3 RESTRICTIONS. Licensee expressly agrees that it will not:
a) transfer the Software or Documentation to a third party for
any purpose other than off-site storage of archival or back-up
copies, except as set forth in Section 3.1(a);
b) transfer the server Software to a business facility other
than the Designated Facility without the prior, written consent
of Niku.
c) produce a source listing, decompile, disassemble, or
otherwise reverse engineer the Software; or
d) use the Software to provide data processing services,
commercial timesharing, rental, or any similar sharing
arrangement for a third party, except as consistent with Section
3.1.
3.4 PROPRIETARY NOTICES. Licensee shall not remove or obscure any
notices or markings, including without limitation, copyright,
trademark, or confidentiality notices, or ownership notices on
Software and the Documentation, including any screen displayed
by the Software.
3.5 RESERVATION OF RIGHTS. Niku retains rights in and to the
Software and Documentation not specifically granted to Licensee
hereunder, and any use of these items beyond the scope permitted
by this Agreement shall constitute a material breach of this
Agreement.
3.6 RECORDS AND COMPLIANCE. Licensee shall maintain accurate records
relating to the distribution and sublicensing of the Software,
to identify all sublicenses and to otherwise verify Licensee's
compliance with the terms of this Agreement. Licensee shall
provide such records to Niku within 10 days after the end of
each calendar quarter, together with any applicable fees as set
forth in Exhibit A. Niku will have the right to inspect
Licensee's records and the Software at Licensee's facility as
reasonably necessary to verify that Licensee is in compliance
with this Agreement. Niku will provide Licensee with reasonable
notice prior to any inspections. Niku will be limited to
conducting three (3) such inspections in any twelve (12) month
period, and will not unreasonably interfere with Licensee's
business operations. Niku will bear all costs and expenses
associated with the exercise of these rights, unless such
inspection reveals that Licensee is not in compliance with this
Agreement, in which case, Licensee agrees to pay Licensor the
reasonable costs of such inspection plus any additional license
fees related to unauthorized use of the Software.
4. LICENSE FEE. Licensee will pay Niku the License Fee in the amount and
according to the terms specified in Exhibit A. Unless otherwise
specifically provided otherwise in Exhibit A:
- 2 -
<PAGE> 3
(i) the License Fee will be due and payable in full within thirty (30)
days after receipt of the Software by Licensee; and (ii) a late charge
of one and one half percent (1.5%) per month or the highest rate
permitted by law, whichever is lower, will apply to an overdue balance.
5. SERVICES.
5.1 SUPPORT. Subject to the payment of Support Fees, Licensee will
be entitled to receive technical support and maintenance under
Niku's standard terms and conditions, as set forth in Exhibit B.
Niku will provide 7x24x365 pager support for "critical" and
"serious" nonconformances in Software in accordance with Exhibit
B. Licensee shall be responsible for technical support and
maintenance of End Users.
5.2 CONSULTING & TRAINING SERVICES. Niku may provide consulting and
training services to Licensee related to the implementation and
use of the Software for its applications services provider
business. Any such services will be billed on a time and
materials basis unless the parties expressly agree otherwise in
writing. Any consulting or training services acquired from Niku
will be bid separately from the Software licenses granted under
this Agreement, and Licensee may acquire either without
acquiring the other.
6. TERM AND TERMINATION.
6.1 TERM. This Agreement commences on the Effective Date and will
remain in force and effect unless terminated in accordance with
this Article.
6.2 TERMINATION. This Agreement may be terminated as follows:
a) By either party upon thirty (30) days written notice
specifying breach if the other party fails to comply with any of
the material terms or conditions of this Agreement unless,
within the period of notice, all specified breaches have been
cured.
b) By Niku immediately in the event Licensee becomes subject to
any bankruptcy or insolvency proceeding, becomes insolvent or
subject to control by a trustee, receiver or similar authority
or has wound up liquidated, voluntarily or otherwise.
6.3 EFFECT OF TERMINATION FOR LICENSEE'S BREACH. Subject to the
terms of this Agreement, in the event of termination of this
Agreement due to a breach by Licensee, the rights and licenses
granted to Licensee will immediately terminate and Licensee will
have no further right to use the Software. Within thirty (30)
days after termination, Licensee must return all copies of the
Software and Documentation in its possession or control to Niku,
or permanently destroy or disable all such copies. If requested
by Niku, a duly authorized officer of Licensee will certify in
writing to Niku that Licensee has taken such action.
6.4 EFFECT OF TERMINATION FOR NIKU'S BREACH. In the event of
termination of this Agreement due to a breach by Niku, and
without limiting Licensee's right in accordance with this
Agreement to obtain remedies for Niku's breach, the rights and
licenses granted to Licensee will survive to the extent
necessary for Licensee to continue using the Software as
permitted under this Agreement. Such continuing
- 3 -
<PAGE> 4
rights are subject to Licensee's continued compliance with the
terms of this Agreement, including payment of any portion of the
License Fee outstanding as of the termination. Nothing will
require Niku to provide any technical support or maintenance to
Licensee after termination.
6.5 SURVIVAL. Rights and obligations under this Agreement which by
their nature should survive, will remain in effect after
termination hereof.
6.6 If this Agreement terminates, Niku will continue to provide, and
Licensee will continue to pay Niku for, service and support to
End Users in accordance with this Agreement and for the term of
the end-user agreements existing at the time of termination.
7. CONFIDENTIALITY.
7.1 Either party may disclose to the other party technical, product,
financial and business information which the disclosing party
("Disclosing Party") considers to be confidential ("Confidential
Information"). Information will be considered "Confidential
Information" if it is clearly marked as confidential or verbally
identified as confidential at the time of disclosure.
7.2 The party receiving the Confidential Information ("Receiving
Party") will not reproduce in any form, or provide, disclose, or
give access to Confidential Information to any third party, or
to any employee or agent not having a legitimate need to know
it, and shall not use the Confidential Information for any
purpose other than performing its obligations and exercising its
rights under this Agreement.
7.3 This Agreement imposes no obligation upon the Receiving Party
with respect to Confidential Information which the Receiving
Party can establish by legally sufficient evidence: (i) was in
the possession of, or was known by, the Receiving Party prior to
its receipt from the Disclosing Party, without an obligation to
maintain its confidentiality; (ii) is or becomes generally known
to the public without violation of this Agreement; (iii) is
obtained by the Receiving Party from a third party having the
right to disclose it, without an obligation to keep such
information confidential; or (iv) is independently developed by
the Receiving Party without the use of Confidential Information
and without the participation of individuals who have had access
to the Confidential Information.
7.4 The Disclosing Party retains ownership of the Confidential
Information. The Receiving Party does not acquire any rights in
Confidential Information under this Agreement, except the
limited right to use as described above.
7.5 The Receiving Party's confidentiality obligations with respect
to the Confidential Information shall survive the termination of
this Agreement and will continue for a period of five (5) years
from the Effective Date, provided that the obligation to
maintain the confidentiality of any Niku source code shall be
perpetual.
8. WARRANTY AND DISCLAIMER.
8.1 Niku warrants to Licensee that the Software will perform in
substantial accordance with the Documentation for a period of
one (1) year from the date the Software is delivered to
- 4 -
<PAGE> 5
Licensee. If the Software does not perform as warranted, Niku
will attempt to correct the Software, or if a correction is not
reasonably possible , to replace the Software free of charge. If
Niku is unable to make the Software perform as warranted, Niku
will terminate this Agreement and refund the License Fee. This
warranty is made to and for the sole benefit of Licensee, and
will be enforceable against Niku only if:
a) all modifications, alterations or additions to the
Software made by Licensee, if any, have been made using
tools or utilities included in the Software or otherwise
provided by Niku; and
b) Licensee has not made or caused to be made any
modifications, alterations, or additions to the Software
that cause it to deviate from the Documentation.
8.2 Niku represents and warrants to Licensee that the media upon
which the Software is provided will be free from defects and
viruses, and will function properly under ordinary use for a
period of ninety (90) days.
8.3 Niku warrants to Licensee that the Software will record, store,
process and calculate any information dependent on or relating
to dates on or after January 1, 2000 in the same manner, and
with the same functionality, data integrity and performance, as
such Software records, stores, processes, calculates and
presents calendar dates on or before December 31, 1999. This
warranty does not apply if any hardware, third party software or
data used by Customer in conjunction with the Software does not
meet the same performance standards as those stated for the
Software in this Section 8.2.
8.4 OTHER THAN THE EXPRESS WARRANTIES IN SECTION 8.1 THROUGH 8.3,
NIKU DOES NOT MAKE AND DISCLAIMS ANY EXPRESS OR IMPLIED
WARRANTIES OR CONDITIONS WITH RESPECT TO THE SOFTWARE INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. No agent of Niku is authorized to
modify these limitations.
8.5 With respect to the warranties set forth in this Section 8,
Licensee may disclose to its End Users the preceding warranties
and may pass such warranties in Licensee's name. Any breach of
the foregoing warranty claims by such End Users will be
considered as a warranty claim that Licensee may bring under
this Section 8.
9. INDEMNITY.
9.1 INDEMNIFICATION BY NIKU. Niku will (a) defend Licensee against a
claim that the Software or Documentation infringes a patent,
copyright, trade secret or other proprietary right in the United
States and (b) indemnify Licensee for damages, costs and
reasonable attorneys' fees finally awarded against Licensee,
provided that: (i) Licensee notifies Niku in writing within
twenty (20) days of the claim; (ii) Niku has sole control of the
defense and all related settlement negotiations, provided that
Licensee may participate in the defense or settlement of the
claim at its own expense; and (iii) Licensee provides Niku with
the assistance, information, and authority reasonably necessary
to perform the above. Reasonable out-of-pocket expenses incurred
by Licensee in providing such assistance will be reimbursed by
Niku.
- 5 -
<PAGE> 6
9.2 EXCLUSIONS. Niku shall have no liability for any claim of
infringement based on: (i) use of a superseded or altered
release of some or all of the Software or any modification
thereof furnished under this Agreement including, but not
limited to, Licensee's failure to use corrections, fixes, or
enhancements made available by Niku; (ii) the combination,
operation, or use of some or all of the Software or any
modification thereof with information, software, specifications,
instructions, data, or materials ("Material") not furnished by
Niku to the extent the infringement would have been avoided by
not combining, operating, or using the Software or the
modification thereof, with such Material; (iii) any change, not
made by Niku, to Software or any modification thereof; or (iv)
Licensee's misuse of the Software or any modification thereof.
9.3 INFRINGEMENT. If the Software is held or is believed by Niku to
infringe, Niku shall have the option, at its expense, to: (i)
modify the Software to be non-infringing; (ii) obtain for
Licensee a license to continue using the Software; or (iii)
terminate this Agreement and refund a pro rata portion of the
License Fee. The pro rata portion to be refunded shall be
determined by amortizing the Licensee Fee evenly over a three
(3) year period from the Effective Date.
9.4 END USERS. With respect to the indemnity set forth in this
Section 9, Licensee may disclose to its End Users the preceding
indemnity and may pass such indemnity in Licensee's name. Any
indemnification claims by such End Users will be considered as
an indemnification claim that Licensee may bring under this
Section 9.
9.5 EXCLUSIVE REMEDY. Sections 9.1 through 9.4 state Niku's entire
liability and Licensee's exclusive remedy for claims of
infringement of intellectual property rights related to the
Software. 9.6
9.6 INDEMNIFICATION BY LICENSEE. Except as provided under Section
9.1, Licensee will (a) defend Niku against any breach of the
representation and warranty set forth in Section 11.11(b) and
any claims arising from a third party's use of Software and (b)
indemnify Niku for damages, costs and reasonable attorneys' fees
finally awarded against Niku, provided that: (i) Niku notifies
Licensee in writing within twenty (20) days of the claim; (ii)
Licensee has sole control of the defense and all related
settlement negotiations; and (iii) Niku provides Licensee with
the assistance, information, and authority reasonably necessary
to perform the above. Reasonable out-of-pocket expenses incurred
by Niku in providing such assistance will be reimbursed by
Licensee.
10. LIMITATION OF LIABILITY.
10.1 LIMITATIONS. Except for express undertakings to indemnify, or
breach of obligations concerning the use of Confidential
Information, or breach of the scope of the license rights
granted hereunder, and to the extent not prohibited by
applicable law:
a) IN NO EVENT SHALL EITHER PARTY'S TOTAL LIABILITY TO THE
OTHER FOR DAMAGES (REGARDLESS OF THE FORM OF THE ACTION,
WHETHER IN CONTRACT, TORT, WARRANTY, OR OTHERWISE) EXCEED
$200,000; AND
b) NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT,
PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES IN
CONNECTION
- 6 -
<PAGE> 7
WITH OR ARISING OUT OF THIS AGREEMENT, INCLUDING LOSS OF
BUSINESS, REVENUE, PROFITS, USE, DATA OR OTHER ECONOMIC
ADVANTAGE, HOWEVER IT ARISES, WHETHER IN CONTRACT OR TORT,
EVEN IF THAT PARTY HAS BEEN PREVIOUSLY ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE.
10.2 ALLOCATION OF RISK. The parties acknowledge that the foregoing
limitations of liability represent a reasonable and negotiated
allocation of risk as between the parties, that these
limitations constitute an integral part of this Agreement, and
that absent these limitations the parties would not have
executed this Agreement. These limitations will apply
notwithstanding the failure of the essential purpose of any
limited remedy.
11. GENERAL.
11.1 NOTICES. All notices required by this Agreement must be
delivered in person or by means evidenced by a delivery receipt
to the address specified below or as otherwise notified in
writing and will be effective upon receipt.
To Niku: To Licensee:
Niku Corporation USinternetworking, Inc.
955 Charter Street One USi Plaza
Redwood City, CA 94063 Annapolis, MD 21401-7428
Attn: President Attn: General Counsel
11.2 GOVERNING LAW. Any action related to this Agreement will be
governed by New York law and controlling U.S. federal law. In
the event of any disagreement under this Agreement, the parties
agree to use good faith efforts to resolve such disagreement
before commencing any legal action.
11.2 RELATIONSHIP. This Agreement is not intended to create a
relationship such as a partnership, franchise, joint venture,
agency, or employment relationship. Neither party may act in a
manner which expresses or implies a relationship other than that
of independent contractor, nor bind the other party.
11.3 ATTORNEY'S FEES. In addition to any other relief, the prevailing
party in any action arising out of this Agreement will be
entitled to reasonable attorney's fees and costs.
11.4 ASSIGNMENT. Neither party may assign or otherwise transfer any
of its rights or obligations under this Agreement, without the
prior written consent of the other party.
11.5 WAIVER. Any express waiver or failure to exercise promptly any
right under this Agreement will not create a continuing waiver
or any expectation of non-enforcement.
11.6 SEVERABILITY. If any provision of this Agreement is held
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way
be affected or impaired thereby, and will be interpreted, to the
extent possible, to achieve the purposes as originally expressed
in the invalid, illegal or unenforceable provision.
- 7 -
<PAGE> 8
11.7 EXPORT CONTROL. The Software and Confidential Information may be
subject to U.S. export control laws and export or import
regulations in other countries. Licensee agrees to comply
strictly with all such laws and regulations and acknowledges
that it has the responsibility to obtain such licenses to
export, re-export, or import the Software and Confidential
Information as may be required after delivery to Licensee.
11.8 FORCE MAJEURE. A party is not liable under this Agreement for
non-performance, if the non-performance is caused by events or
conditions beyond that party's control, and provided the party
makes reasonable efforts to perform under the circumstances.
This provision does not relieve Licensee of its obligation to
make any payments then owing.
11.9 ENTIRE AGREEMENT. This Agreement is the parties' entire
agreement relating to its subject matter. It supercedes all
prior or contemporaneous oral or written communications,
proposals, conditions, representations and warranties and
prevails over any conflicting or additional terms of any quote,
order, acknowledgement, or other communication between the
parties relating to its subject matter during the term of this
Agreement. No modification to this Agreement will be binding,
unless in writing and signed by a duly authorized representative
of each party.
11.10 TRADEMARKS. Neither party will use the other party's trade
names, trademarks, service marks or logos ("Marks") without such
party's permission. Use of each party's Marks will inure to the
owner's benefit.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
NIKU CORPORATION USINTERNETWORKING, INC.
By By
--------------------------------- --------------------------------------
Name: Name:
------------------------------ -----------------------------------
Title: Title:
----------------------------- ----------------------------------
The Exhibits to this Agreement are:
Exhibit A - Software Specific Terms
Exhibit B- Support Terms and Conditions
- 9 -
<PAGE> 10
EXHIBIT A
SOFTWARE SPECIFIC TERMS
1. SOFTWARE PRODUCT DESCRIPTION: Niku for IT Consulting, version 2.1
2. AUTHORIZED USERS. Licensee will be authorized to designate as Authorized
Users up to [***] - whether as Licensee [***] or
[***], or [***].
3. DESIGNATED FACILITY.
USinternetworking, Inc.
One USi Plaza
Annapolis, MD 21401-7428
1375 McCandless Drive
Milpitas, CA 95035
Kruislaan 415
1098 SJ Amsterdam
4th Floor
1-15 Ariake, 3-Chome
Koto-KU, Tokyo 135-8650
4. LICENSE FEE. Within thirty (30) days of the Effective Date, Licensee
will pay Niku a nonrefundable license fee of $985,000 for [***] licenses
that Licensee, at its discretion or as the parties specifically agree in
the future, may use internally or sublicense to End-Users according to
the terms of this Agreement.
5. SUPPORT FEES. Within ninety (90) days of the Effective Date, Licensee
will pay Niku $118,200 of the License Fee - for support for of its
internal use licenses during the first [***] of this Agreement.
Beginning September 30, 2000, and every twelve (12) months thereafter,
Additional Support Fees, also calculated at twelve percent (12%) of the
License Fee, will be billed to Licensee, and will become payable in full
within thirty (30) days of the invoice.
6. TRAINING SERVICES AND FEE. Any training service to be provided by Niku
and associated fees will be negotiated separately by the parties.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT B
NIKU CORPORATION
STANDARD SOFTWARE SUPPORT TERMS AND CONDITIONS
1. COVERED SOFTWARE.
a. Licensee agrees to purchase, and Niku agrees to furnish, software
maintenance services (the "Support Services") in support of Licensee's use of
software licensed by Niku to Licensee under the terms and conditions of the
attached Software License Agreement (the "Agreement"), subject to these Standard
Software Support Terms and Conditions (the "Support Terms"). The software
covered by this is specified in Exhibit A to the Agreement (the "Software"). All
corrections, updates, improvements, modifications and new versions of Software
furnished to Licensee (the "Updates") will be considered Software within the
meaning of the Agreement, and Licensee's use of the Updates will be governed
thereby.
b. The terms of the Agreement governing confidential information,
Software warranties and disclaimers, indemnification against intellectual
property claims, limitations of liability, notice, governing law, independent
contractor status, assignment, waiver, severability, export control, force
majeure, and integration of terms are incorporated herein by reference and will
govern the Support Terms. Any capitalized terms which are not separately defined
in these Support Terms, will have the same meaning as specified in the
Agreement.
2. SUPPORT SERVICES. For the term of this Agreement and subject to the
exclusions listed in Section 4 below, Niku will provide the following services
with respect to the Software: (a) Niku will attempt to correct within a
reasonable time any reported failure of the Software to substantially conform to
or perform substantially in accordance with the Documentation; (b) Niku will
furnish Licensee, at no additional charge, except for taxes, insurance, shipping
and handling, with all Updates which are released generally by Niku to its
licensees; (c) Niku will provide Licensee with 24x7x365 pager support for all
"critical" and "serious" (as defined below) nonconformances in the Software; and
(d) Niku will provide Licensee with telephone, facsimile and e-mail based
support to assist Licensee in its use of the Software.
3. SERVICE STANDARDS.
a. The Software's failure to substantially conform to Niku's user
documentation will be divided into three classes of severity: (i) a "critical"
nonconformance shall be any nonconformance causing a complete failure of the
Software or the Licensee's computer accessing the Software; (ii) a "serious"
nonconformance shall be any nonconformance which seriously impairs the
functionality of the Software (this includes any critical nonconformance for
which a work-around or detour solution has been devised or identified); and
(iii) a "minor" nonconformance shall be any nonconformance which does not
seriously impair the functionality of the Software.
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b. Niku will provide a response to a report of the above-described
nonconformity by Licensee according to the following response schedule: (a) all
critical nonconformity's shall be responded to by Niku within one (1) hour of
that time that Licensee first reports such nonconformity's to Niku; (b) all
serious nonconformity's shall be responded to by Niku within five (5) hours of
the date that Licensee first reports such nonconformity's to Niku; and (c) all
minor nonconformity's shall be responded to by Niku within three (3) days of the
date that Licensee first reports such nonconformity's to Niku. Niku's duty to
respond shall consist of (i) delivery of an existing or new update, modification
or enhancement to correct such nonconformance; or (ii) identification of a
workaround or detour solution; or (iii) a request for more information for
purposes of analyzing or verifying the nonconformance; or (iv) delivery of a
plan for correcting the nonconformance.
c. Niku will use all reasonable efforts to reach closure on all
nonconformity's reported by the Licensee to Niku in accordance with the
following schedule: (i) critical nonconformity's shall be closed within two (2)
hours of notice to Niku; (ii) serious nonconformity's will be closed within
twelve (12) hours of notice to Niku; and (iii) minor nonconformity's will be
closed in next regular Software update generally distributed by Niku to all
licensees. "Closure" or "closed" consists of Niku providing an update or new
documentation to the Software which eliminates the nonconformance or provides a
work-around solution which enables the user to easily avoid the nonconformance.
4. EXCLUSIONS. The Support Services do not include: (a) repair,
replacement, correction or adjustment of any malfunction caused by: (i)
modification or repair of the Software by anyone other than Niku; or (ii)
accident, catastrophe, abuse, misuse or user error; (b) new products for which
Niku establishes a separate license fee; (c) any expendable items, such as tape
cartridges, magnetic media, and similar items or supplies; or (d) any software
design, development, installation, implementation, or consulting services.
5. LICENSEE DUTIES. Throughout the term for which Licensee has paid for
Support Services, at Licensee's request, Licensee will: (a) provide Niku with
remote log-in access to the computer system(s) on which the Software is
installed at the Licensee's facility so that Niku can perform diagnostic, error
correction, and software downloading services; (b) cooperate with Niku in
identifying the cause of any claimed failure of the Software to substantially
conform to or perform substantially in accordance with the Documentation,
including without limitation, providing Niku with such documentation and other
information concerning any such claimed failure as Niku may reasonably request;
and (c) allow Niku remote and on-site access to the Software and Licensee's
associated equipment for the purpose of performing services under these Support
Terms.
In addition, Licensee will provide front-line support to its End Users. Licensee
will be responsible for and bear all expenses associated with providing
front-line support and Updates to its End Users. Front-line support includes but
is not limited to, call receipt, entitlement verification, call screening,
installation assistance, problem identification and diagnosis and product defect
determination. Licensee agrees that any documentation distributed by Licensee to
its End Users will clearly and conspicuously state that End Users should call
Licensee for technical support for the Software.
6. SERVICE HOURS. The support described in section 2 (c) of this
Agreement will be provided by Niku to Licensee by telephone, facsimile or email
during the business hours of 8:00
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a.m. to 5:00 p.m. US Pacific Standard Time, Monday through Friday, excluding
Niku's public holidays. Notwithstanding the foregoing, critical or serious
nonconformances in Software will be supported on a 24x7x365 basis by pager.
7. PRICES, INVOICING AND PAYMENT. If Licensee decides to purchase
support and maintenance services, Licensee will pay the annual fees specified in
the Agreement. In addition, Licensee will pay all taxes, excluding taxes based
on Niku's net income, payroll, all freight, shipping and insurance costs
associated with delivery of materials to Licensee under this Agreement and all
preapproved travel, lodging, meal and other incidental expenses specifically
incurred by Niku and agreed to by Licensee for furnishing maintenance and
support services to Licensee "on-site" at the Licensee's facility. Software
maintenance fees are payable annually in advance. Niku will invoice Licensee for
the initial fifteen (15) month's Support Fees upon acceptance of the Software,
and Niku will invoice Licensee for additional Support Fees pertaining to each
succeeding twelve (12) month period at or about the commencement of such period.
Niku will invoice Licensee for other charges permitted under this Agreement at
or about the times such charges are incurred; except for payment for the initial
Support Fees, which shall be payable ninety (90) days after invoice, all Support
Fees invoices shall be paid by Licensee within thirty (30) days of receipt.
8. CHANGE IN SUPPORT FEES. Effective upon any twelve (12) month
anniversary of the Effective Date, Niku may increase the amount of the Support
Fees relating to the Software, unless provided otherwise in Exhibit B; provided,
however, that no such increase shall exceed [***] of the amount of the Support
Fees for the twelve (12) month period immediately preceding the effective date
of such increase.
9. TERM AND TERMINATION. These Support Terms shall become effective as
of the Effective Date and shall continue in effect for the initial term
specified above and thereafter for successive one (1) year renewal terms until
terminated as provided in this section. Either party may terminate this
Agreement as of the end of its initial term, or as of the end of any renewal
term, by written notice to the other party at least thirty (30) days prior to
the effective date of termination. In the event that Licensee's license to use
the Software is terminated by Niku or Licensee pursuant to the Agreement, these
Support Terms shall also terminate as to such Software and Niku will refund to
Licensee the amount of any Support Fees already paid with respect to such
Software for service beyond the effective date of termination, prorated on a
daily basis.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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* Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.09
EXECUTION COPY CONFIDENTIAL
MANAGED SERVICES AGREEMENT
This Managed Services Agreement ("Agreement") is entered into this 19th day of
August, 1999 by Niku Corporation, a Delaware corporation with its principal
place of business at 955 Charter Street, Redwood City, California 94063
("NIKU"), and USinternetworking, Inc., a Delaware corporation with its principal
place of business at One USi Plaza, Annapolis, Maryland 21401 ("USi"), (also
"Party" or "Parties").
NIKU owns business application software that USi wishes to install on its
servers and, through remote access, make available to USi customers. This
Agreement and the Attachments hereto set forth the terms and conditions on which
NIKU will grant, and USi will receive and use, licenses regarding such software.
1. DEFINITIONS.
1.1 "Affiliate" means, with respect to either Party, any entity at a time
Controlling, Controlled by, or under common Control with, such Party. The term
"Control," "Controlling" and "Controlled" as used in this Agreement means the
legal, beneficial or equitable ownership, directly or indirectly, of more than
50% of the aggregate of all equity interest in such entity.
1.2 "Customer" means the entity or person to which USi provides the Services
Offering on agreed terms not less restrictive than, and not inconsistent with
this Agreement.
1.3 "Designated Facility" means Licensee's business facility identified in
Attachment A, which may be changed only with the prior written consent of an
authorized Niku officer.
1.4 "Documentation" means the published product specifications for the Licensed
Products, user manuals and other materials which describe the Licensed Products
features and use, in written or machine readable form.
1.5 "Lead" means a qualified prospect for a Services Offering. "Qualified" means
that (a) the prospect has expressed interest in an outsourcing solution for the
Licensed Product; and (b) NIKU has determined the prospect's interest and
capabilities to be suitable for a Services Offering.
1.6 "Licensed Product" means the object code version of the Niku software
described in Attachment A, and including Niku's Third-Party Suppliers' software
incorporated therein. "Licensed Product" does not mean code, media, or
documentation of USi or any third-party element within USi's portion of a
Services Offering.
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1.7 "Maintenance" means the NIKU maintenance and support specified in Attachment
D.
1.8 "Marketing and Demonstration Materials" means Licensed Product brochures,
technical specification sheets, product guides, demonstration presentations,
graphics, pictures, drawings, screen layouts, text, icons, descriptions and
other marketing sales literature provided by NIKU to USi.
1.9 "Services Offering" means the solution based on Licensed Product, delivered
and administered by USi over its network. It includes: (a) connectivity between
the dedicated Customer server(s) hosted by USi, and the Internet; (b)
application hosting and management at USi's data center; (c) application backup
and recovery services; (d) implementation and integration services; (e) billing
for combined business service; and (f) customer support help desk as set forth
in Attachment B. It is limited to remote access, and does not involve the
distribution of software to Customers.
1.10 "Software Updates" means software program updates (including cumulative
releases containing corrections to the Licensed Products), major and minor
enhancements, and the new system versions and releases generally made available
by NIKU to users of Licensed Products.
1.11 "Support Fee" means the fee paid by USi to NIKU for services specified in
Attachment C, and for Software Updates.
1.12 "Support Line" means such telephone, email, fax, mail, beeper and web
support, including research time provided by NIKU Support Line staff under
Attachment D.
2. LICENSE GRANT.
2.1 License Rights. NIKU grants to USi during the term of this Agreement a
limited, nonexclusive, nontransferable, worldwide, fee-bearing right:
(a) to install and use one (1) copy of each of the Licensed Products
on a server computer system in the Designated Facility for
purposes of providing the Service Offering to Customers;
(b) to make up to three (3) copies of the installed Licensed
Products for archival back-up or internal testing purposes; and,
(c) to use, store, transmit, display and sublicense the Licensed
Products and Documentation to End Users as part of the Service
Offering, provided,
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however, that prior to granting any person or entity access to
the Licensed Products or Documentation, USi must enter into a
valid and enforceable agreement with such person or entity that
is consistent with and not less restrictive than NIKU's standard
end user license agreement ("End User License Agreement"), a
copy of which is attached as Attachment D.
2.2 Intellectual Property Rights:
2.2.1 USi acknowledges and agrees (a) that the Licensed Products and
Documentation, the ideas, methods of operation, processes,
know-how, aesthetic aspects, subsystems and modules included
therein, the graphical user interfaces for the Licensed
Products, and the look and feel of the Licensed Products and
Documentation are proprietary materials, some of which contain
valuable trade secrets; (b) that all title and intellectual
property rights - meaning copyrights, confidentiality rights,
trade secret rights, trademark rights, patent rights and other
intellectual property and proprietary rights - in the Licensed
Products and Documentation are owned exclusively by NIKU and its
third-party suppliers , subject only to the licenses granted
herein; and (c) USi will not take any action to jeopardize,
limit or interfere in any manner with NIKU's or its third-party
suppliers' ownership of or rights with respect to the Licensed
Product(s) and Documentation.
2.2.2 USi will take reasonable precautions (including the precautions
taken to protect its own confidential information) to prevent
unauthorized use or disclosure of the Licensed Products, any
source code provided to USi hereunder, and the results of any
performance or benchmark tests of any software included in such
Licensed Products.
2.2.3 Without the prior express written consent of NIKU, USi will not,
and will not grant any other person or entity the right to,
disassemble, decompile, decode, translate, modify, produce a
source listing, create derivative works or reverse engineer any
Licensed Products or Documentation. In the event any Derivative
Works is created hereunder, USi agrees that Niku will be the
sole owner of all Derivative Works (as such term is defined
below). Niku grants to USi, during the term of this Agreement, a
nonexclusive, royalty-free and nontransferable right and license
(with no right of sublicense) to use any Derivative Works solely
with the Licensed Product(s) and solely for USi's own internal
use and benefit. USi agrees that all use of any Derivative Works
will be in accordance with this Agreement. For the purposes of
this Agreement, "Derivative Works" means any inventions,
improvements, reports, drawings and other works of authorship,
improvements and/or modifications to the Licensed Product(s) or
Documentation, that USi and/or its agents may conceive, develop
or reduce to practice, alone or jointly with others,
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whether or not they are eligible for patent, copyright,
trademark, trade secret or other legal protection.
To the extent that USi and/or its agents may acquire property
rights in any Derivative Works by operation of law, USi hereby
assigns to Niku, with full title guarantee, all of its rights in
the Derivative Works. At Niku's request and expense, USi will
assist and cooperate with Niku in all reasonable respects and
execute any documents and take further acts as reasonably
requested by Niku to acquire, transfer, maintain and enforce any
legal protection for the Derivative Works. USi hereby appoints
the officers of Niku as in existence from time to time as its
attorneys-in-fact to execute documents on its behalf for this
limited purpose.
2.2.4 USi will not obscure, remove or modify any notices or marking,
including without limitation, copyright, trademark or
confidentiality notices on the Licensed Product and
Documentation provided to USi by NIKU or its third-party
suppliers.
2.2.5 NIKU and its third-party suppliers retain rights in and to the
Licensed Products and Documentation not specifically granted to
USi hereunder, and any use of these items other than as
expressly permitted by this Agreement shall constitute a
material breach of this Agreement.
2.2.6 Where USi uses a multi-processor server, USi will maintain
accurate records of the number of CPUs used for the Licensed
Product(s) and provide such records to Niku on a quarterly basis
as set forth in Attachment A.
2.3 Prepaid Maintenance Customers: Where a potential Customer for a Services
Offering already lawfully has the right to use a Licensed Product for internal
use, and has prepaid maintenance, USi (a) may host such Licensed Product without
being obligated to pay NIKU a license fee; and (b) will assume the obligation to
perform Maintenance, in which case NIKU will credit USi with the amount of
prepaid Maintenance to be provided by USi. After expiration of the prepaid
Maintenance term for such Customer, USi will purchase Maintenance at the lower
of Customer's original rate, or the rate charged to USi under this Agreement.
3. USI RESPONSIBILITIES.
3.1 USi will create a Services Offering entitled "Professional Services
Automation powered by Niku."
3.2 USi will provide the Customer support specified in Attachment B.
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3.3 USi will provide to NIKU the information and materials reasonably necessary
to allow NIKU to most effectively present the Services Offering concept to any
prospect.
3.4 USi will make no representations, warranties or promises, expressed or
implied, oral or written, to Customers with respect to any Licensed Product,
other than the written representations, warranties and promises made to USi by
NIKU in this Agreement.
3.5 Integration Services:
3.5.1 Through its Advanced Engineering organization, USi will conduct
performance tests of Services Offerings over varying concurrent
users and bandwidth levels. USi will share this information with
NIKU to assist NIKU in its optimization of the Licensed
Products.
3.5.2 Training and Certification. Within three (3) months after
execution of this Agreement, USi will create one NIKU Client
Care Team (i) composed of installation and help desk staff to
support Customers as further described in Attachment B, (ii)
trained in the Licensed Products, either directly by NIKU, or
through USi's internal training group, and (iii) to provide
Level One and Level Two support (as these are defined in Section
5.3, below) to Customers. USi will purchase training from NIKU
for internal team members at rates specified in Attachment A.
3.6 USi will staff its operations teams with vendor-certified network, database,
application, and hardware technical specialists, and will have application
expertise for Licensed Products available to all shifts, as needed in order to
provide Level One and Level Two support to Customers.
3.7 USi will train NIKU's sales force in the promotion of Services Offerings as
soon as reasonably possible after execution of this Agreement. USi will provide
reasonable value proposition/messaging/demonstration capabilities to the NIKU
sales force.
3.8 USi will exercise its rights in, and to enforce each End User License
Agreement as reasonably requested by NIKU or as otherwise necessary to protect
NIKU's rights hereunder. USi agrees to report to NIKU any violation of the End
User License Agreement and to reasonably cooperate with NIKU in any enforcement
actions taken by NIKU at NIKU's expense.
4. NIKU'S RESPONSIBILITIES.
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4.1 On terms consistent with this Agreement, NIKU will deliver to USi Licensed
Products as they become available, and as set forth in Attachment A. Attachment
A may be modified only upon mutual agreement of the parties.
4.2 NIKU will provide Maintenance for Licensed Products to USi in accordance
with Attachment B.
4.3 Upon execution of this Agreement, NIKU will deliver to USi the current
Marketing and Demonstration Materials. Subject to the guidelines established by
NIKU, NIKU authorizes USi to place a notice on these materials, under NIKU's
guidelines, to indicate USi's authority to use, and provide access to, the
Licensed Products in accordance with the Services Offering.
4.4 During the term of this Agreement, NIKU will deliver to USi a reasonable
number of copies of the Licensed Product, not to exceed use by [***] seats, of
which [***] will be used for USi's internal testing and demonstration, and [***]
for training purposes at no additional charge. Where NIKU uses beta testing,
NIKU will invite USi to participate as a beta test site for new Licensed
Products.
4.5 NIKU will give USi written notice prior to withdrawing any commercially
available Licensed Product (including any version thereof) from marketing or
support of NIKU's customers, as soon after NIKU's decision to withdraw a
Licensed Product as reasonably possible.
4.6 Not later than fourteen (14) days after execution of this Agreement, and for
three (3) months thereafter, NIKU will make available, at rates specified in
Attachment A, one trained NIKU consultant to be on-site at USi to provide
knowledge transfer and engineering services in support of USi's drafting the
specifications, and testing the Services Offering.
4.7 NIKU will train USi's sales force in the Licensed Products as soon as
reasonably possible after execution of this Agreement. NIKU will provide
reasonable value proposition/messaging/demonstration capabilities to the USi
sales force.
4.8 In the process of qualifying a prospect, NIKU will make available to all
prospects such information about the Services Offering in a manner designed to
convert a prospect into a qualified lead and, ultimately, into a Customer.
5. CUSTOMER SUPPORT.
5.1 USi will provide technical and application response-line support to
Customers in accordance with Attachment B.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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5.2 Where necessary for implementation of a Services Offering, USi will purchase
from NIKU professional services at rates specified in Attachment A, and payable
by USi as delivered. The consultants designated to perform professional services
will be chosen on the basis of their availability and required expertise.
Notwithstanding NIKU's assistance in the implementation of a Services Offering,
USi will remain solely responsible for Customer implementations.
5.3 USi will provide Level One and Level Two Support to Customers. "Level One
Support" means initial contact with the Customer for questions regarding the
implementation of the Services Offering. "Level Two Support" means advising
Customer on application functionality and configuration, internetworking,
database configuration and maintenance, and hardware configuration and
maintenance.
5.4 NIKU will provide Level Three Support in accordance with definitions and
terms of the Service Level Agreement in Attachment C.
6. PRICING AND PAYMENT TERMS.
6.1 Fees payable by USi to NIKU will be calculated on a per-Customer basis in
accordance with Attachment A.
6.2 In accordance with the fees agreed in Attachment A, USi shall pay NIKU the
license fees, Maintenance fees, and services fees together with any applicable
sales or use tax or similar tax, excluding any taxes based on NIKU's net income,
payroll, or gross receipts.
7. MARKETING.
7.1 As additional consideration for the rights granted by NIKU to USi hereunder,
USi shall, at its own expense, actively promote and market Licensed Products to
potential Customers as part of the Services Offering. USi will produce, and
deliver to NIKU, marketing and demonstration materials describing and promoting
Services Offerings, and will assist NIKU in qualifying prospects. USi will use
Marketing and Demonstration Materials for purposes of marketing the Services
Offering.
7.2 USi and NIKU will participate in joint advertising opportunities
7.3 USi and NIKU each will designate marketing contacts.
7.4 The Parties will meet quarterly to assess market conditions, customer
satisfaction, and projections for training programs, business strategies,
revenue forecasts, and proposals
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for the Services Offering. The Parties will also meet annually to review the
terms of the Agreement.
7.5 Sales Force Compensation: For Services Offering sales, NIKU will compensate
its sales force in the same manner and at the same rates as it compensates its
sales force for sales of licenses of the Licensed Products.
7.6 The Parties acknowledge that USi has an exclusive arrangement with Siebel
Systems for the outsourcing of Siebel's software for the automation of corporate
sales, marketing, and customer service functions ("Siebel ERM Software"). The
Parties agree that current Licensed Products do not compete with Siebel ERM
Software. In the event that the Parties deem future Licensed Products to compete
with Siebel ERM Software, the Parties will negotiate additional terms and
conditions for the purpose of resolving the conflict.
7.7 The Parties acknowledge and agree that this Agreement is non-exclusive.
8. DATA AND DOCUMENTS RESULTING FROM THE LICENSED PRODUCTS.
8.1 USi and its Customers are free to use any results, such as databases or
reports, created as a by-product from use of Licensed Products in accordance
with a Services Offering ("Results"). USi and/or the Customer will own the
Results, but not any portion of the Licensed Products.
9. WARRANTIES.
9.1 NIKU warrants that the Licensed Product, when properly installed and used,
will perform in substantial accordance with the Documentation for a period of
one (1) year from the date the Software is delivered to USi. If the Licensed
Product does not perform as warranted, NIKU will attempt to correct the Licensed
Product, or if a correction is not reasonably possible, to replace the Licensed
Product free of charge. If NIKU is unable to make the Licensed Product perform
as warranted, NIKU will terminate this Agreement and refund the license fee paid
by USi less any cumulative amortization or depreciation of that Licensed Product
by USi on its financial statements as of the date when NIKU terminates the
license for such Licensed Product. This warranty is made to and for the sole
benefit of USi, and will be enforceable against NIKU only if: (a) all
modifications, alterations or additions to the Licensed Product made by USi, if
any, have been made using tools or utilities included in the Licensed Product or
otherwise provided by Niku; and (b) USi has not made or caused to be made any
modifications, alterations, or additions to the Licensed Product that cause it
to deviate from the Documentation. NIKU will not be liable for any claimed
breach of this Warranty caused by the acts or omissions of USi or any third
party, with the exception of any Niku third-party supplier.
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9.2 NIKU warrants that, during the Maintenance period, the Licensed Products
will be Year 2000 Compliant. "Year 2000 Compliant" means (to the extent that
other information technology, data, hardware or software used in combination
with the Licensed Products, properly exchanges date/time data with the Licensed
Products): (i) the Licensed Products, as delivered by NIKU, will accurately
process date/time data (including, without limitation, calculating, comparing
and sequencing) from, into and between the twentieth and twenty-first centuries,
and the years 1999 and 2000 and leap year calculations, in accordance with the
Documentation relating to those Licensed Products and in effect at the time the
support is provided; and (ii) the Licensed Products, as delivered by NIKU, will
accurately process date/time data (including, without limitation, calculating,
comparing and sequencing) on or after January 1, 2000 in the same manner, and
with the same functionality as the same release level of the Licensed Products
processes date/time data (including, without limitation, calculating, comparing
and sequencing) on or before December 31, 1999. During the Maintenance period,
NIKU will not modify the Documentation or the Licensed Products in any manner
that would cause the Licensed Products to not be Year 2000 Compliant. This
warranty does not apply if any other information technology, data, hardware or
software used in combination with the Licensed Products are not Year 2000
Compliant.
9.3 NIKU warrants that, for a period of ninety (90) days from the date NIKU
delivers the Licensed Products to USi, the media upon which the Licensed Product
is provided will be free of material defects ("Media Warranty"). The sole and
exclusive remedy for breach of the Media Warranty is replacement of the
defective media if any such defect is found within ninety (90) days after
delivery of the defective media.
9.4 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER USi NOR NIKU (OR ITS
THIRD-PART SUPPLIERS) MAKES OR RECEIVES ANY OTHER EXPRESSED OR IMPLIED
WARRANTIES OR REPRESENTATIONS OF ANY KIND WITH RESPECT TO THE LICENSED PRODUCTS
OR SERVICES PROVIDED UNDER THIS AGREEMENT, OR RENDERED UNDER A SERVICES
OFFERING, IN FACT OR IN LAW, INCLUDING, BUT NOT LIMITED TO, ANY EXPRESSED OR
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH
ARE HEREBY EXPRESSLY DISCLAIMED.
9.5 The warranties, and remedies for their breach, in Sections 9.1, 9.2, and
9.3, above, and in NIKU's Product License Agreement for Licensed Products are
NIKU's sole and exclusive warranties and remedies to USi. USi will not pass to
Customers any warranty or remedy on behalf of NIKU.
9.6 Each Party warrants that its performance under this Agreement does not
materially conflict with its obligations under any other agreement.
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<PAGE> 10
10. CONFIDENTIALITY.
10.1 "Confidential Information" means information disclosed by NIKU or USi in
writing, orally or by inspection, which is identified as "Confidential" or
"Proprietary", or which, given the nature of the information or the
circumstances surrounding its disclosure, the Parties reasonably ought to
recognize as being confidential. Notwithstanding the foregoing, information, in
whatever form, disclosed by NIKU that relates to the features and/or
functionality of the Licensed Products and that is not publicly known is
"Confidential Information" whether or not so identified.
10.2 Each Party will treat as confidential all Confidential Information received
from the other Party, will use such Confidential Information only as expressly
permitted under this Agreement, will only disclose it to employees needing
access to it in order to fulfill the Party's obligations, and will not disclose
such Confidential Information to any third party without the disclosing Party's
prior written consent except as provided in Section 10.4 below.
10.3 Notwithstanding the above, the restrictions of this Section will not apply
to information that is (i) in the public domain through no breach of this
Agreement, (ii) obtained from third parties not subject to restrictions on
disclosure, (iii) independently developed without reference to Confidential
Information, or (iv) previously known to the recipient.
10.4 If either Party receives a subpoena or other validly issued administrative
or judicial demand requiring it to disclose Confidential Information of the
other Party, the recipient will promptly notify the discloser and tender to it
defense of such demand. Unless the demand will have been timely limited, quashed
or extended, the recipient will then be entitled to comply with such subpoena or
other process to the extent required by law.
10.5 Notwithstanding any provision in this Agreement to the contrary, in the
event of an actual or threatened breach of this Section 10, the Parties agree
that there would be no adequate remedy at law, and that the injured Party (or
the Party threatened to be injured) may be entitled to immediate injunctive and
other equitable relief, without bond and without the necessity of showing the
inadequacy of legal remedies.
11. INDEMNIFICATION BY USI.
11.1 USi, at its expense, will defend any suit or claim brought against NIKU,
and will indemnify NIKU against an award of damages and costs (including
reasonable attorneys' fees) against NIKU by a final court judgment based on a
claim that any Licensed Product infringes a U.S. or Canadian patent, worldwide
trade secret, or Berne Convention country
10
<PAGE> 11
copyright to the extent such infringement results from modifications to any
Licensed Product made by USi, the marketing, distribution or use of the Licensed
Products in conjunction with the Services Offering or services or software not
supplied by NIKU, any warranty, condition or representation or indemnity granted
by USi for the Services Offering in addition to or in lieu of the warranties
described in this Agreement, or from USi's failure to use corrections or
enhancements delivered by NIKU to USi in order to rectify any infringement,
provided that NIKU (a) notifies USi in writing of the suit or claim within ten
(10) days after NIKU receives notice of it; (b) gives USi sole authority to
defend or settle the suit or claim; (c) gives USi all information in NIKU's
possession or control concerning the suit or claim; and (d) at its expense,
reasonably cooperates and assists USi with defense of the suit or claim.
11.2 Section 11.1, above, states USi's entire liability, and NIKU's sole remedy,
with respect to any infringement claim arising under that section.
12. INDEMNIFICATION BY NIKU.
12.1 NIKU, at its expense, will defend any suit or claim brought against USi,
and will indemnify USi against an award of damages and costs (including
reasonable attorneys' fees) against USi by a final court judgment based on a
claim that USi's marketing, distribution, or use of any Licensed Product
infringes a U.S. or Canadian patent, worldwide trade secret or Berne Convention
country copyright, provided that USi (a) notifies NIKU in writing of the suit or
claim within ten (10) days after USi receives notice of it; (b) gives NIKU sole
authority to defend or settle the suit or claim; (c) gives NIKU all information
in USi's possession or control concerning the suit or claim; and (d) at its
expense, reasonably cooperates and assists NIKU with defense of the suit or
claim.
12.2 If any Licensed Product becomes, or in NIKU's opinion is likely to become,
the subject of a suit or claim of infringement of a patent or copyright, NIKU
shall, at its option and expense, (a) obtain the right for USi to use the
Licensed Product; (b) replace or modify the Licensed Product so that it becomes
non-infringing, provided that the replacement or modification is of similar or
better quality or functionality; or (c) terminate (i) USi's license for the
infringing Licensed Product, and (ii) this Agreement to the extent that it
relates to the infringing Licensed Product. If NIKU terminates the license for
the infringing Licensed Product under this Section, USi will cease use of the
infringing product and return it to NIKU; and (d) NIKU will pay USi, as USi's
sole and exclusive remedy against NIKU (other than indemnification by NIKU under
Section 12.1 above) an amount equal to the License Fee paid under this Agreement
for the infringing Licensed Product, less any cumulative amortization or
depreciation of that Licensed Product by USi on its financial statements as of
the date when NIKU terminates the license for the infringing Licensed Product.
11
<PAGE> 12
12.3 NIKU will not be liable to USi under this Section 12 if any suit or claim
of infringement is based on the use of the Licensed Product (a) in combination,
operation or use with any product not furnished or suggested in writing by NIKU;
(b) in a modified state not authorized by NIKU; (c) that is a superseded or
altered release of some or all of the Licensed Product or any modification
thereof including, but not limited to, USi's failure to use corrections, fixes
or enhancements made available by NIKU; or (d) in a manner other than for which
it was designed, provide that infringement would have been avoided without such
use of the Licensed Product. Nor will NIKU be liable to USi for any infringement
outside the United States.
12.4 Sections 12.1 - 12.3, above, state NIKU's entire liability, and USi's sole
remedy, with respect to any infringement claim arising under those sections.
13. LIMITATION ON LIABILITY.
13.1 Except for claims for breach of either Party's Intellectual Property Rights
and proprietary rights, and claims for indemnification under Sections 11 and 12,
the limit of each Party's and its suppliers' liability (whether in contract,
tort, negligence, strict liability in tort or by statute or otherwise) to the
other, or to any third party, concerning performance or non-performance under
this Agreement, or in any manner related to this Agreement, for any and all
claims will not in the aggregate exceed the monetary amounts paid or received
under this Agreement.
13.2 EXCEPT FOR CLAIMS FOR BREACH OF EITHER PARTY'S INTELLECTUAL PROPERTY RIGHTS
AND PROPRIETARY RIGHTS, AND CLAIMS FOR INDEMNIFICATION UNDER SECTIONS 11 AND 12,
IN NO EVENT WILL EITHER PARTY (OR NIKU'S THIRD-PART SUPPLIERS) BE LIABLE FOR
CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL, OR PUNITIVE LOSS, DAMAGE OR
EXPENSES (INCLUDING LOST PROFITS OR SAVINGS), EVEN IF IT HAS BEEN ADVISED OF
THEIR POSSIBLE EXISTENCE.
13.3 The allocations of liability in this Section 13 represent the agreed and
bargained-for understanding of the Parties and each Party's compensation
reflects such allocations.
14. CHOICE OF LAW AND VENUE.
14.1 This Agreement will be governed by New York law without reference to that
State's conflicts of law principles.
14.2 INJUNCTIVE RELIEF: IN THE EVENT OF AN ACTUAL OR THREATENED BREACH BY EITHER
PARTY OF ANY TERM, RESTRICTION, COVENANT, OR CONDITION IN THIS AGREEMENT, THE
NON-BREACHING PARTY
12
<PAGE> 13
(or its successors or assigns), will have, in addition to the right to damages,
the right to seek equitable relief in a court of competent jurisdiction, without
the requirement of bond, for the purpose of enjoining such actual or threatened
breach. The Party intending to seek equitable relief will notify the other Party
of the actual or threatened breach prior to the commencement of any such action.
15. TERM AND TERMINATION.
15.1 This Agreement will become effective upon execution by both Parties. The
initial term of this Agreement is three (3) years, but it may be terminated
thereafter by either Party on the anniversary date as provided by this Section
15.
15.1.1 After the initial three-year term, unless this Agreement is
automatically extended as provided below, (a) USi may not enter
into any new Services Offering Agreement; and (b) the Parties
will continue to abide by this Agreement to the extent
reasonably necessary to complete performance of any existing
Services Offering Agreement.
15.1.2 At the end of the initial three-year term, this Agreement will
extend automatically for one-year periods unless either Party,
on sixty (60) days' written notice to the other, terminates this
Agreement.
15.2 Either Party may terminate this Agreement immediately upon the public
announcement of the other Party's change of control, which is defined as a
change of more than fifty percent (50%) of ownership.
15.3 If either Party breaches any of its material obligations, the other Party
may terminate this Agreement by written notice specifying the breach. Such
notice will be effective sixty (60) days after its receipt, unless the Party
receiving the notice has cured the breach.
15.4 If Customer for a Services Offering wishes to obtain a license to retain a
right to use of a Licensed Product after termination of the Services Offering
Agreement, then USi will refer Customer to NIKU for negotiation of a separate
license agreement between Customer and NIKU, in which case NIKU will be entitled
to retain all revenues from such sale.
15.5 Subject to the provisions of this Section 15, upon termination USi shall
cease use of the Licensed Products and immediately return such Licensed Products
and any copies thereof to NIKU. Termination or expiration of this Agreement will
not release either party from its obligation to pay any fees accruing prior to
the date of such termination or expiration.
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<PAGE> 14
15.6 The provisions of Section 2.3, and 10 through 16 will survive termination
of this Agreement.
16. GENERAL.
16.1 Freedom to Set Customer Pricing and Terms and Conditions: Subject to the
terms of this Agreement, USi will have full freedom and flexibility in pricing
the Services Offering, and in establishing the terms and conditions under which
such services, including the Services Offering, are offered to Customers, except
that the term of any Services Offering Agreement shall not exceed five (5) years
without express written consent of NIKU.
16.2 Assignment of Personnel: Except as expressly agreed by USi and NIKU to the
contrary, nothing contained in this Agreement will limit or restrict the
assignment or reassignment of employees of USi and NIKU within their respective
organizations or that of their Affiliates.
16.3 Notices: Where one Party is required or permitted under this Agreement to
give notice to the other, the notice will be deemed given when delivered via
facsimile, by hand, or on the third business day after such notice is deposited
in the mail, registered or certified, return receipt requested, postage prepaid
and addressed as follows:
In the case of USi:
James Stalder
USinternetworking, Inc.
Senior VP, Strategic Development
One USi Plaza
Annapolis, Maryland 21401
410 573 1906 (fax)
with a copy to:
William T. Price
Vice President & General Counsel
USinternetworking, Inc.
One USi Plaza
Annapolis, Maryland 21401
410 573 1906 (fax)
In the case of NIKU:
955 Charter Street
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<PAGE> 15
Redwood City, CA 94063
Attention: CEO
With a copy to:
Legal Department
Either Party may change its foregoing address by giving the other written notice
of the new address.
16.4 Independent Contractor: USi and NIKU are independent contractors with
respect to all performance rendered pursuant to this Agreement. The employees of
one Party will not be considered employees of the other for any purpose. Neither
Party will have the authority to bind or make commitments on behalf of the other
Party for any purpose. Each Party assumes full responsibility for its actions
and the actions of its personnel in rendering performance pursuant to this
Agreement, and for the supervision, daily direction and control, payment of
salary (including withholding of income taxes and social security), workers'
compensation, disability benefits and the like of its personnel.
16.5 Compliance with Laws and Regulations: Each Party will, at its own expense,
comply with any governmental law, statute, ordinance, administrative order, rule
or regulation relating to its duties, obligations and performance under this
Agreement and will procure all licenses and pay all fees and other charges
required.
16.6 Export of Technical Data: USi will not export, re-export or transmit,
directly or indirectly, any technical data or computer software received under
this Agreement except in full compliance with all applicable federal, state and
local laws, regulations and ordinances, including the Regulations of the U.S.
Departments of Commerce and/or State.
16.7 Force Majeure: Neither Party will be liable for failure to fulfill its
obligations under this Agreement, if such failure is caused by flood, extreme
weather, fire, or other natural calamity, acts of governmental agency, or other
cause beyond the reasonable control of such Party.
16.8 Trademarks and Advertising: Nothing in this Agreement confers upon either
Party any right to use the other Party's trademarks, tradenames or service marks
in connection with any product, service, promotion or publication, without the
prior written consent of the owner of such trademark, tradename, or service
mark.
16.10 Assignment: Neither Party may sell, transfer, assign, or subcontract any
right or obligation except as expressly provided by this Agreement, without the
prior written consent of the other Party, and any act in derogation of the
foregoing will be null and void; provided, however, that either Party may,
without the other's consent, assign its rights or
15
<PAGE> 16
obligations under this Agreement to an Affiliate, or to a financier of its
choice solely for financing purposes.
16.11 Publicity: Upon the execution of this Agreement, or as soon as possible
thereafter, and upon prior written approval from the other Party, each Party
will make reasonable efforts to announce publicly the general nature and purpose
of the relationship created by this Agreement. Any announcement may be made
jointly and/or separately by mutual consent of the Parties.
16.12 Severability: If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, the remaining provisions of such
Agreement will remain in full force and effect.
16.13 Amendment; Waiver: No amendment to this Agreement will be effective unless
in writing and executed by an authorized representative of both NIKU and USi. No
waiver of any provision of this Agreement will be effective unless it is set
forth in a writing referring to the provision(s) waived and the instrument in
which such provision(s) is (are) contained, and is executed by an authorized
representative of the Party waiving its rights. No failure or delay by either
Party in exercising any right, power or remedy will operate as a waiver of any
such right, power or remedy.
16.14 Entire Agreement: The provisions of this Agreement constitute the entire
agreement between the Parties. They supersede all prior agreements, oral or
written, and all other communications relating to the subject matter of this
Agreement. Any terms contained in USi invoices, acknowledgments, shipping
instructions, or other forms that are inconsistent with or different from the
terms of this Agreement will be void and of no effect.
16.15 Headings: The Section headings in this Agreement are for convenience of
reference only, and are not intended to define or limit the terms or provisions
hereof.
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<PAGE> 17
By the signatures of their authorized representations, the Parties acknowledge
the validity of, and their consent to, each of the terms contained in this
Agreement.
FOR USINTERNETWORKING, INC. FOR NIKU CORPORATION
By By
-------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
VP General Counsel VP Global Sales and Services
-------------------------- ----------------------------
(Title) (Title)
8/19/99 8/19/99
-------------------------- ----------------------------
(Date) (Date)
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<PAGE> 18
ATTACHMENT A
DESIGNATED FACILITIES, LICENSED PRODUCTS, AND PRICING
1. Licensed Product Description: Niku for IT Consulting, Version 3.x
2. Designated Facilities:
One USi Plaza, Annapolis, MD 21401
1375 McCandless Drive, Milpitas, CA, 95035
Kruislaan 415, 1098 SJ Amsterdam, The Netherlands
4th Floor, 1-15 Ariake, 3 Chrome; Kotu-KU, Tokyo 135-8650, Japan
3. Reporting and Compliance. USi will maintain accurate records relating to
(a) the sublicensing of Licensed Product(s) to Customers; and (b)
internal licenses for USi. Such records will include, without
limitation, the number of Customers (where the Customer is an entity,
the number of individual users within the Customer), the number of
internal use users and the number of CPUs where the Licensed Product is
used. USi will provide such records to Niku within 10 days after the end
of each quarter, together with any applicable fees as set forth in
Section 4 below. Niku will have the right to inspect USi's records and
the Licensed Product at the Designated Facility as reasonably necessary
to verify that Licensee is in compliance with this Agreement. Niku will
provide Licensee with reasonable notice prior to any inspections. Niku
will be limited to conducting three (3) such inspections in any twelve
(12) month period, and will not unreasonably interfere with Licensee's
business operations. Niku will bear all costs and expenses associated
with the exercise of these rights, unless such inspection reveals that
Licensee is not in compliance with this Agreement, in which case,
Licensee agrees to pay Licensor the reasonable costs of such inspection
plus any additional license fees related to unauthorized use of the
Software.
4. License Fees: Niku is offering the Licensed Products to USi based on the
fees set forth below. License Fees will accrue in the applicable
quantity upon: (a) the first date of access to any Licensed Product by
any employee, contractor or consultant of USi; (b) authorization by USi
for any Customer to increase the quantity of users accessing the
Licensed Product; or (c) the earlier of: (1) the execution of the End
User License Agreement; or (2) the date a Customer or, if the Customer
is an entity, any individual user within the Customer, has access to the
Licensed Product. After the Effective Date, Licensee will pay Niku such
License Fees accrued during each quarter, together
<PAGE> 19
with any support fees due during such quarter, by the tenth day after
the end of each calendar quarter. All payments for the License Fee will
be provided with the quarterly reports required under Section 3 of this
Attachment A. The following fees are effective through December 31,
1999. Niku will provide a new pricing schedule to USi by January 2,
2000. The following License Fees will apply after the [***] licenses
under the Software License Agreement, effective as of June 30, 1999,
between the parties has been drawn down:
Licensed Product fee*: $2,500
Niku Support Fee: 12%, or the
rate negotiated by end-user,
whichever is lower
* volume discounts will apply where appropriate
3. Services Fees: Consistent with the license fees above, fees from Niku's
Professional Services organization will be revised by January 2, 2000.
The following fees will be applicable for all engagements not currently
quoted with a Niku Statement of Work:
<TABLE>
<CAPTION>
Role Rate
<S> <C>
Niku Project Director $200/hr.
Niku Project Manager $180/hr.
Niku Technical Lead $150/hr.
Niku Consultant $130/hr.
</TABLE>
4. Training Services and Fees: Niku will provide training to USi at Niku's
facilities for a rate of $2,500/day, for between five (5) and fifteen
(15) USi attendees. For training conducted offsite, USi will reimburse
Niku for reasonable expenses of Niku's training staff.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 20
ATTACHMENT B
CUSTOMER SUPPORT
USi will provide telephone, email, fax, and World Wide Web support to
Customers, including by way of example and not limitation, problem
identification, diagnosis, correction, usage concerns and resolution. USi will
provide telephone, email, fax, and World Wide Web support in accordance with the
following requirements which may be amended from time to time by agreement of
the Parties:
(a) USi will maintain an internal competency center or help desk to
provide a central point of contact for systems, network and operational support
through a telephone support line which will be open, at minimum, during normal
business hours;
(b) When a Customer reports a problem which USi reasonably concludes to
be due to a defect in the Licensed Product, USi will determine the level of
severity of the problem, such levels to be the same as or comparable to the
following ranges:
(i) [***]: a problem does not require [***], but needs [***] for
a [***] on how to use the [***] or [***], or the problem is in a [***];
(ii) [***]: a problem does not have an [***] on [***], but is
causing a [***] and a [***] is not [***]; and
(iii) [***]: the problem is that a [***] of the Licensed
Products is [***] and cannot be [***] and subject to [***] occurring so
frequently as to [***], and the problem is having a [***] on with no
available;
(c) For critical problems which USi requires further assistance in
resolving, the following provisions will apply: USi will immediately bring such
problems to the attention of NIKU and the Parties will cooperate with each other
to address and correct such critical problems in an efficient and timely manner
in accordance with NIKU and USi standard procedures for correcting problems.
Upon execution of this Agreement, NIKU and USi will share each Party's standard
procedures for correcting problems of all severity levels;
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 21
ATTACHMENT C
NIKU SERVICE LEVEL AGREEMENT
The Parties agree that the terms of the Service Level Agreement will be
concluded, and incorporated into this Attachment C, not later than September 15,
1999
<PAGE> 1
* Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.10
PROMOTION AGREEMENT
This Promotion Agreement (the "Agreement") is dated as of September 10, 1999
between CNET, Inc., with its principal place of business located at 150 Chestnut
Street, San Francisco, California 94111 ("CNET"), and Niku Corporation, with its
principal place of business located at 305 Main Street, Redwood City, California
94063 (the "Company"). Pursuant to this Agreement, the Company and CNET will
work together to create a co-branded site to provide Company's services to CNET
users, and CNET will provide various promotions to the Company to assist the
Company in promoting the co-branded site and Company services. Accordingly, the
parties hereby agree as follows:
1. DEFINITIONS.
"Above the Fold" means that a particular item on a Web page is viewable
on a computer screen at an 800 x 600 pixels resolution when the User
first accesses such Web page, without scrolling down to view more of the
Web page.
"Business Computing Channel" means the Business Computing channel on the
CNET Site, as may be changed from time to time by CNET.
"CNET Competitor" means the competitors of CNET listed on Exhibit G, as
reasonably amended by CNET from time to time, but in no event more than
once during each calendar quarter.
"CNET Content Areas" means the header and footer of each page of the
Co-Branded Site designed in accordance with Section 2.3.1.
"CNET Marks" means any trademarks, trade names, service marks and logos
delivered by CNET to the Company expressly for inclusion on the Company
Site.
"CNET Sites" means the Internet sites operated by CNET together with any
mirror sites and successors to the foregoing, but not including the
Distributor Sites as described in Section 12.14.
"Co-Branded Site" means the web site created pursuant to Section 5,
below, which features branding for CNET and the Company.
"Company Competitor" means the competitors of the Company listed on
Exhibit H, as mutually amended by CNET and the Company from time to
time, but in no event more than once during each calendar quarter.
"Company Content Area" means the middle section of each page of the
Co-Branded Site designed in accordance with Section 2.3.2.
"Company Marks" means any trademarks, trade names, service marks and
logos that may be delivered by the Company to CNET expressly for
inclusion in the Promotions.
"Company Services" means any product or service sold or provided on or
through the Company Site.
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<PAGE> 2
"Company Site" means the Internet site operated by the Company at
http://www.iniku.com, together with any mirror sites and successors to
the foregoing, but not including the Company Distributor Sites as
described in Section 12.15.
"Impression" means the display of a Promotion on the CNET Sites.
"Launch Date" means the date on which the Co-Branded Site is made
generally available to Users, as further described in Section 2.7.
"Look and Feel" means the look and feel, User interface and flow of User
experience.
"Promotions" means banners, buttons, text links, windows and other
promotions that are offered by the relevant party now or in the future,
for which such party receives monetary payment, barter, or other
compensation.
"Special Promotions" means branded or unbranded Promotions specifically
promoting the Co-Branded Site.
"Sponsorship" means the Business Solutions Directory sponsorship
described in Section 3.3.
"Standard Promotions" means Promotions linked to the Company Site and
which promote the Company's products and services.
"Television Spotlight" means a weekly television spotlight to be run in
selected CNET programming available on CNBC.
"Term" means the term described in Section 5.
"User" means a user of a CNET Site.
2. CO-BRANDED SITE DEVELOPMENT AND INTEGRATION.
2.1 Co-Branded Site Described. The parties will work together in good
faith to create the Co-Branded Site on the terms describe in this
Section 2. Unless otherwise mutually agreed by the parties, the
Co-Branded Site will provide all of the features and
functionality provided by, and will perform in a manner
substantially identical to, the Company Site, as the Company Site
may be updated and enhanced from time to time.
2.2 Hosting. The Company or its designee (provided that such designee
is not a CNET Competitor) will host the Co-Branded Site on its
servers (or on servers within its control) and will provide all
computer hardware, software, bandwidth and personnel necessary to
operate and maintain the Co-Branded Site as a functional site
accessible to Users. The Company will operate the Co-Branded Site
in a manner that meets or exceeds the reliability and performance
standards described on Exhibit C, and will use commercially
reasonable efforts to ensure that the performance and reliability
of the Co-Branded Site are at least as good as the CNET Sites.
2
<PAGE> 3
2.3 Design.
2.3.1 CNET Content Areas. CNET will create the specification,
design, functionality, user interface and Look and Feel
for the CNET Content Areas, and Company will use
commercially reasonable efforts to assist CNET. Subject to
the terms of Section 2.13.1, such CNET Content Area may
include branding, promotions, content, navigational tools,
and other features, tools and content as determined by
CNET. CNET will develop all elements of the CNET Content
Areas interface, including graphics and templates. Company
acknowledges that CNET may change the design and content
of the CNET Content Areas from time to time, as determined
at CNET's discretion. Initially, the CNET Content Areas
will substantially conform to the illustrations attached
as Exhibit E.
2.3.2 Company Content Area. Company will create the
specification, design, functionality, user interface and
Look and Feel for the Company Content Area; provided,
however, that the Company Content Area will substantially
conform to the Look and Feel of the Company Site, as may
be changed from time to time. Company will consider CNET's
reasonable requests to change the design and content of
the Company Content Area, provided that the final design
and Look and Feel of the Company Content Area will be
determined by the Company. Subject to the terms of
Sections 2.4 and 2.13.2, such Company Content Area will
include branding, promotions, content, navigational tools,
and other features, tools and content as mutually agreed
by Company and CNET. Company will develop all elements of
the Company Content Area interface, including graphics and
templates. CNET acknowledges that Company may change the
design and content of the Company Content Area to add or
delete Company Services in accordance with Section 2.4.
Initially, the Company Content Area will substantially
conform to the illustrations attached as Exhibit E.
2.4 Company Services. Company will provide on the Co-Branded Site
substantially all Company Services offered on the Company Site.
CNET acknowledges that (i) the Company may change the Company
Services offered on the Company Site from time to time, in which
case the Company Services offered on the Co-Branded Site will be
changed in a similar fashion and (ii) Company may license content
from third party suppliers from time to time for display on the
Company Site, and the complete text of such content may reside on
the Company Site without being posted to the Co-Branded Site.The
Company will in good faith consider all changes, improvements and
enhancements reasonably suggested by CNET. The Company will be
responsible for incorporating all bug fixes and upgrades into the
Company Services offered on the Co-Branded Site on an ongoing
basis.
2.5 CNET Content. Company may include content from the CNET Sites as
described on Exhibit F on relevant pages of the Co-Branded Site,
or as otherwise mutually agreed by the Company and CNET.
2.6 Co-Branding Features. Each page on the Co-Branded Site will
include branding for CNET and the Company so that the CNET Marks
and Company Marks are
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both Above the Fold. The "Home" page of the Co-Branded Site will
include a Company Mark within the top CNET Content Area, as
illustrated in Exhibit E. All other pages on the Co-Branded Site
will include CNET graphics and links in the CNET Content Area and
Company graphics and links in the Company Content Area, as
illustrated on Exhibit E.
2.7 Launch Date. The parties will use commercially reasonable efforts
to achieve a Launch Date for the Co-Branded Site [***] after the
Effective Date.
2.8 IP Masking. Using IP masking, the URL for the Co-Branded Site
will begin with http://iniku.cnet.com. The Company agrees that
CNET will be entitled to count all page views of the Co-Branded
Site towards CNET's traffic as measured by Media Metrix (as both
a "Property" and "Domain" listing) and other Internet
traffic-auditing firms. In addition, both parties will count the
traffic as a "Consolidated" listing as measured by Media Metrix.
CNET shall have the right to provide a redacted copy of this
Agreement to an Internet traffic-auditing firm in connection with
this Section. Furthermore, simultaneous with the execution of
this Agreement, the parties shall execute the letter to Media
Metrix set forth in Exhibit D attached hereto.
2.9 Terms and Pricing. The Company shall offer Users of the
Co-Branded Site pricing and terms equivalent in value to the
lowest generally available pricing and terms offered by the
Company to similarly situated users of the Company Site, provided
that such pricing will not be greater than the published pricing
on the Company Site.
2.10 Quality assurance. Throughout the Term, the Co-Branded Site will
comply with the performance standards and technical
specifications described on Exhibit C.
2.11 Customer Support. The Company will provide reasonable support to
registered users on the Co-Branded Site in a quality and manner
substantially equivalent to the customer support provided on the
Company Site.
2.12 Technical Support. Each party will provide all necessary
technical support for the parts of the Co-Branded Site they each
provide and will designate a technical point of contact. Each
party will use reasonable efforts to notify the other's
designated contact at least three (3) business days in advance of
any planned outages of its portion of the Services, and within
fifteen (15) minutes in case of any unplanned outages of its
portion of the Services.
2.13 Advertising.
2.13.1 CNET Content Areas. CNET shall own and have the right to
use or sell all of the advertising inventory within the
CNET Content Areas. The Company will fully cooperate with
CNET in integrating CNET's Promotion serving software with
the Co-Branded Site in a manner that allows CNET to
accurately deliver and track Promotions and other
advertising. CNET will have the right to retain all
revenues associated with Promotions, subscriptions,
services and transactions displayed in the CNET Content
Areas. CNET shall not display any Promotions,
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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advertising or solicitations within the CNET Content Areas
for any Company Competitor listed on Exhibit H.
2.13.2 Company Content Area. Company shall own and have the right
to use or sell all of the advertising inventory within the
Company Content Area. Company will have the right to
retain all revenues associated with Promotions,
subscriptions, services and transactions sold by Company
or its agents and displayed in the Company Content Areas.
Company shall not display any Promotions, advertising or
solicitations within the Company Content Area for any CNET
Competitor listed on Exhibit G; provided, however, that
the foregoing shall not restrict the Company from placing
a reasonable number of unpaid editorial links from the
Company Content Area to CNET Competitors. Except as
specifically restricted in the foregoing sentence, Company
shall have the right to display third party (including
CNET Competitor) links, media, banner advertisements,
other Promotions, and/or unpaid editorial content anywhere
on the Company Site. Notwithstanding the foregoing, if
CNET and the Company reasonably determine that unused
promotional space exists within the Company Content Area,
CNET and the Company will work together to allow CNET to
use such unused promotional space for Promotions delivered
by CNET. The Company will fully cooperate with CNET in
integrating CNET's Promotion serving software with the
Co-Branded Site in a manner that allows CNET to accurately
deliver and track Promotions and other advertising which
CNET provides in the Company Content Area. CNET will have
the right to retain all revenues associated with
Promotions sold by CNET and displayed in the Company
Content Areas.
2.14 Performance Standards. October 1st 1999 will be the first day of
the initial 3 month evaluation period. Within a reasonable time
after the end of the first three months following October 1st
1999 (the "First Quarter"), CNET and the Company will work
together in good faith to evaluate the success of the Co-Branded
Site taking into consideration factors such as (a) the number of
Co-Branded Site users, (b) feedback from the Co-Branded Site
users, (c) consumer response to the joint marketing activities,
and (d) any technical issues related to the Co-Branded Site. CNET
and the Company will agree on a list of action items aimed at
improving the success of the Co-Branded Site. Within a reasonable
time after the end of the three months immediately following the
First Quarter (the "Second Quarter"), CNET and the Company will
work together in good faith to evaluate the success of the
Co-Branded Site taking into consideration factors similar to
those considered at the end of the First Quarter. CNET and the
Company will agree on a list of action items aimed at improving
the success of the Co-Branded Site. During the three months
immediately following the Second Quarter (the "Third Quarter"),
the parties will work together in good faith to determine and
establish performance standards for the remainder of the term,
based on the success of the Co-Branded Site during the First
Quarter and Second Quarter. The parties agree to finalize such
performance standards by the end of the Third Quarter; provided,
however, that if the parties, working together in good faith, are
unable to finalize such performance standards by the end of the
Third Quarter, then on July 5th, 2000 either party may terminate
this Agreement immediately upon written notice to the other
party. The parties agree that the
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foregoing meetings are an essential part of this Agreement and a
party's failure to participate in the such meetings will be
deemed to be a material breach of this Agreement by such party.
2.15 Bi-annual Executive Review. Every six months after the execution
of this Agreement., senior executives of CNET and the Company
(President level or above) will conduct face-to-face meetings at
a mutually agreed time and location to discuss the performance of
the Co-Branded Site and the relationship between the parties. The
parties agree that the first executive meeting will occur in
conjunction with the second performance standards meeting set
forth in Section 2.14.
3. PROMOTIONS BY CNET.
3.1 Standard Promotions. During the Term of this Agreement, the
Company will purchase Standard Promotions on the CNET Site (based
on a [***] discount off of CNET's published advertising rate
card) as set forth in Section 5.2.CNET will use commercially
reasonable means to deliver for the Company the Standard
Promotions as set forth on Exhibit A, as may be modified from
time to time as determined by the Company and subject to CNET's
then-current inventory availability. If the Company fails to
provide CNET with a Standard Promotions media plan for a minimum
of [***] for any particular month on or before the fifth day of
such month, then CNET will choose and run a mix of Standard
Promotions equal to the monthly advertising payment. CNET will
use commercially reasonable efforts to choose Standard Promotions
that are consistent with the Company's goals. The Company may
request any reasonable reallocation of the location and type of
the Standard Promotions subject to CNET's then-current inventory
availability and the terms of CNET's Media Kit at
http://www.cnet.com/Media/, as may be reasonably changed from
time to time. CNET shall not charge the Company any extra fees
for such requested reallocations of Standard Promotions if they
are equivalent in value to those that would otherwise be provided
by CNET hereunder. If the Company's requested reallocations of
Standard Promotions are more expensive than the location and type
normally provided hereunder by CNET, then the Company shall pay
the difference of such cost based on a [***] discount off of
CNET's standard advertising rate card at the time of request.
CNET will use commercially reasonable efforts to implement the
Company's requests made in accordance with the preceding sentence
within thirty (30) days after receipt of each request. The
Company will design any graphics and other materials required for
the Standard Promotions, and CNET will provide reasonable
assistance to the Company in connection with the design and
creation of such materials. The Company will be responsible for
ensuring that each URL provided to CNET for use in a Standard
Promotion takes the User to the appropriate area within the
Company Site and that such site functions with reasonable
reliability and in a commercially reasonable manner throughout
the Term. In particular, the Company agrees that the Company Site
will comply with the performance standards set forth on Exhibit C
throughout the Term.
3.2 Special Promotions. During the Term of this Agreement, CNET may,
at its sole discretion, deliver Special Promotions to encourage
Users to visit the Co-Branded Site. CNET will design any graphics
and other materials required for the
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Special Promotions, and the Company will provide reasonable
assistance to CNET in connection with the design and creation of
such materials. Special Promotions may appear anywhere on the
CNET Sites as determined in CNET's sole discretion.
3.3 Sponsorship. On or before November 1, 1999 and continuing
throughout the remainder of the Term, CNET and the Company will
work together in good faith to provide a message to all CNET
Business Solutions Directory subscribers enabling them to
subscribe to the Company Services through the Co-Branded Site.
Such message will appear each time a CNET Business Solutions
Directory subscriber completes registration of the Business
Solutions Directory on the CNET Sites. Further, CNET will use
commercially reasonable efforts to allow each Business Solutions
Directory Subscriber to register with the Company through the
Co-Branded Site in a manner that does not require such subscriber
to separately re-enter the information they have already provided
to CNET.
3.4 Television Spotlight. During the Term of this Agreement, CNET
will deliver for the Company the Television Spotlights as set
forth on Exhibit A. Each Television Spotlight will contain a
Company Site promotion along with a URL selected by the Company.
The Company will record the Television Spotlights and design any
graphics and other materials required for the Television
Spotlights, and will supply copies of such materials to CNET in a
form reasonably requested by CNET. All materials provided to CNET
will comply with CNET's reasonable technical and editorial
guidelines, as in effect from time to time. CNET will provide
reasonable assistance to the Company in connection with the
design and delivery of such materials.
3.5 Promotion of the Co-Branded Site. During the Term of this
Agreement, CNET will purchase $2,500,000 worth of Promotions for
the Co-Branded Site on third-party web sites or through other
media. CNET and the Company will work together in good faith to
determine the type, quantity and delivery time of such
Promotions, provided that the final placement, type and quantity
of Promotions will be determined by CNET. The parties agree that
the timing of such Promotions shall be in the manner described on
Exhibit K, unless otherwise mutually agreed by the parties. Such
Promotions will encourage users to visit the Co-Branded Site and
will include branding for CNET and the Company, as reasonably
determined by the parties.
3.6 Links from Business Computing. During the Term of this Agreement,
CNET will provide navigational links to the Co-Branded Site
throughout all relevant areas of the Business Computing Channel,
with specific placement determined at the sole discretion of
CNET. Throughout the Term, at a minimum CNET will provide a
navigational link to the Co-Branded Site from the Business
Computing channel (excluding Company Profile Pages), including
but not limited to a navigational link on (a) the [***] of the
[***] channel at a minimum level of [***] as shown in
Illustration E-4, attached to Exhibit E, (b) the [***] of the
[***] at a minimum level of [***] as shown in illustration E-5
(c) on all of the [***] (an example of which is shown in
Illustration E-6) within a minimum of [***] of the [***] (as
defined below) listed on the [***] of the [***], at a minimum
level of [***] as shown in Illustration E-6, (provided that
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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CNET may change the font, style or characteristics of the link to
make it consistent with the design and layout of the page), and
(d) on all pages within a minimum of [***] of the [***] listed on
the [***] of the [***]. For the purposes of this Section 3.6, a
"Top Level Category" is any highlighted link presented on the
front door of a channel or directory that is designed to
categorize all content within that channel or directory. CNET
will create the specification, design, functionality, user
interface and Look and Feel for the Business Computing Channel.
Not more than once per month during the Term, CNET will consider
Company's reasonable requests to change the design and content of
the Business Computing Channel, provided that the final design
and Look and Feel of the Business Computing Channel will be
determined by CNET. At any time during the Term, if CNET decides
to stop displaying the Business Computing Channel or any
successor page on the CNET Sites, then (a) CNET will provide the
Company written notice of such decision within a reasonable time
prior to removing the Business Computing Channel from the CNET
Sites, and (b) executives (Senior Vice President level or above)
from both CNET and the Company will participate in a face-to-face
meeting to discuss alternative promotional opportunities for the
Company.
4. PROMOTIONS BY THE COMPANY.
4.1 CNET Content. Company may include content from the CNET Sites as
described on Exhibit F on relevant pages of the Company Site, or
as otherwise mutually agreed by the Company and CNET. Beginning
on November 1, 1999 and continuing through the remainder of the
Term, each time a user of the Company Site clicks on a link
within the content described on Exhibit F, such user will be
shown a link back to the Company Site on a navigational bar
displayed Above the Fold, or other method mutually agreed upon by
the parties. Initially, such navigational bar will be
substantially similar to Illustration E-7 attached to Exhibit E.
4.2 Promotions on the Company Site. During the Term of this
Agreement, CNET will purchase Promotions on the Company Site in
the amount of $2,500,000. The Company will use commercially
reasonable means to deliver for CNET the Promotions as set forth
on Exhibit B, as may be modified from time to time upon the
mutual consent of the parties subject to the Company's
then-current inventory availability. CNET may request any
reasonable reallocation of the location and type of the
Promotions subject to the Company's then-current inventory
availability. The Company shall not charge CNET any extra fees
for such requested reallocations of Promotions if they are
equivalent in value to those that would otherwise be provided by
the Company hereunder. If CNET's requested reallocations of
Promotions are more expensive than the location and type normally
provided hereunder by Company, then CNET shall pay the difference
of such cost based on a [***] discount off of the Company's
standard advertising rate card at the time of request. The
Company will use commercially reasonable efforts to implement
CNET's requests made in accordance with the preceding sentence
within thirty (30) days after receipt of each request. CNET will
design any graphics and other materials required for such
Promotions, and the Company will provide reasonable assistance to
CNET in connection with the design and creation of such
materials. CNET will be responsible for ensuring that each URL
provided to the Company
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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for use in a Promotion takes the User to the appropriate area
within CNET and that such site functions with reasonable
reliability and in a commercially reasonable manner throughout
the Term. In particular, CNET agrees that the CNET Sites will
comply with the performance standards and technical
specifications set forth on Exhibit I throughout the Term.
4.3 Sponsorship. On or before November 1, 1999 and continuing
throughout the remainder of the Term, the Company will provide a
message to all Company Site and Co-Branded Site Information
Technology ("IT") subscribers of the Company Project Market
enabling them to subscribe to the CNET Business Solutions
Directory. Such message will appear each time a Co-Branded or
Company Site subscriber completes registration for the Project
Market section of the Company Site and Co-Branded site. Further,
the Company will use commercially reasonable efforts to allow
each Company Project Market subscriber creating a profile on the
Co-Branded or Company Site to register with CNET's Business
Solutions Directory in a manner that does not require such
subscriber to separately re-enter the information they have
already provided to the Company.
5. PAYMENTS.
5.1 Integration Fee. The integration fee will cover fees and costs
associated with creating and integrating technology resources
dedicated to the Co-Branded Site, maintenance of the Co-Branded
Site and Special Promotions (described in Section 3.2) to drive
traffic to the Co-Branded Site. Company will pay CNET an
integration fee totaling $1,000,000 as follows:
5.1.1 Upon execution of this Agreement, Company shall pay CNET
$[***];
5.1.2 On or before the 12 month anniversary date of this
Agreement, Company shall pay CNET an additional [***];
5.1.3 On or before the 18 month anniversary date of this
Agreement, Company shall pay CNET an additional [***].
5.1.4 Payments under this Section 5.1 will be made by check or
wire transfer of immediately available funds as reasonably
directed by CNET.
5.2 Standard Promotions, Sponsorships and Television Spotlights.
Beginning October 1, 1999 and continuing throughout the Term,
Company will pay CNET a total of $14,000,000, at a rate of
approximately $7,000,000 per year, and $583,333.33 per month, for
the Standard Promotions, Sponsorships and Television Spotlights
delivered as described in Exhibit A. Within 30 days after
delivery of the Promotions for a given month, CNET shall invoice
the Company for the Promotions, Sponsorships and Television
Spotlights for a given month. All amounts due to CNET under this
Section 5.2 must be paid not more than 30 days after delivery of
the Promotions, Sponsorships or Television Spotlights for a given
month. Payments under this Section 5.2 will be made by check or
wire transfer of immediately available funds as reasonably
directed by CNET.
5.3 Promotions on the Company Site. Starting October 1, 1999 and
continuing throughout the Term, CNET will pay the Company a total
of $2,500,000 for the
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Promotions on the Company Site delivered as described in Exhibit
B. CNET will pay Company an engineering and maintenance fee of
$500,000 to covers fees and costs associated with creating and
integrating technology resources dedicated to the Co-Branded
Site, maintenance of the Co-Branded Site and Promotions
(described in Section 4.2) to drive traffic to the Co-Branded
Site as follows:
5.3.1 Upon execution of this Agreement, CNET will pay Company
[***];
5.3.2
5.3.3 On or before March 30, 2000, CNET will pay Company an
additional [***]; and
5.3.4 On or before June 30, 2000, CNET will pay Company an
additional [***].
The remaining $2,000,000 due to Company under this Section 5.3
shall be paid by CNET over the Term in monthly payments of
$83,333.33 for the Promotions delivered to CNET each month
starting October 1, 1999. Within 30 days after delivery of the
Promotions for a given month, the Company shall invoice CNET for
Promotions. Payments under this Section 5.3 will be made within
30 days after the receipt of an invoice by check or wire transfer
of immediately available funds as reasonably directed by the
Company.
5.4 Net 30 Terms. All payments by both parties listed in Section
5 are due within 30 days of the payment date.
6. TERM AND TERMINATION.
6.1 Term. This Agreement shall begin on the Effective Date and end on
the second anniversary of the Launch Date (the "Term").
Thereafter, this Agreement will continue on a month-to-month
basis unless terminated by either party upon 30 days written
notice to the other.
6.2 Termination for Breach. If either party commits a material breach
of its obligations hereunder that is not cured within 30 days
after notice thereof from the non-breaching party, the
non-breaching party may terminate this Agreement at any time by
giving written notice of termination to the breaching party.
6.3 Termination by CNET.
6.3.1 Competitive Services. If the Company is reasonably deemed
by CNET to offer Competitive Services (as defined below),
then CNET shall give Company written notice of such
determination and Company shall have 30 days to cease such
Competitive Services. If Company fails to cease the
Competitive Services within 30 days in a manner reasonably
acceptable to CNET, then CNET may terminate this Agreement
immediately upon written notice to Company.
Notwithstanding the foregoing, the parties acknowledge and
agree that the Company Site (and the Co-Branded Site, to
the extent that it duplicates the Company Site), in the
form that it exists on the Effective Date, does not offer
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Competitive Services in a manner that allows CNET to
terminate hereunder, and that such termination rights will
only apply if the Company adds Competitive Services to the
Company Site (or Co-Branded Site). For the purposes of
this Section 6.3.1, "Competitive Services" means (a)
comparative pricing search engine or services for computer
and technology products and/or services, (b) aggregating
or providing more than 100 downloadable software titles,
(c) aggregation and display of five or more technology
news headlines each from three or more sources, and (d)
aggregation of computer and technology product reviews.
6.3.2 CNET may notify Company in writing if CNET reasonably
determines that the Company Services (a) contain any
virus, worm, "trojan horse", time bomb or similar
contaminating or destructive feature, (b) contain material
"bugs" that are not adequately remedied to CNET's
satisfaction, or (c) on the Co-Branded Site are not
performing in a manner that is substantially similar to
the Company Site. Company will have 30 days from receiving
notice from CNET to cure. If Company fails to cure within
such 30 day period, CNET may terminate this Agreement
immediately upon written notice to Company.
Notwithstanding the foregoing or anything herein to the
contrary, if CNET reasonably determines that subparagraphs
(a), (b) or (c) apply, then CNET may immediately remove
any or all links to the Company Site and Co-Branded Site,
at CNET's sole discretion, until such time as the Company
notifies CNET that the Company Services have resumed
acceptable operation. Upon notification by the Company and
verification by CNET that the Company Services have
resumed acceptable operations, CNET shall re-post links to
the Company Site and Co-Branded Site within two business
days in a manner substantially similar to the manner in
which such links were previously included on the CNET
Sites. These remedies are for CNET's editorial purposes
and in no way limit CNET's ability to terminate this
contract or pursue any other remedies hereunder in the
event the performance standards set forth herein are not
met.
6.3.3 This termination remedy in Section 6.3 is for CNET's
editorial purposes and in no way limits CNET's ability to
terminate this Agreement or pursue any other remedies
hereunder.
6.4 Termination by Company.
6.4.1 If CNET is reasonably deemed by the Company to offer
Company Competitive Services (as defined below), then the
Company shall give CNET written notice of such
determination and CNET shall have 30 days to cease such
Company Competitive Services. If CNET fails to cease the
Company Competitive Services within 30 days in a manner
reasonably acceptable to the Company, then the Company may
terminate this Agreement immediately upon written notice
to CNET. Notwithstanding the foregoing, the parties
acknowledge and agree that the CNET Sites, in the form
that it exists on the Effective Date, does not offer
Company Competitive Services in a manner that allows the
Company to terminate hereunder, and that such termination
rights will
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only apply if CNET adds the Company Competitive Services
to the CNET Sites. For the purposes of Section 6.4.1,
"Company Competitive Services" means (a) an online
application for virtual team project management or time &
expense reporting; (b) an online application for file
sharing and management; (c) an online resource management
application for staff planning; and (d) an online sales
and marketing application for managing customer
acquisition opportunities
6.4.2 If CNET acquires, or is acquired by, any Company
Competitor then Company may terminate this Agreement upon
90 days written notice to CNET; provided, however, that
beginning on the date such termination notice is delivered
to CNET, Company shall not be required to deliver a CNET
Business Solutions Directory message to Company
subscribers as described in Section 4.3. Further, for all
new Co-Branded Site Users registered by the Company after
the date of such termination notice, the requirements of
Section 6.5 will not apply.
6.4.3 The Company may notify CNET in writing if the Company
reasonably determines that CNET Sites with links to the
Co-Branded Site or the Company Site, and CNET Content
featured on the Company Site or Co-Branded Site: (a)
contain any virus, worm, "trojan horse", time bomb or
similar contaminating or destructive feature, or (b)
contain material "bugs" that are not adequately remedied
to CNET's satisfaction. CNET will have 30 days from
receiving notice from the Company to cure. If CNET fails
to cure within such 30 day period, the Company may
terminate this Agreement immediately upon written notice
to CNET. Notwithstanding the foregoing or anything herein
to the contrary, if the Company reasonably determines that
subparagraphs (a) or (b) apply, then the Company may
immediately remove all links to the CNET Content, at the
Company's sole discretion, until such time as CNET
notifies the Company that the CNET Sites have resumed
acceptable operation. Upon notification by CNET and
verification by the Company that the CNET Sites have
resumed acceptable operations, the Company shall re-post
links to the CNET Content in a manner substantially
similar to the manner in which such links were previously
included on the Company Sites and/or Co-Branded Site.
6.4.4 This termination remedy in Section 6.4 is for Company's
editorial purposes and in no way limits Company's ability
to terminate this Agreement or pursue any other remedies
hereunder.
6.4 Survival. The provisions of Sections 8.2, 9, 10 and 12, and any
obligations arising prior to termination will survive any
termination of this Agreement.
6.5 Transition Obligation. Upon the expiration or termination of this
Agreement, at CNET's request the Company will reasonably provide
the Users of the Co-Branded Site with the option to move their
data and information from the Company Services to CNET or CNET's
designee. Notwithstanding the foregoing, CNET shall not require
any User to move data or information from the Co-Branded Site or
Company Services.
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7. REPORTING.
7.1 CNET Promotion Report. Within 30 days after the end of each month during
the Term, CNET will provide to the Company standard advertising reports,
as generally offered by CNET, with respect to the Standard Promotions,
Sponsorships and Television Spotlights. Company acknowledges that the
statistics provided on the CNET report are the official, definitive
measurement of CNET's performance on any delivery obligations described
in this Agreement. No other measurements or usage statistics (including
those of Company or a third-party advertisement server) shall be
accepted by CNET or have bearing on this Agreement. Any data provided to
Company under this Section 7.1 shall be deemed "Confidential
Information" as described in Section 12.7.
7.2 Company Report.
7.2.1 Within 30 days after the end of each month during the Term, the Company
will provide to CNET a report that includes the following information
for such month: (a) the aggregate number of referrals from the CNET
Sites to the Company Site and; (b) the total value of Company Services
purchased by CNET Users on the Co-Branded Sites; (c) the total value of
Company Services purchased by CNET Users on the Company Site; and (d)
any information collected on the Co-Branded Site, such as number of page
views, number of unique users, and other standard reports. The Company
will obtain the foregoing data by tagging each User using a cookie or
other similar technology, as agreed upon by the parties.
7.2.2 The Company will provide standard reporting on all Promotions CNET runs
on the Company Site, including number of Impressions delivered broken
down by Promotion and page.
7.2.3 Any reports delivered to CNET pursuant to this Section 7.2 may not be
shared by CNET with any third party, and will be used only to improve
the ongoing marketing and promotional programs. Such reports will be
deemed "Confidential Information" as described in Section 12.7.
8. USER DATA.
8.1 Delivery by Company to CNET. If such data is made available by a
CNET User, Company will supply CNET with the following
registration data received from CNET Users in both summary and
detailed form: (a) [***], (b) [***], and (c) [***]. This data
will be shared in real time if commercially and technologically
feasible in a manner so that, for example, CNET can match a
tracking tag on a User session with that User's registration data
in order to customize the CNET Site content and advertising for
that User. If real time data sharing is not available, the data
shall be provided to CNET no less frequently than weekly. This
data shall be deemed "Confidential Information" as described in
Section 12.7.
8.2 Permitted use. CNET will use the registration data collected by
the Company for internal purposes only. It will not be sold or
otherwise distributed to third parties, provided that CNET may
use and distribute statistics based on the aggregate data.
Further, all use of Company's proprietary data will comply with
applicable law and be consistent with the respective privacy
policies of Company
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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and CNET. CNET will not send targeted communications to the
Company's members without the prior consent of Company. This
Section 8.2 will survive any termination or expiration of this
Agreement.
9. DISCLAIMER OF WARRANTIES. EACH PARTY AND ITS LICENSORS HEREBY DISCLAIM
ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE
CONTENT, MARKS, AND ANY OTHER MATERIALS PROVIDED BY SUCH PARTY
HEREUNDER, INCLUDING BUT NOT LIMITED TO ANY WARRANTY WITH CONCERNING THE
ACCURACY OF THE CONTENT AND OTHER MATERIALS PROVIDED BY SUCH PARTY, AND
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. Neither CNET nor Company will make any representation, warranty
or guaranty, whether written or oral, on behalf of the other.
10. MUTUAL INDEMNIFICATION.
10.1 Indemnification by CNET. CNET shall indemnify and hold the
Company harmless from and against any costs, losses, liabilities
and expenses, including all court costs, reasonable expenses and
reasonable attorney's fees (collectively, "Losses") that the
Company may suffer, incur or be subjected to by reason of any
legal action, proceeding, arbitration or other claim by a third
party, whether commenced or threatened, arising out of or as a
result of (a) the use of the CNET Marks by the Company in
accordance with this Agreement; (b) the operation of any CNET
site (except in cases where the Company is required to indemnify
CNET under the following paragraph), including claims of
infringement or misappropriation of intellectual property rights;
(c) any content provided by CNET for the Company Site or
Co-Branded Site; or (d) the offer or sale of CNET products or
services through the CNET Sites, Company Site or Co-Branded Site.
10.2 Indemnification by the Company. The Company shall indemnify and
hold CNET harmless from and against any Losses that CNET may
suffer, incur or be subjected to by reason of any legal action,
proceeding, arbitration or other claim by a third party, whether
commenced or threatened, arising out of or as a result of (a) the
use of the Company Marks by CNET in accordance with this
Agreement; (b) any content provided by the Company for the
Co-Branded Site; (c) the operation of the Company Site; or (d)
the offer or sale of the Company Services by the Company through
the Company Site or Co-Branded Site.
10.3 Indemnification Procedures. If any party entitled to
indemnification under this Section (an "Indemnified Party") makes
an indemnification request to the other, the Indemnified Party
shall permit the other party (the "Indemnifying Party") to
control the defense, disposition or settlement of the matter at
its own expense; provided that the Indemnifying Party shall not,
without the consent of the Indemnified Party enter into any
settlement or agree to any disposition that imposes an obligation
on the Indemnified Party that is not wholly discharged or
dischargeable by the Indemnifying Party, or imposes any
conditions or obligations on the Indemnified Party other than the
payment of monies that are readily measurable for purposes of
determining the monetary indemnification or reimbursement
obligations of Indemnifying Party. The Indemnified Party shall
notify Indemnifying Party promptly of any claim for which
Indemnifying Party is
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responsible and shall cooperate with Indemnifying Party in every
commercially reasonable way to facilitate defense of any such
claim; provided that the Indemnified Party's failure to notify
Indemnifying Party shall not diminish Indemnifying Party's
obligations under this Section except to the extent that
Indemnifying Party is materially prejudiced as a result of such
failure. An Indemnified Party shall at all times have the option
to participate in any matter or litigation through counsel of its
own selection and at its own expense.
11. TRADEMARK LICENSES.
11.1 Company Marks. The Company hereby grants to CNET a non-exclusive,
royalty-free license, effective throughout the Term, to use,
display and publish the Company Marks solely within the
Co-Branded Site, Promotions, Sponsorships and Television
Spotlights as provided in Section 3, above. Any use of the
Company Marks by CNET must comply with any reasonable usage
guidelines communicated by the Company to CNET from time to time.
Nothing contained in this Agreement will give CNET any right,
title or interest in or to the Company Marks or the goodwill
associated therewith, except for the limited usage rights
expressly provided above. CNET acknowledges and agrees that, as
between the Company and CNET, the Company is the sole owner of
all rights in and to the Company Marks.
11.2 CNET Marks. CNET hereby grants to the Company a non-exclusive,
royalty free license, effective throughout the Term, to use,
display and publish the CNET Marks solely within the Co-Branded
Site, Promotions, and Company Site as provided in Section 4,
above. Any use of the CNET Marks by the Company must comply with
any reasonable usage guidelines communicated to the Company by
CNET from time to time. Nothing contained in this Agreement will
give the Company any right, title or interest in or to the CNET
Marks or the goodwill associated therewith, except for the
limited usage rights expressly provided above. The Company
acknowledges and agrees that, as between the Company and CNET,
CNET is the sole owner of all rights in and to the CNET Marks.
12. MISCELLANEOUS.
12.1 LIMITATION OF DAMAGES. EXCEPT FOR ANY CLAIM UNDER SECTION 10 OR
11, ABOVE, NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR
RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER, EXCEPT FOR
ANY CLAIM ARISING UNDER SECTION 10, 11, OR 12.7, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF THE TOTAL
PAYMENTS MADE UNDER THIS AGREEMENT.
12.2 Assignment. Neither party may assign this Agreement, except (a).
upon the transfer of substantially all of the business operations
of such party (whether by asset sale, stock sale, merger or
otherwise); (b) to an affiliate of such party; or (c) with the
written permission of the other party. Notwithstanding the
foregoing, if
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<PAGE> 16
the Company's acquiror is a CNET Competitor, then CNET may
terminate this Agreement upon ten days written notice to the
acquiror.
12.3 Relationship of Parties. This Agreement will not be construed to
create a joint venture, partnership or the relationship of
principal and agent between the parties hereto, nor to impose
upon either party any obligations for any losses, debts or other
obligations incurred by the other party except as expressly set
forth herein.
12.4 Marketing. The parties shall issue a press release concerning the
business relationship contemplated in this agreement, and each
party will provide an appropriate quote from one of its senior
executive officers for use in the press release. Each party will
review and comment on the press release prior to its publication.
Further, the parties will participate in joint marketing and
public relations activities as they mutually deem appropriate, as
further defined on Exhibit J attached hereto. The parties will
work together in good faith to create joint marketing activities
that are anticipated by both parties to obtain favorable results,
taking into consideration the timing, type and content of the
activity. Notwithstanding the foregoing, and except for the
activities described on Exhibit J, neither party will be
obligated to engage in any marketing activity that is (a) unduly
burdensome on a party, (b) deemed to be illegal, improper,
unethical, or ineffective by a party, or (c) inconsistent with
the general marketing practices of the party. Further, each party
acknowledges that there may be times when a party may be
restricted by law, rule or regulation from engaging in marketing
activities or making public statements (e.g., SEC "quiet
period"), and such party will be excused from the marketing
activities described herein (including those on Exhibit J) during
such time.
12.5 Audit Rights. Each party will have the right to engage an
independent third party to audit the books and records of the
other party relevant to the quantification of the Promotions,
upon reasonable notice and during normal business hours, and the
other party will provide reasonable cooperation in connection
with any such audit. The party requesting the audit will pay all
expenses of the auditor unless the audit reveals an underpayment
by the other party of more than 5%, in which case the other party
will reimburse all reasonable expenses of the auditor.
12.6 Applicable Law. This Agreement will be construed in accordance
with and governed by the laws of the State of California, without
regard to principles of conflicts of law.
12.7 Confidentiality. In connection with the activities contemplated
by this Agreement, each party may have access to confidential or
proprietary technical or business information of the other party,
including without limitation (a) proposals, ideas or research
related to possible new products or services; (b) financial
statements and other financial information; (c) any reporting
information required herein; and (d) the material terms of the
relationship between the parties; provided, however, that such
information will be considered confidential only if it is
conspicuously designated as "Confidential," or if provided
orally, identified at the time of disclosure and confirmed in
writing within 30 days of disclosure (collectively, "Confidential
Information"). Each party will take reasonable precautions to
protect the confidentiality of the other party's Confidential
Information, which precautions will be at least equivalent to
those taken by such party to protect its own
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<PAGE> 17
Confidential Information. Except as required by law or as
necessary to perform under this Agreement, neither party will
knowingly disclose the Confidential Information of the other
party or use such Confidential Information for the benefit of any
third party. Each party's obligations in this Section with
respect to any portion of the other party's disclosed
Confidential Information shall terminate when the party seeking
to avoid its obligation under such Paragraph can document that
such disclosed Confidential Information: (i) was in the public
domain at or subsequent to the time it was communicated to the
receiving party ("Recipient") by the disclosing party
("Discloser") through no fault of Recipient; (ii) was rightfully
in Recipient's possession free of any obligation of confidence at
or subsequent to the time it was communicated to Recipient by
Discloser; (iii) was developed by employees or agents of
Recipient independently of and without reference to any
information communicated to Recipient by Discloser; (iv) was
communicated by the Discloser to an unaffiliated third party free
of any obligation of confidence; or (v) was in response to a
valid order by a court or other governmental body, was otherwise
required by law or was necessary to establish the rights of
either party under this Agreement; provided, however, that both
parties will stipulate to any orders necessary to protect said
information from public disclosure.
12.8 Severability of Agreement. If a court of an arbitrator or
competent jurisdiction holds any provision of this Agreement to
be illegal, unenforceable, or invalid in whole or in part for any
reason, the validity and enforceability of the remaining
provisions, or portions thereof, will not be affected.
12.9 Dispute Resolution. In the event that any dispute arises
hereunder, the parties agree that prior to commencing litigation,
arbitration, or any other legal proceeding, each party shall send
an officer of such party to negotiate a resolution of the dispute
in good faith at a time and place as may be mutually agreed. Each
officer shall have the power to bind its respective party in all
material respects related to the dispute. If the parties cannot
agree on a time or place, upon written notice from either party
to the other, the negotiations shall be held at the principal
executive offices of CNET twenty one days following such notice
(or on the next succeeding business day, if the twenty first day
is a weekend or holiday). Notwithstanding the foregoing dispute
resolution process, neither party shall be excluded from seeking
provisional remedies in the courts of any jurisdiction,
including, but not limited to, temporary restraining orders and
preliminary injunctions, but such remedies shall not be sought as
a means to avoid the dispute resolution process.
12.10 Article Headings. The captions and headings of the various
articles of this Agreement are inserted merely for the purpose of
convenience and do not expressly or by implication limit, define
or extend and specific terms or text of the article so designated
and shall not in any way alter the meaning or interpretation of
this Agreement.
12.11 No Waiver. No waiver of breach, failure of any condition, or any
right or remedy contained in or granted by the provisions of this
Agreement will be effective unless it is in writing and signed by
the party waiving the breach, failure, right or remedy. No waiver
of any other breach, failure, right or remedy will be deemed a
waiver of any other breach, failure, right or remedy, whether or
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<PAGE> 18
not similar, nor shall any waiver constitute a continuing waiver
unless the writing so specifies.
12.12 Remedies Not Exclusive. Any specific right or remedy provided in
this Agreement shall not be exclusive but shall be cumulative
upon all other rights and remedies set forth herein and allowed
or allowable under applicable law.
12.13 Illustrations. Except for Illustrations E-4, E-5 and E-6 attached
to Exhibit E. all Illustrations attached to the Exhibits are for
illustrative purposes only and shall not be deemed to bind,
obligate or restrict either party from making reasonable changes
in such party's discretion.
12.14 CNET Co-Branded Editions. Company acknowledges that CNET produces
co-branded editions of the CNET Sites for various resellers,
distributors, other licensees and/or joint venture partners
(collectively the "CNET Distributors"). In some cases, such CNET
Distributors are entitled to replace or remove CNET's default
content with other content within their own co-branded editions
of any CNET Site. Notwithstanding any other provisions of this
Agreement, if any such CNET Distributor has exercised its right
to replace Promotions or the Co-Branded Site with other content
or Promotions, then CNET will not be required to display the
Promotions or Co-Branded Site within such CNET Distributor's
co-branded edition of the CNET Sites. If CNET does display the
Promotions or Co-Branded Site within a co-branded edition of any
CNET Site, such display will be governed by this Agreement.
12.15 Company Co-Branded Editions. CNET acknowledges that the Company
may produce co-branded editions of the Company Sites for various
non-IT or technology related resellers, distributors, other
licensees and/or joint venture partners (collectively the
"Company Distributors"). In some cases, such Company Distributors
are entitled to replace the Company's default content with other
content within their own co-branded editions of any Company Site.
Notwithstanding any other provisions of this Agreement, if any
such Company Distributor has exercised its right to replace
Promotions with other content or Promotions, then the Company
will not be required to display the Promotions within such
Company Distributor's co-branded edition of the Company Sites. If
the Company does display the Promotions within a co-branded
edition of any Company Site, such display will be governed by
this Agreement.
12.15 Entire Agreement. This Agreement constitutes and contains the
entire agreement between the parties with respect to the subject
matter hereof and supersedes any prior oral or written
agreements. This Agreement may not be amended except in writing
signed by both parties. Each party acknowledges and agrees that
the other has not made any representations, warranties or
agreements of any kind, except as expressly set forth herein.
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<PAGE> 19
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its
duly authorized representatives as of the date first written above.
CNET, INC. NIKU CORPORATION
By: /s/ Richard Marino By: /s/ Harold J. Slawik
-------------------------------- -----------------------------
Name: Richard Marino Name: Harold J. Slawik
-------------------------------- ---------------------------
Title: President Title: Sr. Vice President
-------------------------------- --------------------------
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EXHIBIT A
PROMOTIONAL PLAN ON THE CNET MEDIA PROPERTIES
Beginning October 1, 1999 and continuing throughout the Term, the Company will
pay $583,333.33 per month to CNET for Promotions, Sponsorships and Television
Spotlight provided by CNET as set forth in the Agreement. CNET will provide all
Promotions and Television Spotlight to Company at a rate of [***] discount off
CNET's published advertising rates in accordance with the time, quantity and
Promotion type specified by the Company, subject to CNET's advertising inventory
availability.
The Company may select from, but is not limited to, the following five types of
promotional opportunities, as available:
1. CPM Based Media
Ad Units: Banners, Windows, Portals, Buttons
Sites: News.com, Builder.com, CNET.com, Download.com
2. Online Sponsorships
Exclusive E-Board Topic Center Sponsorships
Exclusive E-Board News.com Category Sponsorships
News.com Send A Story Sponsorships
3. Email Sponsorships
Email Dispatch Text Ad Sponsorships
4. TV Sponsorships
Founding Series Sponsorships
CNBC TV.Com Sponsor
Spotlight Sponsors of CNET's USA Network TV shows
5. TV Spotlight
Hardware Sponsorship on CNET TV.com
6. Off line Sponsorships
Techies Day
Tour series Sponsorships
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
20
<PAGE> 21
EXHIBIT B
PROMOTIONAL PLAN ON THE COMPANY SITE
Beginning October 1, 1999 and throughout the term of this agreement CNET will
pay $83,333.33 per month to the Company, and the Company will provide CNet, Inc.
an anchor sponsorship of the Company Site. The CNet anchor program will include
the sponsorship of the IT channel of the Company Site, sponsorship of the
Company Site membership newsletter, and the sponsorship of any CNet content used
in the company site as outlined in sections 2.5 and 4.1 of this agreement.
CNet will be sponsoring the content channel for IT professionals on the Company
Site. This channel will combine what is currently titled, "What the experts say"
and "Technology Stories" into one area where IT professionals will go to find
business-critical information on IT industry trends and analysis. This area will
include IT consulting methodologies/best practices, IT industry premium research
reports and analysis (e.g. Gartner Group), a Web directory of useful sites for
IT consultants, and industry news.
In the new user interface scheduled to launch in early September, CNet will
receive the following promotion on the Company Site:
A. Primary IT Channel Sponsorship.
B. A "brought to you by" or "sponsored by" text placement in combination
with CNet's logo prominently displayed on the main page of the IT
channel.
C. CNet logo prominently displayed around IT industry news headlines and
story abstracts to be fed into the company site from News.com with
links back to CNet for viewing of full-length stories. The
full-length stories will displayed as per Exhibit J with CNet owning
all page views and advertising inventory on these pages.
D. Sponsorship of the "iNikuNews" Company Site newsletter, currently a
monthly newsletter, which will become a weekly in the near term. This
will include display of the CNet logo and links to relevant CNet
content from the newsletter. The newsletter is currently distributed
to 8,000 members with the distribution expected to grow to 1 million
during the terms of this agreement. The newsletter is only available
to sponsors and partners.
E. Prominent display of CNet logo and branding on all areas of the
company site where CNet content is featured as per sections 2.5 and
4.1 of this agreement. This will include news areas in the other
vertical channels that will be featured on the Company Site.
F. Featuring of CNet content for selected services within the current
"Services" area of the Company Site. This will drive traffic to CNet
services such as Shopper.com and Download.com.
The Company Site is a new offering and has not yet built the page view churn
normally associated with CPM pricing. As our audience is extremely targeted we
anticipate a healthy margin as website page views become more in-line with
industry averages. Until that time pricing for this opportunity will be
sponsorship based and by default a minimum impression guarantee will not be
offered. We will review the allocation of CNet's advertising on an ongoing basis
to maximize its promotional effectiveness for CNet.
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EXHIBIT C
PERFORMANCE STANDARDS AND TECHNICAL SPECIFICATIONS
The Company will use commercially reasonable efforts to comply with the
following performance standards throughout the Term:
1. The Company Site and Co-Branded Site will be operational and fully
functional in all material respects (i.e. capable of displaying
information and conducting transactions as contemplated in the ordinary
course of business) at least [***] of the time during any [***] period,
except for a reasonable number of planned maintenance windows as
specified by the Company.
2. The average time required to start displaying the HTML on a page of the
Company Site and Co-Branded Site (excluding planned maintenance windows
specified by the Company and unplanned outages) after a link from the
CNET Sites shall not exceed a daily average of [***], and the average
time required to deliver an entire page of the Company Site or
Co-Branded Site (excluding planned maintenance windows specified by the
Company and unplanned outages) over the open Internet shall not exceed a
daily average of [***]. For measurements required in this Paragraph, the
Company may assume standard T1 connectivity to the Internet.
3. Without limiting the effect of Paragraphs 1 and 2 above, the Company
shall provide to Users coming to the Co-Branded Site at least the same
level of service as is offered to Users coming directly to the Company
Site.
4. Company shall ensure that planned maintenance windows will not occur
during peak traffic hours.
5. The Company Site or Co-Branded Site shall not, to Company's [***]:
(a) contain publicly accessible defamatory or libelous material or
material [***], without such person's consent; (b) permit to appear or
be uploaded any publicly accessible messages, data, images or programs
[***] or are, by law, [***]; or (c) permit to appear or be uploaded any
publicly accessible messages, data, images or programs [***], including
unauthorized [***] used in an [***]. Notwithstanding the foregoing, each
party acknowledges and agrees that the Company may draft original news
reports and editorial content and materials that may occasionally
contain information or graphics in violation of the foregoing standards,
and any such news reports and editorial treatment shall not be deemed a
breach of this provision; provided, however, that Company will use
commercially reasonable efforts to minimize any violation of the
foregoing standards. This Section 5 shall only apply to materials on the
Company Site or Co-Branded Site created by the Company.
6. If any of the standards set forth in Section 5, above, are not met by
the Company, CNET may immediately remove any or all links to the Company
Site and Co-Branded Site, at CNET's sole discretion. In such instance
CNET will provide immediate notice and 24 hours from said notice to
cure. If the Company Site or Co-Branded Site fails to operate
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 23
fully and functionally in any material respect for any period of four or
more consecutive hours, even if otherwise in compliance with the
performance standards, CNET may immediately remove any or all links to
the Company Site and Co-Branded Site, at CNET's sole discretion, until
such time as the Company notifies CNET that such Company Site and
Co-Branded Site has resumed acceptable operation. Upon notification by
the Company and verification by CNET that the Company Site and
Co-Branded Site have resumed acceptable operations, CNET shall re-post
links to the Company Site and Co-Branded Site within two business days
in a manner substantially similar to the manner in which such links were
previously included on the CNET Sites. These remedies are for CNET's
editorial purposes and in no way limit CNET's ability to terminate this
contract or pursue any other remedies hereunder in the event the
performance standards set forth herein are not met.
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EXHIBIT D
MEDIA METRIX LETTER
September 10, 1999
Dear Media Metrix:
Niku Corporation wishes to make it clear that CNET will receive the
credit for all page views of the Co-Branded Sites (as that term is defined in
the contract between CNET and Niku Corporation dated September 10, 1999), which
include the site located at http://iniku.cnet.com.
By signing below, Niku Corporation hereby agrees that CNET will be
entitled to count all page views of the Co-Branded Site towards CNET's traffic
as measured by Media Metrix as a "Domain" listing and "Property" listing.
Further, Niku Corporation and CNET agree that each will receive credit in the
"Consolidated" listing of Media Metrix. Niku Corporation acknowledges that CNET
may present this letter to Media Metrix and other Internet traffic-auditing
firms.
Sincerely,
Niku Corporation
-----------------------------
Countersigned:
-----------------------------
CNET
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EXHIBIT E
ILLUSTRATIONS
ILLUSTRATION E-1: Co-Branded Site Home Page
ILLUSTRATION E-2: Co-Branded Site Workspace Page
ILLUSTRATION E-3: Co-Branded Site Project Market Page
ILLUSTRATION E-4: Navigational Links to Co-Branded Site
ILLUSTRATION E-5: Navigational Links to Co-Branded Site
ILLUSTRATION E-6: Navigational Links to Co-Branded Site
ILLUSTRATION E-7: Navigational Bar
25
<PAGE> 26
ILLUSTRATION E-1
CO-BRANDED SITE HOME PAGE
[GRAPHIC DEPICTING WEB PAGE]
<PAGE> 27
ILLUSTRATION E-2
CO-BRANDED SITE WORKSPACE PAGE
[GRAPHIC DEPICTING WEB PAGE]
<PAGE> 28
ILLUSTRATION E-3
CO-BRANDED SITE PROJECT MARKET PAGE
[GRAPHIC DEPICTING WEB SITE]
<PAGE> 29
ILLUSTRATION E-4
NAVIGATIONAL LINKS TO CO-BRANDED SITES
[GRAPHIC DEPICTING WEB PAGE]
<PAGE> 30
ILLUSTRATION E-5
NAVIGATIONAL LINKS TO CO-BRANDED SITE
[GRAPHIC DEPICTING WEB PAGE]
<PAGE> 31
ILLUSTRATION E-6
NAVIGATIONAL LINKS TO CO-BRANDED SITE
[GRAPHIC DEPICTING WEB SITE]
<PAGE> 32
ILLUSTRATION E-7
NAVIGATIONAL BAR
[GRAPHIC DEPICTING WEB SITE]
<PAGE> 33
EXHIBIT F
CNET CONTENT
Company will receive a [daily/hourly] update containing the following CNET
content:
CNET.COM: Between four and eight current headlines taken from the
CNET.com site and one-paragraph summaries of the stories
associated with such headlines
NEWS.COM: Between four and eight current headlines taken from the
News.com site and one-paragraph summaries of the stories
associated with such headlines
DOWNLOAD.COM: Between four and eight current headlines taken from the
Download.com site and one-paragraph summaries of the
stories associated with such headlines
BUILDER.COM: Between four and eight current headlines taken from the
Download.com site and one-paragraph summaries of the
stories associated with such headlines
SHOPPER.COM: Shopper.com product search tool
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EXHIBIT G
CNET COMPETITORS
Ziff Davis
CMP
IDG
Wired
Mecklermedia
Andover News Network
FileZ.com
Developer.com
EarthWeb
MacCentral
Tucows
Dave Central
Gamelan
Softseek
Tipworld
Tom's Hardware
Amazon Auctions and Amazon Shop the Web (but not including sites operated by
Amazon.com in other categories, including books, CDs, videos, etc.)
eBay
Onsale
Bidder's Edge
Boxlot
uBid
BottomDollar
MySimon
Price Watch
CompareNet
PriceScan
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EXHIBIT H
COMPANY COMPETITORS
Guru.com
HotOffice.com
Portera
Freeagent.com
Agillion
Onvia.com
MonsterTalent.com
Skillsvillage.com
Evolve
Office.com
Winstar Telebase or Winstar Communications
eWork.com
DigitalWork
Net-Temps
Dice.com
Bsource.com
Bizland.com
Hypermart
myfreeoffice.com
mediadepot.com
Commerce-market.com
Visto.com
Magicaldesk.com
WebEx.com
Hotkoko.com
Skill.com
Aquent Partners
Contract-jobs.com
ConsultLink
ExpertMarketplace.com (PEN Group)
MBAFreeAgents.com
iFreeAgents
icenationwide.com
BrainStorm Interactive, Inc.
thedigs.com
elance.com
Expenseable.com
iTeamwork.com
Instinctive.com (eRoom or Instinctive Technology, Inc.)
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EXHIBIT I
PERFORMANCE STANDARDS AND TECHNICAL SPECIFICATIONS
CNET will use commercially reasonable efforts to comply with the following
performance standards throughout the Term:
1. The CNET Sites will be operational and fully functional in all material
respects (i.e. capable of displaying information and conducting
transactions as contemplated in the ordinary course of business) at
least [***] of the time during any [***] period, except for a reasonable
number of planned maintenance windows as specified by CNET.
2. The average time required to start displaying the HTML on a page of the
CNET Sites (excluding planned maintenance windows specified by CNET and
unplanned outages) after a link from the Company Site shall not exceed a
daily average of [***], and the average time required to deliver an
entire page of the CNET Sites (excluding planned maintenance windows
specified by CNET and unplanned outages) over the open Internet shall
not exceed a daily average of [***]. For measurements required in this
Paragraph, CNET may assume standard T1 connectivity to the Internet.
3. Without limiting the effect of Paragraphs 1 and 2 above, CNET shall
provide to Users coming to the CNET Sites from the Company Site at least
the same level of service as is offered to Users coming directly to the
CNET Sites.
4. CNET shall ensure that planned maintenance windows will not occur during
peak traffic hours.
5. The CNET Sites shall not, to CNET's [***]: (a) contain publicly
accessible defamatory or libelous material or material [***], without
such person's consent; (b) permit to appear or be uploaded any publicly
accessible messages, data, images or programs [***] or are, by law,
[***]; or (c) permit to appear or be uploaded any publicly accessible
messages, data, images or programs [***], including unauthorized [***]
text, images or programs, [***] or other [***] used in an [***].
Notwithstanding the foregoing, each party acknowledges and agrees that
CNET drafts original news reports and editorial content and materials
that may occasionally contain information or graphics in violation of
the foregoing standards, and any such news reports and editorial
treatment shall not be deemed a breach of this provision; provided,
however, that CNET will use commercially reasonable efforts to minimize
any violation of the foregoing standards. This Section 5 shall only
apply to non-editorial materials on the CNET Sites created by CNET.
6. If any of the standards set forth in Section 5, above, are not met by
the CNET, Company may immediately remove any or all links to the CNET
Site that is in violation, at Company's sole discretion. In such
instance Company will provide immediate notice and 24 hours from said
notice to cure. If a CNET Site fails to operate fully and functionally
in any material respect for any period of four or more consecutive
hours, even if otherwise in compliance with the performance standards,
Company may immediately
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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remove any or all links to such CNET Site, at Company's sole discretion,
until such time as the CNET notifies Company that such CNET Site has
resumed acceptable operation. Upon notification by CNET and verification
by the Company that the CNET Site in violation has resumed acceptable
operations, Company shall re-post links to such CNET Site, if
applicable, within two business days in a manner substantially similar
to the manner in which such links were previously included on the
Company Site and Co-Branded Site. These remedies are for Company's
editorial purposes and in no way limit Company's ability to terminate
this contract or pursue any other remedies hereunder in the event the
performance standards set forth herein are not met.
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EXHIBIT J
MARKETING PLAN
1. One press release and a reasonable amount of supporting media activity
(including at least two CEO media interviews) related to the Agreement
and the Co-Branded Site. The timing of all marketing activities will be
mutually upon by the parties, provided that most media activity will
occur within a reasonable time of the September launch of the new
Company Site.
2. An additional two press releases over the Term describing customer
acquisition on the Co-Branded Site, the success of the Co-Branded Site,
and other newsworthy events related to the Co-Branded Site.
3. A reasonable amount of executive referrals and interviews for
substantial business and trade opportunities. Each party will provide a
quote for two press releases per year regarding new services,
initiatives, and other newsworthy events.
4. Use of both parties' logos and description of the relationship on
Company Site, in Company corporate materials, and in Company
presentations (based on mutually agreeable standards determined by the
parties from time to time)
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EXHIBIT K
PROMOTION OF THE CO-BRANDED SITE
Pursuant to Section 3.5, CNET will purchase Promotions on third party web sites
or other media as follows:
Month Amount
----- ------
October 1999 - September 2001 $328,086.95 per quarter
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EXHIBIT 10.11
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement ("Agreement") is made
effective December 22, 1998 ("Effective Date") by and between Niku Corporation,
a Delaware corporation with offices at 955-A Charter Street, Redwood City,
California 94063 ("Niku"), and Sybase, Inc., a Delaware corporation, with
offices at 6475 Christie Ave., Emeryville, California 94608 ("Licensee").
1. DEFINITIONS.
1.1 "Affiliated Company" means a business entity or entities
controlled by, under common control with or controlling a party
to this Agreement. Such business entity or entities will be
considered affiliated only so long as such control exists.
1.2 "Authorized Users" means the employees or agents of Licensee who
are authorized to use the Software, as defined in Exhibit A.
1.3 "Release(s)" means the releases of the Software to be delivered
to Licensee under this Agreement, as specified in Exhibit A.
1.4 "Software" means the binary code versions of the Niku software
products specified in Exhibit A.
1.5 "Services" means the implementation services for the Software to
be provided to Licensee by Niku under this Agreement, as more
fully described in Exhibit B.
1.6 "Statement of Work" means a document describing the Services to
be provided to Licensee by Niku and meets the formal
requirements stated in Exhibit B.
2. DELIVERY AND SERVICES.
2.1 Niku will use reasonable efforts to deliver the Software to
Licensee according to the delivery terms specified in Exhibit A.
2.2 After delivery of the Software and pursuant to a mutually agreed
schedule, Niku will provide Licensee with the Services,
including the Initial Services (as defined in Exhibit B), at
Licensee's place of business in accordance with Exhibit B and
the terms of each Statement of Work. Acceptance of the Software
will be governed by the Statement(s) of Work and any amendments
thereto subsequently adopted by the parties.
3. LICENSE.
3.1 GRANT. Subject to the payment of the License Fee and compliance
with the other terms of this Agreement, Niku grants Licensee a
nonexclusive, nontransferable right and license to make, install
and use such copies of the Software on server computer systems
as are reasonably necessary to provide access and use by
Authorized Users from client computer systems. Licensee may make
and
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maintain such copies of the installed Software as are reasonably
necessary for archival and back-up purposes. To the extent the
Software incorporates any software licensed by Niku from a third
party, Niku grants Licensee a sublicense that is co-extensive
with the foregoing rights to Software. Licensee is expressly
prohibited from copying or transferring the Software to a third
party for any purpose other than off-site storage of archival or
back-up copies. Licensee agrees not to produce a source listing,
decompile, disassemble, or otherwise reverse engineer the
Software.
3.2 PROPRIETARY NOTICES. Licensee must reproduce and shall not
remove or obscure any notices or markings, including without
limitation, copyright, trademark, or confidentiality notices, or
ownership notices on Software and its accompanying
documentation, including any screen displayed by the Software.
3.3 RESERVATION OF RIGHTS. Niku retains rights in and to the
Software not specifically granted to Licensee hereunder, and any
uses by Licensee of the Software, or any part thereof, beyond
the scope permitted by this Agreement shall constitute a
material breach of this Agreement.
3.4 COMPLIANCE. Niku will have the right to have the Software
inspected at Licensee's facility as reasonably necessary to
verify that Licensee's use of the Software is limited to
Authorized Users. Niku will provide Licensee with reasonable
notice prior to any inspections. The inspections will be
conducted by an independent accounting firm reasonably
acceptable to Licensee. Niku will be limited to conducting one
(1) such inspection in any twelve (12) month period. The
accounting firm shall protect the confidentiality of Licensee's
information and abide by Licensee's reasonable security
regulations. Niku will bear all costs and expenses associated
with the exercise of these rights, unless such inspection
reveals that Licensee is not in compliance with this Agreement,
in which case, Licensee agrees to pay Licensor the reasonable
costs of such inspection plus any additional license fees
related to unauthorized use of the Software.
4. LICENSE FEE. Licensee will pay Niku license fees for the Software (the
"License Fee") in the amount and according to the terms specified in
Exhibit A. In addition to the License Fee, Licensee will pay any
applicable shipping charges, and sales, use, value-added or similar
taxes, tariffs or governmental charges, excluding any taxes based on
Niku's net income. Unless otherwise specifically provided otherwise in
Exhibit A: (i) the License Fee will be due and payable in full within
thirty (30) days after receipt of the initial release of the Software by
Licensee; and (ii) a late charge of one and one half percent (1.5%) per
month or the highest rate permitted by law, whichever is lower, will
apply to any overdue balances.
5. MAINTENANCE. Subject to the payment of annual maintenance fees and entry
into a separate Maintenance Agreement, Niku will provide Licensee with
technical support and maintenance on terms no less favorable to Licensee
than those of the form of agreement
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<PAGE> 3
attached as Exhibit C. The amount of the annual maintenance fees and
payment terms are specified in Exhibit A.
6. TERM AND TERMINATION.
6.1 TERM. This Agreement commence on the Effective Date and will
remain in force and effect unless terminated in accordance with
this Article.
6.2 TERMINATION. This Agreement may be terminated as follows:
6.2.1 By either party upon sixty (60) days written notice
specifying breach if the other party fails to comply
with any of the material terms or conditions of this
Agreement unless, within the period of notice, all
specified breaches have been cured.
6.2.2 By Niku immediately upon written notice in the event of
the direct or indirect assumption of control of
Licensee, or of substantially all of Licensee's assets,
by any government, governmental agency or any third
party engaged in the development, licensing, or
distribution of business applications software products
which Niku deems to be in direct or indirect competition
with any Niku software products or component
technologies.
6.3 EFFECT OF TERMINATION FOR LICENSEE'S BREACH. In the event of
termination of this Agreement due to a breach by Licensee, the
rights and licenses granted to Licensee will immediately
terminate and Licensee will have no further right to use the
Software. Within thirty (30) days after termination, Licensee
must return all copies of the Software in its possession or
control to Niku, or permanently destroy or disable all such
copies. Promptly after return or destruction of all such copies,
a duly authorized officer of Licensee must certify to Niku in
writing that Licensee has destroyed or returned all copies of
the Software.
6.4 EFFECT OF TERMINATION FOR NIKU'S BREACH. In the event of
termination of this Agreement due to a breach by Niku, the
rights and licenses granted to Licensee will survive to the
extent necessary for Licensee to using the Software as permitted
under this Agreement. Such continuing rights are subject to
Licensee's continued compliance with the terms of this
Agreement, including payment of any outstanding portion of the
License Fee. Nothing will require Niku to provide any support or
maintenance to Licensee after termination.
6.5 SURVIVAL. Rights and obligations specified in Articles 1, 3, 6,
7, 8, 9, 10 and 11 will survive and remain in effect after
termination hereof.
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<PAGE> 4
7. CONFIDENTIALITY.
7.1 The parties may disclose technical, product, financial and
business information to each other under this Agreement which
the disclosing party (the "Discloser")considers to be
confidential ("Confidential Information"). Confidential
Information shall be limited to information clearly marked as
confidential, or information which is disclosed verbally and
identified as confidential in a writing delivered to Licensee
within thirty (30) days of disclosure.
7.2 The party receiving Confidential Information (the "Receiver")
will not reproduce in any form or provide, disclose, or give
access to Confidential Information to any third party, or to any
employee or agent not having a legitimate need to know it, and
shall not use the Confidential Information for any purpose other
than performing its obligations and exercising its rights under
this Agreement.
7.3 This Agreement imposes no obligation upon the Receiver with
respect to Confidential Information which it can establish by
legally sufficient evidence: (i) was in the possession of, or
was known by, Receiver prior to its receipt from Discloser,
without an obligation to maintain its confidentiality; (ii) is
or becomes generally known to the public without violation of
this Agreement; (iii) is obtained by Receiver from a third party
having the right to disclose it, without an obligation to keep
such information confidential; or (iv) is independently
developed by Receiver without the use of Confidential
Information and without the participation of individuals who
have had access to the Confidential Information.
7.4 Each party retains ownership of its respective Confidential
Information. A Receiver does not acquire any rights in
Confidential Information under this Agreement, except the
limited right to use described above.
7.5 The parties' confidentiality obligations with respect to the
Confidential Information shall survive the termination of this
Agreement and will continue for a period of five (5) years from
the Effective Date, provided that the obligation to maintain the
confidentiality of any Niku or Licensee source code shall be
perpetual.
8. WARRANTY AND DISCLAIMER.
8.1 Niku warrants that the Software will correctly record, store,
process and calculate any information dependent on or relating
to dates on or after January 1, 2000, and will do so in the same
manner, and with the same functionality, data integrity and
performance, as such Software records, stores, processes,
calculates and presents calendar dates on or before December 31,
1999. All claims related to the above Year 2000 warranty must be
made no later than January 15, 2001. The ability of the Software
to perform in the manner described above is dependent upon the
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<PAGE> 5
receipt of correctly processed and transmitted data from and by
all non-Niku supplied products (such as hardware, software and
firmware) that the Licensee uses in connection with the
Software.
8.2 OTHER THAN THE EXPRESS WARRANTY OF SECTION 8.1, NIKU DOES NOT
MAKE AND DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OR
CONDITIONS WITH RESPECT TO SOFTWARE INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. No agent of Niku is authorized to incur
warranty obligations on behalf of Niku or modify these
limitations.
9. INDEMNITY.
9.1 INDEMNIFICATION BY NIKU. Niku will defend and indemnify Licensee
against a claim that the Software infringes a United States
trade secret, copyright, or patent, provided that: (i) Licensee
notifies Niku in writing within sixty (60) days of the claim;
(ii) Niku has sole control of the defense and all related
settlement negotiations; and (iii) Licensee provides Niku with
the assistance, information, and authority reasonably necessary
to perform the above. Reasonable out-of-pocket expenses incurred
by Licensee in providing such assistance will be reimbursed by
Niku.
9.2 EXCLUSIONS. Niku shall have no liability for any claim of
infringement based on: (i) use of a superseded release, or a
release altered by Licensee, of some or all of the Software or
any modification thereof furnished under this Agreement
including, but not limited to, Licensee's failure to use
corrections, fixes, or enhancements within six (6) months of the
time they are first made available by Niku; (ii) the
combination, operation, or use of some or all of the Software or
any modification thereof with information, software,
specifications, instructions, data, or materials ("Material")
not furnished by Niku if the infringement would have been
avoided by not combining, operating, or using the Software or
the modification thereof, with such Material; (iii) any change,
not made by Niku, to Software or any modification thereof; or
(iv) Licensee's misuse of the Software or any modification
thereof.
9.3 If the Software is held or is believed by Niku to infringe, Niku
shall have the option, at its expense, to: (i) modify the
Software to be non-infringing; (ii) obtain for Licensee a
license to continue using the Software; or (iii) terminate this
Agreement and refund a pro rata portion of the License Fee.
SECTIONS 9.1 THROUGH 9.3 STATE NIKU'S ENTIRE LIABILITY AND
LICENSEE'S EXCLUSIVE REMEDY FOR CLAIMS OF INFRINGEMENT OF
INTELLECTUAL PROPERTY RIGHTS RELATED TO THE SOFTWARE.
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<PAGE> 6
10. LIMITATION OF LIABILITY.
10.1 LIMITATIONS. Except for express undertakings to indemnify,
breach of obligations concerning the use of Confidential
Information, and to the extent not prohibited by applicable law:
10.1.1 EACH PARTY'S AGGREGATE LIABILITY TO THE OTHER FOR CLAIMS
RELATING TO THIS AGREEMENT, WHETHER IN CONTRACT OR IN
TORT, WILL BE LIMITED TO THE LICENSE FEE PAID AND OWING
BY LICENSEE FOR THE SOFTWARE.
10.1.2 NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT,
INCLUDING LOSS OF BUSINESS, REVENUE, PROFITS, USE, DATA
OR OTHER ECONOMIC ADVANTAGE, HOWEVER IT ARISES, WHETHER
FOR BREACH OR IN TORT, EVEN IF THAT PARTY HAS BEEN
PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
10.1.3 Liability for damages will be limited and excluded, even
if any exclusive remedy provided for in this Agreement
fails of its essential purpose.
10.2 ALLOCATION OF RISK. The parties acknowledge that the foregoing
limitations of liability represent a reasonable and negotiated
allocation of risk as between the parties, that these
limitations constitute an integral part of this Agreement, and
that absent these limitations the parties would not have
executed this Agreement. These limitations will apply
notwithstanding the failure of essential purpose of any limited
remedy provided herein.
11. SOURCE CODE ESCROW. If elected by Licensee, Niku will deposit the
current (and, to the extent requested, future) source code for the
Software in escrow with a reputable third party escrow agent. Niku will
make the initial deposit within thirty (30) days from receipt of a
written notice of election from Licensee. The source code will be
released to Licensee if (i) Niku ceases operations, files a petition for
relief in bankruptcy, or is otherwise adjudged insolvent in a court of
law; or (ii) Niku rejects or fails to perform it obligations under this
Agreement. Current source code and associated documentation will be
stored along with the binary code versions of the Software delivered
hereunder. Costs of establishing and maintaining the escrow account for
the Software will be borne by Licensee provided that, in the event that
Niku establishes another escrow account for the same version of the
Software escrowed hereunder for which Niku bears some or all of the
costs, Licensee will be made a beneficiary of such other escrow account
if a reduction in costs to Licensee would result. In the event of the
release of the source code from the escrow agent, Licensee will have a
perpetual, worldwide right and license to use, modify, and copy the
source code for the sole purpose of maintaining the Software for the
uses contemplated hereunder.
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12. GENERAL.
12.1 NOTICES. All written notices required by this Agreement must be
delivered in person or by means evidenced by a delivery receipt
to the address specified below or as otherwise notified in
writing and will be effective upon receipt.
To Niku: To Licensee:
Niku Corporation Sybase, Inc.
955-A Charter Street 6475 Christie Ave.
Redwood City, CA 94063 Emeryville, CA 94608
Attn: President and CEO Attn: General Counsel
12.2 GOVERNING LAW. Any action related to this Agreement will be
governed by California law and controlling U.S. federal law. No
choice of law rules of any jurisdiction will apply.
12.3 RELATIONSHIP. This Agreement is not intended to create a
relationship such as a partnership, franchise, joint venture,
agency, or employment relationship. Neither party may act in a
manner which expresses or implies a relationship other than that
of independent contractor, nor bind the other party.
12.4 ATTORNEY'S FEES. In addition to any other relief, the prevailing
party in any action arising out of this Agreement will be
entitled to reasonable attorneys' fees and costs.
12.5 ASSIGNMENT. Neither party may assign or otherwise transfer any
of its rights or obligations under this Agreement, without the
prior written consent of the other party, except that Niku may
assign its right to payment and may assign this Agreement to an
Affiliated Company.
12.6 WAIVER. Any express waiver or failure to exercise promptly any
right under this Agreement will not create a continuing waiver
or any expectation of non-enforcement.
12.7 SEVERABILITY. If any provision of this Agreement is held
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way
be affected or impaired thereby, and will be interpreted, to the
extent possible, to achieve the purposes as originally expressed
in the invalid, illegal or unenforceable provision.
12.8 EXPORT CONTROL. The Software and Confidential Information may be
subject to U.S. export control laws and export or import
regulations in other countries. Licensee agrees to comply
strictly with all such laws and regulations and acknowledges
that it has the responsibility to obtain such licenses to
export, re-export, or import the Software and Confidential
Information as may be required after delivery to Licensee.
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12.9 FORCE MAJEURE. A party is not liable under this Agreement for
non-performance, if the non-performance is caused by events or
conditions beyond that party's control, and provided the party
makes reasonable efforts to perform under the circumstances.
This provision does not relieve Licensee of its obligation to
make any payments then owing.
12.10 ENTIRE AGREEMENT. This Agreement is the parties entire agreement
relating to its subject matter. It supercedes all prior or
contemporaneous oral or written communications, proposals,
conditions, representations and warranties and prevails over any
conflicting or additional terms of any quote, order,
acknowledgement, or other communication between the parties
relating to its subject matter during the term of this
Agreement. No modification to this Agreement will be binding,
unless in writing and signed by a duly authorized representative
of each party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
NIKU CORPORATION SYBASE, INC.
By /s/ HAROLD J. SLAWIK By /s/ RICHARD LABARBERA
--------------------------------- --------------------------------------
Name: Harold J. Slawik Name: Richard N. LaBarbera
Title: Vice President Title: Senior Vice President & General
Manager, Enterprise
Solutions Division
The Exhibits to this Agreement are:
Exhibit A - SOFTWARE SPECIFIC TERMS, CANCELLATION RIGHTS
Exhibit B - SERVICES
Exhibit C - SOFTWARE MAINTENANCE AGREEMENT
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EXHIBIT A
SOFTWARE SPECIFIC TERMS, CANCELLATION RIGHTS
1. SOFTWARE PRODUCT DESCRIPTION:
Niku(TM) for IT Consulting, Version 1.0
2. AUTHORIZED USERS.
All employees and authorized subcontractors who work for the Sybase
Professional Services division of Sybase, Inc.
3. DELIVERY.
Niku will deliver the Software to Licensee in binary code form within
thirty (30) days of the Effective Date of this Agreement.
4. FEES.
a) LICENSE FEE. Licensee will pay initial License Fees of One Hundred
Fifty Thousand Dollars (US $150,000) within thirty (30) days of delivery of the
initial release of the Software.
Subject to the parties' agreement on the scope and content of the
Statements of Work described in Exhibit B, Licensee will also pay the additional
License Fees set forth in each Statement of Work.
b) MAINTENANCE FEE. Licensee will pay an annual maintenance fee valued
at no greater than twenty percent (20%) of the license fees due hereunder,
including, where appropriate, the license fees payable under Statements of Work
adopted hereunder (the "Maintenance Fee"), for support and maintenance of the
Software provided that, in no event shall such Maintenance Fee percentage exceed
the rate Niku charges any other customer. The Maintenance Fee will apply to the
Software version specified in this Exhibit, and to all upgrades, new versions,
updates, improvements and modifications to the Software which are generally
released by Niku to its licensees and to any future versions of the Software
delivered to Licensee pursuant to a Statement of Work. The Maintenance Fee will
not apply to new products for which Niku charges a separate license fee.
Licensee may terminate its obligation to pay the Maintenance Fee at any time by
terminating the Maintenance Agreement. The Maintenance Fee will be prorated to
the date of termination and any amounts paid for services not yet rendered will
be refunded by Niku.
5. CANCELLATION RIGHT.
Licensee will have the right to cancel this Agreement at any time after
payment of the initial installment of the Licensee Fees specified in Exhibit A.
In the event of cancellation, Niku will retain the initial License Fee payment
set forth in Section 4(a), above, and Licensee will
Exhibit A, Page 1
<PAGE> 10
have the right to retain and use the version of the Software in its possession
subject to the applicable terms and conditions of this Agreement, provided that,
in the event that Sybase cancels this Agreement after Niku has begun providing
services under the Statement of Work, the License Fee for such Statement of Work
will be prorated over the portion completed and Licensee will be responsible for
full payment of such prorated portion.
7. ADDITIONAL TERMS.
a) Upon the generally available release of Niku(TM) for IT Consulting,
Version 1.0 or the natural successor thereto if such product is not ever
generally released, the following warranty will apply to the Software licensed
hereunder notwithstanding the provisions of Section 8.2 of the Agreement:
For one year from the generally available release of the Software, Niku
warrants that, when properly used, the Software will operate in all
material respects in conformity with its associated documentation, and
the Software media will be free of defects.
b) Niku and Licensee anticipate entering into further agreements
regarding Niku's intention to position Sybase as its preferred vendor for its
customers' consulting needs and Niku's continued use of Sybase SQL Anywhere as
its base database technology.
Exhibit A, Page 2
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EXHIBIT B
SERVICES
1. SERVICES. Niku will provide software installation and implementation services
("Initial Services") as necessary to meet Licensee's specific business
requirements. Niku will provide up to forty-five (45) person-days of such
services without charge to Licensee. Services beyond this amount will be billed
to Licensee on a time and materials basis according to Niku's standard rates and
terms.
2. STATEMENT OF WORK. In addition to the Initial Services, Niku will provide
additional customization and enhancement services as described in one or more
Statements of Work to be negotiated and agreed upon by the parties. To the
extent that Licensee has not used the full forty-five days of services provided
free of charge for the Initial Services, the balance of such days of service may
be used for the services described under the Statements of Work. Each Statement
of Work will meet the following minimal formal requirements:
(i) the scope of work;
(ii) the hourly or daily rate for consultants providing services under
the Statement of Work;
(iii) the estimated number of days or hours required for each task
described in the Statement of Work;
(iv) an estimated schedule for completion of the Services;
(v) any deliverables; and
(vi) an estimate of any materials and equipment Niku will require to
complete the Services.
(vii) acceptance criteria for each deliverable
(viii) a payment schedule
Any changes to the scope of work or deliverables shall be made by a written
amendment to the applicable Statement of Work. The amendment shall be signed by
an authorized representative of each party prior to implementation of the
changes.
Exhibit B, Page 1
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EXHIBIT C
FORM OF SOFTWARE MAINTENANCE AGREEMENT
This Software Maintenance Agreement (the "Agreement") dated as of
[MONTH] [DATE], [YEAR] (the "Effective Date") is by and between the Niku
Corporation ("Niku"), a corporation organized under the laws of the state of
[NIKU'S STATE OF INCORPORATION HERE] with its principal place of business at
[NIKU OFFICIAL ADDRESS HERE] and [NAME OF CUSTOMER HERE] ("Customer"), a (STATE
OF INCORPORATION HERE] corporation with its principal place of business at
[CUSTOMER'S OFFICIAL ADDRESS HERE]
1. COVERED SOFTWARE. Customer agrees to purchase, and Niku agrees to
furnish, software maintenance services for the Software, as defined in the
Software License and Services Agreement between the parties, including the
associated user documentation (all such computer software programs and
associated user documentation shall be referred to herein as the "Software"), in
accordance with the terms and conditions of this Agreement.
2. MAINTENANCE SERVICES TO BE PROVIDED BY NIKU. Throughout the term of
this Agreement and subject to the exclusions listed in paragraph 4 below, Niku
will provide the following services with respect to the Software: (a) Niku will
endeavor to correct within a reasonable time any reported failure of the
Software to substantially conform to or perform substantially in accordance with
Niku's published user documentation; (b) Niku will furnish Customer, at no
additional charge (except for taxes, insurance, shipping and handling) with all
updates, improvements and modifications to the Software which are released
generally by Niku to its licensees (all such updates, improvements and
modifications shall be made available for downloading by Niku to the Customer
via the Internet from a Web site designated and maintained by Niku); and (c)
Niku will provide Customer with telephone, facsimile and email based support to
assist Customer in its use of the Software.
3. SUPPORT AND MAINTENANCE STANDARDS.
a. The Software's failure to substantially conform to Niku's user
documentation will be divided into three classes of severity: (i) a "critical"
nonconformance shall be any nonconformance causing a complete failure of the
Software or the Customer's computer accessing the Software; (ii) a "serious"
nonconformance shall be any nonconformance which seriously impairs the
functionality of the Software (this includes any critical nonconformances for
which a work-around or detour solution has been devised or identified); and
(iii) a "minor" nonconformance shall be any nonconformance which does not
seriously impair the functionality of the Software.
b. Niku will provide a response to a report of the above described
nonconformances by Customer according to the following response schedule: (a)
all critical nonconformances shall be responded to by Niku within twenty-four
(24) hours of that time that Customer first reports such nonconformances to
Niku; (b) all serious nonconformances shall be responded to by Niku within three
(3) days of the date that Customer first reports such nonconformances to Niku;
and (c) all minor nonconformances shall be responded to by Niku within seven (7)
days of the date
Exhibit C, Page 1
<PAGE> 13
that Customer first reports such nonconformances to Niku. For purposes of this
Agreement, Niku's duty to "respond" shall consist of (i) delivery of an existing
or new update, modification or enhancement to correct such nonconformance; (ii)
identification of a workaround or detour solution; (iii) a request for more
information for purposes of analyzing or verifying the nonconformance; and (iv)
delivery of a plan for correcting the nonconformance.
c. Niku will use all reasonable efforts to reach closure on all
nonconformances reported by the Customer to Niku in accordance with the
following schedule: (i) critical nonconformances shall be closed within seven
(7) days of notice to Niku; (ii) serious nonconformances will be closed with
fourteen (14) days of notice to Niku; and (iii) minor conformances will be
closed in next regular Software update generally distributed by Niku to all
licensees. For purposes of this Agreement, "closure" or "closed" consists of
Niku providing an update or new documentation to the Software which eliminates
the nonconformance or provides a work-around solution which enables the end user
to easily avoid the nonconformance.
4. EXCLUSIONS. The maintenance services to be provided by Niku under
this Agreement do not include: (a) repair, replacement, correction or adjustment
of any malfunction caused by: (i) Customer's failure to perform normal
preventative maintenance in accordance with the recommendations of Niku; (ii)
modification or repair of the Software by anyone other than Niku; (iii)
accident, catastrophe, abuse, misuse or operator error; or (iv) Customer's
failure to maintain a computing environment in accordance with Niku's
specifications; (b) new versions, options or applications for which Niku
establishes a separate license fee; (c) any expendable items, such as tape
cartridges, magnetic media, and similar items or supplies; or (d) any software
design, development, installation, implementation, or consulting services.
5. CUSTOMER DUTIES. Throughout the term of this Agreement, Customer
will: (a) at Customer's expense, maintain a modem and associated dial-up
telephone equipment as specified by Niku so as to enable Niku to gain remote
access to the computer system(s) on which the Software is installed at
Customer's installation site for diagnostic, error correction, and software
downloading purposes; (b) cooperate with Niku in identifying the cause of any
claimed failure of the Software to substantially conform to or perform
substantially in accordance with Niku's published user documentation, including
without limitation providing Niku with such documentation and other information
concerning any such claimed failure as Niku may reasonably request; and (c)
allow Niku reasonably free remote and on-site access to the Software and
Customer's associated equipment for the purpose of performing services under
this Agreement.
6. SERVICE HOURS. The support described in section 2(c) of this
Agreement will be provided by Niku to Customer by telephone, facsimile or email
during the business hours of 8:00 a. m. to 5:00 US pacific time, Monday through
Friday, excluding public holidays for Niku.
7. PROPRIETARY RIGHTS AND LICENSE. All software furnished to Customer by
Niku under this Agreement, including all corrections, updates, improvements,
modifications and new versions of Software which may be furnished to Customer by
Niku under this Agreement will be
Exhibit C, Page 2
<PAGE> 14
considered software licensed to Customer by Niku in accordance with the terms
and conditions of the license agreement between Customer and Niku (the "License
Agreement"), as applicable.
8. LIMITED WARRANT. Niku warrants that, throughout the term of this
Agreement, the Software will substantially conform to and perform substantially
in accordance with Niku's published user documentation, and Niku will endeavor
to correct any failure of the Licensed Software to so conform or perform,
provided that such failure to so conform or perform is not, in Niku's reasonable
opinion, a result of any modification of or damage to the software or its
operating environment or of Customer's failure to operate the software in the
proper hardware and software environment. ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE, ARE SPECIFICALLY EXCLUDED AND DISCLAIMED. NIKU DOES NOT
WARRANT THAT THE SOFTWARE WILL MEET CUSTOMER'S REQUIREMENTS, THAT THE OPERATION
OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE, OR THAT ALL FAILURES OF THE
SOFTWARE TO SUBSTANTIALLY CONFORM TO OR PERFORM SUBSTANTIALLY IN ACCORDANCE WITH
NIKU'S PUBLISHED USER DOCUMENTATION WILL BE CORRECTED.
9. LIMITATION OF REMEDIES AND DAMAGES.
a. CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR BREACH OF THE FOREGOING
WARRANTY SHALL BE THAT: (A) NIKU WILL ENDEAVOR TO CORRECT WITHIN A REASONABLE
TIME ANY REPORTED FAILURE OF THE SOFTWARE TO SUBSTANTIALLY CONFORM TO OR PERFORM
SUBSTANTIALLY IN ACCORDANCE WITH NIKU'S PUBLISHED USER DOCUMENTATION, OR (B) IN
THE EVENT THAT NIKU SHALL FAIL OR BE UNABLE FOR ANY REASON TO CORRECT ANY
FAILURE OF THE SOFTWARE TO SUBSTANTIALLY CONFORM TO OR PERFORM SUBSTANTIALLY IN
ACCORDANCE WITH NIKU'S PUBLISHED USER DOCUMENTATION, CUSTOMER MAY TERMINATE THIS
AGREEMENT, AND NIKU WILL REFUND TO CUSTOMER THE FULL AMOUNT OF THE MAINTENANCE
FEES ALREADY PAID WITH RESPECT TO SUCH SOFTWARE FOR SERVICE BEYOND THE EFFECTIVE
DATE OF TERMINATION, PRORATED ON A DAILY BASIS.
b. IN NO EVENT SHALL NIKU BE LIABLE TO CUSTOMER FOR INCIDENTAL,
CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, EVEN IF ADVISED OF THE POTENTIAL OF
SUCH DAMAGES. NIKU'S ENTIRE LIABILITY TO CUSTOMER, REGARDLESS OF THE FORM OF
ACTION, SHALL BE LIMITED TO THE FEES PAID BY CUSTOMER TO NIKU PURSUANT TO THIS
AGREEMENT.
10. PRICES, INVOICING AND PAYMENT. In addition to the maintenance fees
to be paid by Customer under this Agreement, Customer will pay (or reimburse
Niku for) all taxes (excluding taxes based on Niku's net income), all freight,
shipping and insurance costs associated with delivery of materials to Customer
under this Agreement and all travel, lodging, meal and other incidental expenses
reasonably incurred by Niku in connection with furnishing
Exhibit C, Page 3
<PAGE> 15
maintenance and support services to Customer under this Agreement. Software
maintenance fees are payable annually in advance. Niku will invoice Customer for
the initial twelve (12) months maintenance fees upon acceptance of the Software,
and Niku will invoice Customer for maintenance fees pertaining to each
succeeding twelve (12) month period at or about the commencement of such
period. Niku will invoice Customer for other charges permitted under this
Agreement at or about the times such charges are incurred; all such invoices
shall be paid by Customer within thirty (30) days of receipt.
11. CHANGE IN MAINTENANCE FEES. Effective upon any twelve (12) month
anniversary of the effective date specified in paragraph 12, Niku may increase
the amount of the maintenance fees relating to the Software; provided, however,
that no such increase shall exceed fifteen percent (15%) of the amount of the
maintenance fees for the twelve (12) month period immediately preceding the
effective date of such increase.
12. TERM AND TERMINATION. This Agreement shall become effective as of
the Effective Date and shall continue in effect for the initial term specified
above and thereafter for successive one (1) year renewal terms until terminated
as provided in this section of the Agreement. Either party may terminate this
Agreement as of the end of its initial term, or as of the end of any renewal
term, by written notice to the other party at least thirty (30) days prior to
the effective date of termination. In the event that Customer's license to use
the Software is terminated by Niku or Customer pursuant to the above described
License Agreement, this Agreement shall also terminate as to such Software and
Niku will refund to Customer the amount of any maintenance fees already paid
with respect to such software for service beyond the effective date of
termination, prorated on a daily basis.
13. MISCELLANEOUS TERMS AND CONDITIONS. This Agreement shall be
construed in accordance with and governed by the laws of the State of
California, without regard to its conflicts of law rules. Niku's failure to
enforce at any time any of the provisions of this Agreement or any right with
respect thereto, shall in no way be construed to be a waiver of such provision
or right, or in any way to affect the validity of this Agreement. This Agreement
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the Customer and Niku. This Agreement hereto shall be modified only
by an instrument in writing signed by the parties. All notices, requests,
consents, and other communications hereunder must be in writing, and will be
deemed to have been properly given when actually received by the party to whom
sent. The provisions of this Agreement are severable, and if any provision is
held invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability will affect only such provision or part thereof
in such jurisdiction, and will not in any manner affect the provision in any
other jurisdiction, or any other provision in this Agreement in any other
jurisdiction. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes all previous
communications, representations, understandings, and agreements, either oral or.
written, between the parties or any official or representative thereof.
Exhibit C, Page 4
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
NIKU CORPORATION [NAME OF CUSTOMER HERE]
By:
--------------------------------- ----------------------------------------
(Signature) (Signature)
- ------------------------------------ ----------------------------------------
(Typed or Printed Name) (Typed or Printed Name)
Title: Title:
------------------------------ ----------------------------------
Exhibit C, Page 5
<PAGE> 17
FIRST ADDENDUM TO SOFTWARE
LICENSE AND SERVICES AGREEMENT
This First Addendum (the "Addendum") to the Software License and
Services Agreement ("Agreement") dated December 22, 1998 by and between Niku
Corporation, a Delaware corporation with offices at 955 Charter Street, Redwood
City, California 94063 ("Niku"), and Sybase, Inc., a Delaware corporation, with
offices at 6475 Christie Ave., Emeryville, California 94608 ("Licensee"), is
made effective March 29, 1999.
1. DEFINITIONS. Except as specifically modified below, the capitalized
terms defined in the Agreement shall have the same meaning when used in
this Addendum.
1.1 "Software" means Niku(TM) for IT Consulting, Version 2.0 and all
prior versions thereof.
2. DELIVERY. Niku will deliver the Software to Licensee as soon as
practicable after execution of this Addendum but no later than twenty
(20) days thereafter.
3. LICENSE FEE. Licensee will make a final payment of the license fees for
the Software (the "License Fee") in the amount of TWO HUNDRED THOUSAND
AND NO/100 DOLLARS ($200,000.00) within thirty (30) days after delivery
by Niku of the Software. This amount is in addition to the initial
License Fee of $150,000 referenced in Exhibit A of the Agreement paid
for a previous version of the Software.
4. WARRANTY. The express warranty clause set forth in Paragraph Seven (7)
of Exhibit A to the Agreement will apply to the Software delivered
pursuant to this Addendum (Version 2.0).
5. APPLICABILITY. Except as specifically modified and supplement by this
Addendum, the Agreement will remain in full force and effect. In
particular, the parties acknowledge their agreement that Niku deliver
the Software and Sybase pay the License Fee, notwithstanding any delay
in entering into a Statement of Work under the Agreement.
NIKU CORPORATION SYBASE, INC.
By: /s/ KEN JOHNSON By: /s/ RICHARD LABARBERA
--------------------------------- -------------------------------------
Name: Ken Johnson Name: Rich N. LaBarbera
Title: Vice President, Sales Title: Sr. Vice President and
Gen. Manager,
Enterprise Solutions Division
<PAGE> 18
SECOND ADDENDUM TO SOFTWARE
LICENSE AND SERVICES AGREEMENT
This Second Addendum (the "Addendum") to the Software License and
Services Agreement dated December 22,1998 (as amended by the First Addendum to
the Software License and Services Agreement dated March 29,1999, the
"Agreement") by and between Niku Corporation, a Delaware corporation with
offices at 305 Main Street, Redwood City, California 94063 ("Niku"), and Sybase,
Inc., a Delaware corporation, with offices at 6475 Christie Ave., Emeryville,
California 94608 ("Licensee") is made effective September 16,1999.
1. DEFINITIONS. Except as specifically modified below, the capitalized
terms defined in the Agreement shall have the same meaning when used in
this Addendum.
1.1 "Software" means Niku(TM) for IT Consulting, Version 3.0 and all
prior versions thereof.
2. DELIVERY. Niku will deliver the Software to Licensee as soon as
practicable after execution of this Addendum but no later than twenty
(20) days thereafter.
3. LICENSE FEE. Licensee will pay Niku FOUR HUNDRED THOUSAND DOLLARS
($400,000) for the Software (the "License Fee") as follows: (a) $200,000
will be paid on a net 30 days basis from October 1, 1999; and (b)
$200,000 will be made on a net 90 days basis from January 1, 2000. This
amount is in addition to any previous license fees referenced in the
Agreement for previous versions of the Software and constitutes the
final license fee payments for the Software under the Agreement.
4. WARRANTY. The express warranty clause set forth in Paragraph Seven (7)
of Exhibit A to the Agreement will apply to the Software delivered
pursuant to this Addendum (Version 3.0).
5. APPLICABILITY. Except as specifically modified and supplement by this
Addendum, the Agreement will remain in full force and effect. In
particular, the parties acknowledge their agreement that Niku deliver
the Software and Sybase pay the License Fee, notwithstanding any delay
in entering into a Statement of Work under the Agreement.
Niku Corporation Sybase, Inc.
By: /S/ KEN JOHNSON By: /s/ RICHARD LABARBERA
--------------------------------- -------------------------------------
Name: Ken Johnson Name: Rich N. LaBarbera
Title: Sr. Vice President, Sales Title: Sr. Vice President and Gen.
Manager, Enterprise Solutions
Division
<PAGE> 1
EXHIBIT 10.12
SOFTWARE LICENSE AGREEMENT
THIS SOFTWARE LICENSE AGREEMENT, is made between Sybase, Inc., a
Delaware corporation, and its majority owned direct and indirect subsidiaries
(collectively, "Sybase"), with offices at 6475 Christie Avenue, Emeryville, CA
94608; and Niku Corporation ("Customer") with offices at 955 Charter Street,
Redwood City, CA 94063.
1. DEFINITIONS
"Agreement" - this Software License Agreement, the Exhibit A and any other
addenda attached hereto, each supplemental Exhibit A signed by both parties, and
each Purchase Order. "Documentation" - installation instructions and user
manuals. "MACHINE" - a hardware system with any number of processors running a
single copy of the operating system on which the Sybase software is running;
except in the case of SYBASE MPP(TM), in which case a Machine is a cluster of
Machines linked together through a high speed interconnect. "NAMED USER" - a
specific named person licensed to Use a Program. "OPERATING SYSTEM SOFTWARE" -
the operating system software listed in the Exhibit A or Purchase Order
applicable to the relevant copy of the Program. "PRICE LIST" - Sybase's then
current price list for the country in which the Program is to be Used. "Primary
Copy" - a licensed copy of the Program provided by Sybase, which may have been
provided initially as a trial copy. "PROGRAM" - the object code version of the
software product(s) listed in the Exhibit A or Purchase Order, together with all
data files included by Sybase. "PURCHASE ORDER" - a purchase order or other
purchase authorizing document issued by Customer for Sybase products and/or
services and accepted by Sybase, as confirmed by a Sybase invoice. "SEAT"
specific identifiable unique accessor of information such as a terminal, PC,
single user workstation or real time device. "SECONDARY COPY" - a licensed copy
of the Program reproduced by Customer from the Primary Copy. "USE" to lead,
utilize, or store the Program.
2. LICENSE
2.1 Sybase grants to Customer, solely for customer's own internal
business purposes, a non-exclusive, nontransferable, perpetual, fully paid
license to Use each Primary Copy (and made and Use each Secondary Copy) on one
Machine running the Operating System Software at the site specified on the
Exhibit A or Purchase Order. If such license is designated as a NETWORKED
LICENSE, each copy of the Program may be accessed by any and all Seats or Named
Users that are licensed to access such Program subject to the following
restrictions: (i) Workplace Seats and Workplace Named Users licensed to access a
particular Program may only access the workplace level of such Program, and (ii)
Enterprise Seats and Enterprise Named Users licensed to access a particular
Program may access the Workplace and Enterprise levels of such Program.
Accordingly, Seats and Named Users in a Networked Licensed are not tied to a
particular copy of the Program. Use of software or hardware which reduces the
number of Seats directly accessing the Programs (sometime called "multiplexing"
or "pooling") does not reduce the number of Seats required to be licensed, but
rather the number of licensed Seats must be equal to the number of distinct
inputs to the multiplexing software or hardware. If the license is designated as
a STANDALONE NAMED USER LICENSE, the Program may be Used only by one
<PAGE> 2
Named User, but such Named User may copy and Use such Program on more than one
Machine. If the license is designated as a STANDALONE SEAT LICENSE, the copy of
the Program may only be accessed by he Machine on which it resides. A license
for a copy of a Program will allow Customer to Use the indicated version or
instead any earlier version for which Customer already has a Primary Copy. If
Customer's Support plan entitles Customer to updates (i.e., new version of the
Program), the license shall also extend to each new version provided. If a
Run-Time Program is licensed, the Program may only be Used to run Customer's
applications but cannot be Used to (i) develop or modify applications, or (ii)
perform other programming tasks.
2.2 Customer may make a reasonable number of copies of each Program
exclusively for inactive back-up or archival purposes.
2.3 The Program and all copies (in whole or part) shall remain the
exclusive property of Sybase and its licensors. Customer shall not modify,
reverse engineer, reverse assembly or reverse compile any Program or part
thereof, except Customer may modify data file portions of the Program as
described in the user manuals. Customer shall not Use the Program in a service
bureau or time-sharing arrangement nor distribute, rent, lease or transfer the
Program to any third party.
2.4 Upon Sybase's receipt of Customer's Purchase Order, Sybase shall
deliver the Primary Copy and one set of Documentation to Customer. Customer, at
its own expense, shall be responsible for installing the Program and all new
versions thereof.
2.5 For its own use, Customer may make copies of the Documentation
delivered by Sybase or nay purchase copies at the prices in the Price List.
2.6 No more often than annually, Sybase may, upon reasonable notice and
at its expense, direct an accounting firm acceptable to Customer to audit during
business hours the number of copies of the Program in Use and the number of
Seats and/or Named Users accessing the Programs. The auditors shall protect the
confidentiality of Customer's information and abide by Customer's reasonable
security regulations. If the use of the Program is found to be greater than that
contracted for, Customer will be invoiced for the additional copies, Seats,
Named Users or processors at the prices in the Price List.
2.7 Subject to acceptance by Sybase, consulting or educational services
provided to Customer will be subject to the terms of this Agreement unless
otherwise agreed in writing. Educational services are provided at Sybase
designated facilities.
3. PAYMENT
3.1 Payment is due to Sybase or its assigns within 30 calendar days
after the invoice date. Customer will pay all applicable shipping charges and
sales, use, personal property or similar taxes, tariffs or governmental charges,
exclusive of Sybase's income and corporate franchise taxes. Customer will
reimburse Sybase for all reasonable costs incurred (including reasonable
attorneys' fees) in collecting past due amounts.
3.2 Except with respect to specific Programs designated by Sybase,
Customer must purchase a technical support plan ("Support") for the first year
for all Programs licensed.
2
<PAGE> 3
Support commences on the date the Primary Copy is shipped to Customer or on the
date invoiced for Secondary Copies ("the Support Date"). Fees for annual Support
("Support Fees") shall be paid in advance. Unless Support has been purchased for
such copies or new versions have been separately licensed, no new versions of
the Program will be provided to Customer for the Primary Copy and no new
versions may be copied by Customer to update Secondary Copies. Support may be
extended for one year periods on the anniversary of each Support Date at the
Support Fees shown in the Price List for as long as Sybase offers Support.
Customer may reinstate lapsed support for any then currently supported Program
by paying all Support Fees in arrears and all time and travel expenses incurred
in updating the Program to the current version.
4. SUPPORT AND TECHNICAL SERVICES
Provided Customer has paid applicable Support Fees, Sybase shall support the
Program as follows. Customer shall designate as technical support contacts that
number of Customer employees as are permitted under the level of Support
purchased. Each contact may telephone Sybase for problem resolution during
Sybase's published support hours corresponding to the level of Support Fees
paid. Upon notice from a contact of a Program problem (which problem can be
reproduced at a Sybase support facility or via remote access to Customer's
facility), Sybase shall use reasonable efforts to correct or circumvent the
problem. Sybase reserves the right to make Program corrections only to the most
current generally available version. For 12 months after the introduction of a
new generally available enhancement release, Sybase will use reasonable efforts
to support the previously released version of such Program. A Program may be
transferred to another site or operating system software only upon written
notice to Sybase and subject to Sybase's transfer policies and fees then in
effect. A Program may be transferred without cost or notice from one Machine to
another at the same site if the second Machine runs the same Operation System
Software as the first Machine. Sybase shall have no obligation to support the
program (i) for Use on any computer system running other than the Operating
System Software, or (ii) if Customer modifies the Program in breach of this
Agreement. Only those versions of different cooperating Programs specified in
the Documentation will execute correctly together on a CPU or in a network.
Sybase has no obligation to modify any version of the Program to run with new
versions of the Operating Systems Software. If Customer purchases Support for
any Program in Use on a Machine or in a network, it must purchase the same level
of Support for all copies of such Program on such Machine or network.
5. CONFIDENTIALITY
5.1 "Confidential Information," which includes the Program (including
methods or concepts utilized therein) and all information identified by the
disclosing party as proprietary or confidential, shall remain the sole property
of the disclosing party and shall not be disclosed to any third party without
the express written consent of the disclosing party (except solely for
Customer's internal business needs, to consultants who are bound by a written
agreement with Customer to maintain the confidentiality of such Confidential
Information in a manner consistent with this Agreement). Except with respect to
the Program, items will not be deemed Confidential Information if (i) available
to the public other than by a breach of an agreement with Sybase; (ii)
rightfully received from a third party not in breach of any obligation of
confidentiality; (iii) independently developed by one party without access to
the Confidential Information of the other; (iv) known to the recipient at the
time of disclosure; or (v) produced in
3
<PAGE> 4
compliance with applicable law or a court order, provided the other party is
given reasonable notice of such law or order. A copyright notice on a Program
does not, by itself, constitute evidence of publication or public disclosure.
Customer shall not release the results of any benchmark of the Programs to any
third party without the prior written approval of Sybase for each such release.
6. INFRINGEMENT INDEMNITY
Sybase at its own expense shall (i) defend, or at its option settle, any claim
or suit against customer on the basis of infringement of any trademark,
copyright, trade secret or United States patent ("Intellectual Property Rights")
by the Program or Use thereof, and (ii) pay any final judgment entered against
Customer on such issue or any settlement thereof, provided (a) Sybase has sole
control of the defense and/or settlement; (b) Customer notifies Sybase promptly
in writing of each such claim or suit and gives Sybase all information known to
Customer relating thereto, and (c) Customer cooperates with Sybase in the
settlement and/or defense. (Customer shall be reimbursed for all reasonable
out-of-pocket expenses incurred in providing any cooperation requested by
Sybase.) If all or any part of the Program is, or in the opinion of Sybase may
become, the subject of any claim or suit for infringement of any Intellectual
Property Rights, Sybase may, and in the event of any adjudication that the
Program or any part thereof does infringe or if the Use of the Program or any
part thereof is enjoined, Sybase shall, at its expense do one of the following
things: (1) procure for Customer the right to Use the Program or the affected
part thereof; (2) replace the Program or affected part with other suitable
programs; (3) modify the Program or affected part to make it noninfringing; or
(4) if none of the foregoing remedies are commercially feasible, refund the
aggregate payments made by Customer for the Program or the affected part
thereof. Sybase shall have no obligations under this Section 6 to the extent a
claim is based upon (A) use of any version of the Program other than a current,
unaltered version, if infringement would have been avoided by a current,
unaltered version; or (B) combination, operation or use of the Program with
software and/or hardware not delivered by Sybase if such infringement could have
been avoided by combination, operation or use of the Program with other software
and/or hardware. This Section 6 states the entire liability of Sybase and the
exclusive remedy of Customer with respect to any alleged infringement by the
Program or any part thereof.
7. PROPRIETARY NOTICES
The Programs and related documentation are proprietary and protected by
copyright and/or trade secret law. All proprietary notices incorporated in or
fixed to a Program or documentation shall be duplicated by Customer on all
copies or extracts thereof and shall not be altered, removed or obliterated.
8. WARRANTY/LIMITATIONS ON LIABILITY
8.1 For one year form the date of shipment of a version of the Program
to Customer, Sybase warrants that the version when property Used will operate in
all material respects in conformity with the Documentation for such version, and
the Program media shall be free of defects. Customer's sole remedy in the even
of nonconformity of a Program at Sybase's option
4
<PAGE> 5
will be replacement of the defective Programs or a refund of the license fees
paid for the affected Program.
8.2 NO OTHER WARRANTY, EXPRESS OR IMPLIED, IS MADE REGARDING THE
PROGRAM, GOODS OR SERVICES TO BE SUPPLIED HEREUNDER, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. NO WARRANTY IS MADE REGARDING THE RESULTS OF ANY PROGRAM OR SERVICES OR
THAT ALL ERRORS IN THE PROGRAM WILL BE CORRECTED, OR THAT THE PROGRAM'S
FUNCTIONALITY WILL MEET CUSTOMER'S REQUIREMENTS. CUSTOMER ACKNOWLEDGES ITS
RESPONSIBILITY TO (I) REGULARLY BACK UP DATA MAINTAINED ON ANY COMPUTER SYSTEM
USING THE PROGRAM, AND (II) ADEQUATELY TEST PRIOR TO DEPLOYMENT EACH PRODUCTION
VERSION OF THE PROGRAM IN A CONFIGURATION WHICH REASONABLY SIMULATES CUSTOMER'S
PLANNED PRODUCTION ENVIRONMENT.
8.3 THE TOTAL LIABILITY, IF ANY, OF SYBASE AND ITS SUBSIDIARIES,
INCLUDING BUT NOT LIMITED TO LIABILITY ARISING OUT OF CONTRACT, TORT, BREACH OR
WARRANTY, CLAIMS BY THIRD PARTIES OR OTHERWISE, SHALL NOT IN ANY EVENT EXCEED
THE LICENSE FEES PAID BY CUSTOMER FOR THE PROGRAM(S) WHICH GIVE RISE TO THE
CLAIM. SYBASE'S LICENSORS SHALL NOT BE LIABLE FOR DIRECT DAMAGE HEREUNDER, AND
NEITHER SYBASE NOR ANY OF ITS SUBSIDIARIES OR LICENSORS SHALL BE LIABLE FOR LOSS
OF PROFITS, LOSS OR INACCURACY OF DATA, OR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IS SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
9. TERMINATION
Sybase may terminate a license if Customer has not paid the license fees
therefore within 15 calendar days after written notice that payment is past due.
Either party may terminate this Agreement upon any other material breach of this
Agreement by the other party, which if remediable, has not been corrected within
60 calendar days after written notice. On termination, all licenses granted
hereunder shall terminate, Customer shall cease Using the Program and
Documentation (whether or not modified or merged into other materials) and
Customer shall certify in writing to Sybase that all copies (in any form or
media) have been destroyed or returned to Sybase. Termination shall not relieve
Customer from paying all fees accruing prior to termination and shall not limit
either party form pursuing any other available remedies. Sections 5, 6, 8.2,
8.3, 9 and 10.3 shall survive termination of this Agreement.
10. GENERAL
10.1 Neither this Agreement nor any license hereunder may be assigned
(whether by operation of law or otherwise) by Customer without Sybase's prior
written consent, not to be unreasonably withheld.
5
<PAGE> 6
10.2 This Agreement is the entire agreement of the parties and
supersedes all previous and contemporaneous communications, representations, or
agreements regarding the subject matter hereof. A facsimile of a signed copy of
this Agreement received from Customer may be relied upon as an original and if
there is any inconsistency between such facsimile and a subsequently received
hard copy, the facsimile shall prevail. This Agreement may be modified only in a
writing signed by both parties. Purchase Orders shall be binding as to: the
products and services ordered, fees therefore and the site for installation or
performance of services as set forth on the face side of or a special attachment
to the order. Other terms and preprinted terms on or attached to any Purchase
Order shall be void.
10.3 Customer shall not transfer, directly or indirectly, any restricted
Programs or technical data received from Sybase or its subsidiaries, or the
direct product of such data, to any destination subject to export restrictions
under U.S. law, unless prior written authorization is obtained from the
appropriate U.S. agency.
10.4 No delay or default in performance of any obligation by either
party, excepting all obligations to make payments, shall constitute a breach of
this Agreement to the extent caused by force majeure.
10.5 All notices relating to this Agreement shall be in writing and
delivered by overnight delivery service or first class prepaid mail with return
receipt requested, to the address of such party specified above (in the case of
Sybase to the attention of its General Counsel) or the address specified by such
party in accordance with this Section.
10.6 If this license is acquired under a U.S. Government contract, Use,
duplication or disclosure by the U.S. Government is subject to restrictions set
forth in FAR subparagraphs 52.227-19(a)-(d) for civilian agency contract and
DFARS 252.227-7013(c)(ii) for Department of Defense contracts. Sybase reserves
all unpublished rights under the United States copyright laws.
10.7 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA EXCLUDING ITS CONFLICT OF LAWS RULES. IT SHALL NOT BE
GOVERNED BY THE UNITED NATIONS CONVENTION ON THE INTERNATIONAL SALE OF GOODS,
THE APPLICATION OF WHICH IS EXPRESSLY EXCLUDED. CUSTOMER SUBMITS TO THE
JURISDICTION OF THE STATE AND FEDERAL COURTS FOR THE COUNTY OF ALAMEDA WITHIN
THE STATE OF CALIFORNIA. If any provision of this Agreement is held to be
unenforceable, the parties shall substitute for the affected provision an
enforceable provision which approximates the intent and economic effect of the
affected provision. The failure or delay by either party to enforce any term of
this Agreement shall not be deemed a waiver of such term.
6
<PAGE> 7
The parties have caused this Agreement to be executed by their respective
authorized representatives.
SYBASE, INC.:
By:
------------------------------------
(Authorized Signature)
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
CUSTOMER:
By:
------------------------------------
(Authorized Signature)
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
7
<PAGE> 8
To SYBASE Software License Agreement
Prepared for: Niku
-------------------------------------------------
Contact: Ken Johnson
-------------------------------------------------
Site Address: 955 Charter Street
-------------------------------------------------
Redwood City, CA 94063
-------------------------------------------------
-------------------------------------------------
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Catalog License Unit
Number Program Description Type Platform/OS P/S Count Media
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
94160 Internet Access License - CPU Fee IC Solaris P 4
- -------------------------------------------------------------------------------------------------------------
13839 Adaptive Server Enterprise - Server SR Solaris P 2
- -------------------------------------------------------------------------------------------------------------
10500 JConnect SR Solaris P 2
- -------------------------------------------------------------------------------------------------------------
94283 Internet Access License - CPU Fee IC Solaris P 2
- -------------------------------------------------------------------------------------------------------------
28216 Adaptive Server Enterprise - Server SR Solaris P 1
- -------------------------------------------------------------------------------------------------------------
13839 Adaptive Server Enterprise - Seats SS Solaris S 50
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Catalog Price Net Unit Extended
Number Program Description per Unit Discount Price Price Support Fees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
94160 Internet Access License - CPU Fee 25,000 20% $20,000 $80,000 $19,200
- ------------------------------------------------------------------------------------------------------------
13839 Adaptive Server Enterprise - Server 3,995 20% $ 3,196 $ 6,392 $ 1,536
- ------------------------------------------------------------------------------------------------------------
10500 JConnect 1,995 20% $ 1,596 $ 3,192 $ 768
- ------------------------------------------------------------------------------------------------------------
94283 Internet Access License - CPU Fee 12,700 20% $10,160 $20,320 $ 4,884
- ------------------------------------------------------------------------------------------------------------
28216 Adaptive Server Enterprise - Server 995 20% $ 796 $ 796 $ 456
- ------------------------------------------------------------------------------------------------------------
13839 Adaptive Server Enterprise - Seats 795 20% $ 636 $31,800 $ 7,800
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
License Model: Networked
--------------------
Support Program: Extended
--------------------
Payment Terms: Net 30 days
--------------------
FOB: Destination
--------------------
</TABLE>
<TABLE>
<S> <C>
License Fees: $142,500
--------
Support Fees: $ 34,644
Education Fees:
Consulting Fees:
--------
Total: $177,144
--------
less other discount:
--------
Grand Total: $177,144
--------
Currency: USD
</TABLE>
Media and documentation shipped for Primary Copies only.
Secondary Copies are a right to create a copy of the Program from the Primary
Copy.
E/W/O = E is Enterprise, W is Workplace, and O is Other P/S = P is Primary Copy
and S is Secondary Copy
License Types: Server (SR), Seat (ST), Concurrent User (CU), Standalone Seat
(SS), Incremental CPU (IC).
The above Sybase Programs are licensed subject to the terms of the Software
License Agreement between the parties referenced above or if no such agreement
exists the Sybase license agreement included with the Program package. Third
party products supplied with a license from the supplier are provided subject to
the terms of such supplier license. Any support or warranty service for such
third party products is provided by the supplier. Any additional Sybase products
not listed above and supplied to the Customer without additional charges are
subject to the applicable Sybase license agreement included with such product.
PURCHASE ORDER INFORMATION
By signing this Exhibit A, customer agrees to be bound by this Exhibit A and the
referenced license agreement and customer authorized Sybase to invoice customer,
under net 30 day terms from the date of the Exhibit A, the amounts for the
Programs and services listed above, plus applicable tax, VAT and delivery
charges.
Tax Exempt No.
----------------------------------------
P.O. Number:
----------------------------------------
(if available)
SYBASE, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
Billing Address: Niku Corporation
----------------------------------------
955 Charter Street
----------------------------------------
Redwood City, CA 94063
----------------------------------------
----------------------------------------
Name of Customer: Niku
----------------------------------------
Authorized Customer Signature: /s/ KENNETH JOHNSON
----------------------------------------
Customer Name/Title: Kenneth L. Johnson - VP Sales
----------------------------------------
Date Signed: 3/29/99
----------------------------------------
8
<PAGE> 9
INTERNET ACCESS LICENSE ADDENDUM
(EXTERNAL USE VIA THE INTERNET)
This INTERNET ACCESS LICENSE ADDENDUM is made as of ________________,
1999___, and amends that certain Software License Agreement dated
______________, 19__ (the "Agreement") between Sybase, Inc. or Sybase Canada
Limited ("Sybase") and ______________________________________________________
("Customer"). Capitalized terms not otherwise defined in this Addendum shall
have the same meanings set forth in the Agreement.
1. Each copy of a Program licensed by Customer for which a
corresponding Internet Access License has been purchased (together, the
"Internet Products") may be accessed by "External Internet Seats" as outlined in
Section 2 below, provided that Customer has paid the applicable CPU fees for
each processor on the Workplace, Enterprise or Super Enterprise level Machine on
which such Internet Products are used.
2. Customer may use the Internet Products in connection with an
Internet website, and may allow an unlimited number of External Internet Seats
to indirectly access such Internet Products. "External Internet Seats" shall
mean Seats which access the Internet Products via the Internet; provided that
the person at such Seat is not acting in the capacity of an employee, agent or
independent contractor of Customer. External Internet Seats may query the
Internet Products database and update such database to the extent allowed by
Customer's application, but may not use the Internet Products to develop or
modify applications or perform other programming tasks. The limited use
authorized above shall not be deemed to violate the restrictions set forth in
the last sentence of Section 2.3 of the Agreement.
3. Nothing in this Addendum authorizes Customer to use the Internet
Products in connection with a website hosted by Customer on behalf of third
parties. In addition, this Addendum does not cover intranet usage or other
internal usage and Customer must acquire the necessary Seat licenses for all
internal usage of the Internet Products in accordance with the Agreement.
Except as amended above, the Agreement shall remain in full force and effect.
SYBASE, INC. CUSTOMER:
(or Sybase Canada Limited,
if applicable)
By: By:
-------------------------------- -------------------------------------
Name: Name:
------------------------------ -----------------------------------
Title: Title:
----------------------------- ----------------------------------
9
<PAGE> 1
EXHIBIT 16.01
February 22, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Gentlemen:
We have read the section "Change in Accountants" in Niku Corporation's Form S-1,
as amended, dated February 22, 2000 and are in agreement with the statements
contained in the first and second sentences of the first paragraph and the
second paragraph under the caption "Change in Accountants" on page 77 therein.
We have no basis to agree or disagree with other statements of the registrant
contained therein.
/s/ Ernst & Young LLP
<PAGE> 1
EXHIBIT 23.02
CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS
The Board of Directors
Niku Corporation:
We consent to the use of our report included herein dated December 17, 1999,
except as to Note 9(d), which is as of January 31, 2000, and Note 9(e), which is
as of February 21, 2000,relating to the consolidated balance sheets of Niku
Corporation and subsidiaries as of January 31, 1999, and October 31, 1999, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year ended January 31, 1999, and the nine
months ended October 31, 1999. We also consent to the use of our firm under the
headings "Selected Consolidated Financial Data" and "Experts."
/s/ KPMG LLP
Mountain View, California
February 22, 2000
<PAGE> 1
EXHIBIT 23.03
CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS
The Board of Directors
Proamics Corporation:
We consent to the use of our report included herein dated December 20, 1999,
relating to the consolidated balance sheets of Proamics Corporation and
subsidiaries as of December 31, 1998 and September 30, 1999, and the related
consolidated statements of operations, shareholders' deficit and cash flows for
each of the years in the two-year period ended December 31, 1998, and for the
nine months ended September 30, 1999. We also consent to the reference of our
firm under the heading "Experts."
/s/ KPMG LLP
- ---------------------------------
Chicago, Illinois
February 22, 2000
<PAGE> 1
EXHIBIT 23.04
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors
Legal Anywhere, Inc:
We consent to the use of our report included herein dated January 15, 2000,
except as to Note 11, which is as of January 31, 2000, relating to the balance
sheets of Legal Anywhere, Inc. (formerly Legal Anywhere LLC) as of December 31,
1998 and 1999, and the related statements of operations, stockholders' and
members' equity (deficit), and cash flows for each of the years then ended. We
also consent to the reference of our firm under the heading "Experts" in the
registration statement.
/s/ KPMG LLP
Portland, Oregon
February 22, 2000
